What Kinds of Inequality Should We Worry About?

For Project Syndicate http://www.projectsyndicate.org/. What kinds of inequality and how much we should worry about it depends on the counterfactual:

How much should we worry about inequality--on the global level, on the societal level, on the personal level? Answering that question requires that we first answer another question: "Compared to what?" What is the counterfactual, what is the alternative situation against which we are going to judge the degree of inequality that we see? Florida is a much more materially unequal society than Cuba. But the right way to look at the situation--if Florida and Cuba are our alternatives--is not to say that Florida has too much inequality, but that Cuba has much much too much poverty.

On the global level, it is hard for me to make the argument that inequality as one of the world's major political-economic problems. It is hard for me at least to envision changes in economic policies or in political arrangements over the past fifty years which would have transferred any significant portion of the wealth of today's rich nations of the global North to today's poor nations of the global South. I can easily envision changes that would have impoverished nations now in the rich North: Communist victories in the post-World War II elections in Italy and France would have done the job for those countries. I can easily envision changes that would have enriched nations now in the poorer South: the promotion of Deng Xiaoping to the post of China's paramount leader in 1956 rather than 1976 would certainly have done the job for China. But alternatives that would have made the South richer at the price of reducing the wealth of the North? I find those much harder to imagine, without a wholesale revolution in human psychology

On the personal level, it is also hard for me at least to make the argument that a great deal of political-economic worry should be spent on the problem that some people are richer than others. Some have worked harder; some have applied their intelligence more skillfully; some have been better people; some have been worse people; many more have just been lucky enough to be in the right place at the right time. But are there alternative political-economic arrangements that could make individuals' relative wealth closely correspond to their relative moral or other merit? I don't see what they might be. The addressable problems are those of poverty and social insurance, of safety net, not of inequality.

But on the level of individual societies, on the level of nations, I believe that inequality does loom as a serious political-economic problem. In the United States, the average earnings premium received by those with four-year college degrees over those with no college has gone from 30% to 90% over the past three decades. This is a matter of supply and demand: the skill requirements of the American economy have outstripped the educational system's ability to educate and train, skills acquired through formal education have become more relatively scarce as a factor of production, the education earnings premium has risen, and the income and wealth distribution has pulled apart. Ceci Rouse and Orley Ashenfelter of Princeton University report that they find no signs that those who receive little education do so because education does not pay off for them: if anything, the returns to an extra year of schooling appear greater for those who get little education than for those who get a lot. Odds are that a greater effort to raise the average level of education in America would have both made the country richer and produced a much more even distribution of income and wealth by making educated workers more abundant and less-skilled workers harder to find and thus worth more on the market.

Again in the United States, corporate CEOs and their peers and near-peers make ten times as much today relative to the patterns of a generation ago. They do not do this because a CEO's work effort level and negotiation and management skills are in relative terms ten times as valuable to a corporation today as they were to a corporation of a generation ago. They have risen because of a reduction in the ability of other corporate stakeholders to constrain the freedom of top managers and high financiers to direct the value added in their direction.

Similar patterns are found in other countries across the globe. Within each country, odds are that the increase in inequality that we have seen in the past generation is predominantly a result of failures of social investment and changes in regulations and expectations, and has not been accompanied by any acceleration in the overall rate of economic growth. For the most part, it looks like these changes in economy and society have not resulted in more wealth but in an upward redistribution of wealth: a successful right-wing class war. The easiest counterfactuals to imagine are those in which greater public investments in education and greater moral, legal, and cultural constraints on the freedom of action of those at the top produce an equal or greater amount of total wealth and income with a lower degree of inequality.

This kind of inequality should be a source of concern. Bill Gates, Paul Allen, Steve Ballmer, and the other hundred-millionaires of Microsoft are brilliant, hard-working, entrepreneurial, and justly wealthy. But only the first 5% of their wealth can have any justification as part of an economic reward system to enourage entrepreneurship and enterprise. And the last 95% of their wealth? It would create much more happiness and opportunity if divided evenly among the citizens of the United States or the world than if they were to consume any portion of it.

Moreover, an unequal society cannot help but be an unjust society. The very first thing that any society's wealthy try to buy with their wealth is a head start for their children. And the wealthier they are, the bigger the head start. Any society that justifies itself on a hope of equality of opportunity cannot help but be undermined by too great a degree of inequality of result.

In the United States, the problem of inequality has two dimensions: insufficient effort to educate, and insufficient control by other stakeholders' of the ability of the top 50,000 or so earners' discretion. In other countries the problem of inequality has these two but also other dimensions as well. In all it is something we should worry about, because we can see in our minds' eyes alternatives that would make for better, healthier, happier, and equally well-off societies.

Comments

[Sam Fish]

What will Paris Hilton's children be like?

The British Aristocracy discovered this, eventually you will have a son who will gamble the estate away or mis-manage it into the ground. You can create a trust which merely moves the problem to trusting those who run the trust to make the right decisions. Preserving wealth across the generations is a hard problem, which is not completely solved.

[Martin]

Brad

Saw your thoughtful article linked over at Tyler Cowen. For a laugh, if you have a moment, you should read the comments to his post. Makes me think of a chorus of Wicked Witches of the West in their death scene. A glimmer of hope perhaps that we may well be at an societal inflection point.

You should mention to Tyler he might seek out a less philosophically rigid readership. This crowd does him no justice. But then maybe these were just Alex's readers.

[Gwailo]

"(T)he freedom of top managers and high financiers to direct the value added in their direction."

What a polite way to say "rip off".

[Gordon]

Great post Brad. Spot on.

Though I would say that the big rise in marginal tax rates that are the inevitable policy recommendation that flows from this argument shouldn't be limited to the top 50,000. I think a wider reach is both called for and necessary, probably to the top 500k or 1M.

[save_the_rustbelt]

Reminds me of a quote from an IBM employee. I don't have the exact quote but this is a good paraphrase.

"My former pension built Louis Gertners (sp?) seaside mansion."

The current executives running Dana Corp, who ran Dana Corp into bankrupcy, who have ruined the employees pensions, want bonuses for staying around and finishing the bankruptcy.

At least at Delphi they changed hacks when they went into bankruptcy.

[Rebecca Allen, PhD, ARNP]

You should also add that there is a great deal of historical and cross-cultural evidence that indicates that grossly unequal societies are often unstable, with high crime rates. Latin America is an excellent current example. It's a mystery to me why so many people in this country want to turn us into an Anglo Brazil. Societies in which people believe they will prosper if they work hard and play by the rules tend to be much calmer and pleasanter places to live than ones where the people believe (accurately) that the deck is stacked against them from birth.

[Gaurav Monga (LSE/Columbia)]

Very Interesting comment by Professor Delong.

There are a couple of things that come to my mind. Inequality can be seen in the inter-country context, than Sala-i-Martin argues that inter-country inequality has actually fallen in the world in 1995 in a famous paper in AER. But, many have challenged this view, in particular Stiglitz, who likes to point out that the method used by Sala-i-Martin, if changed can severely change the end-result. He is highly critical of this point.

For an individual who lives in Austria, and lives in London and New York with a background from Northern India - looking at inequality has surprisingly very close to my heart.

Phillip van Parjis has proposed "a basic income" for all to reduce the wage gap at the low end of the US labour Market. Emma Rothschild supports this view, but there is exteme opposition from Professor Phelps, who argues that this is not politically feasable, since it is a drain on tax revenue.

I propose that this could be changed by diverting money from Alaskan Oil or similar natural resource and use the proceeds to pay for this "basic income." Hence, this would solve any opposition from using tax money.

Ackerman and Altstott in "the Stakeholder Society" call for giving College education grants to help bridge in the inequality gap from the US.

Professor Edmund Phelps in Chapter 9 in "Rewarding Work" in true Rawlsian justice calls for a subsidy by the Govt. to raise the minimum wage and reduce the inequality gap. For instance, with a minimum wage of 5$, the US Govt. offers a subsidy to all corporations of 6$ to raise the minimum wage to 11$. Many corporations will at first scramble to get new employees and then eventually there will be a drop in supply eventually pulling the minimum wage to 11$ as the market clears.

Lisa M Lynch (Economic Policy Review, Vol 1 1995) believes that re-training could be the answer in reducing inequality in the US.

I believe investment in human capital will help bridge this gap of inequality - Friedman's voucher system with some modifications could be the way ahead?

We must also realize that in other countries such as the EU have implemented the EU structural policies to help failing regions to catch up to the core of the EU. In the case of India and China, intra-state poverty that is primarily a urban-rural divide is an increasing conundrum for most developing countries.

Future of inequality in the inter-country context would be between the developed world/globalizers(BRICS)/developing countries. We need for research and a policy perspective that takes a most holistic approach than current mulitnationals are taking at the moment.

[dale]

Well said Brad. I didn't realize the extent of your redistributionist beliefs.

Also, take a look at this interesting article on the political costs of inequality in the New Republic Onlinehttp://www.tnr.com/doc.mhtml?i=w070129&s=plumer013007

"In politics, this all matters a great deal. Larry Bartels of Princeton has recently studied the voting record of the Senate between 1989 and 1994--a time, note, when Democrats controlled Congress. He found that senators were very responsive to the preferences of the upper third of the income spectrum, somewhat less attentive to the middle third, and completely dismissive of the policy preferences of the poorest third. In one striking example, Bartels discovered that senators were likely to vote for a minimum wage increase only when their wealthier constituents favored it--the views of those directly affected by the hike had "no discernible impact."

Nor is this pattern limited to domestic policy. Lawrence Jacobs of the University of Minnesota and Benjamin Page of Northwestern have found that the foreign policy views of the executive and legislative branches are primarily influenced by business leaders, policy experts--whose think tanks are often funded by businesses--and, to a lesser extent, organized labor. Jacobs and Page found that the views of the broader public have essentially zero impact on the government when it comes to tariffs, treaties, diplomacy, or military actions."

[Scott Martens]

I would argue that within the European Union international wealth inequality is a serious problem for the same reason that it's a problem within the United States. There's a real wealth inequality between me and my Polish housecleaner, and given the kinds of employment opportunities available across EU borders, this does translate into a real inequality of opportunity. There's a very bright Romanian woman here who was in my last Dutch class who lives in quite profound poverty by local standards in order to enjoy access to a Belgian university. I doubt most Romanians have the skills or money even to do as she is doing. I don't see that their situation is really different from a minority or rural poor American who can't overcome the barriers to attending a top-tier American university.

But on the whole, I would agree with you. This is why I think that export-driven economic development in the underdeveloped world is probably going to be less effective than trying to build up the local economy to meet local needs. A relatively poor country need not be an unjust country, but a country in which foreign revenue pours into a few hands, and in which access to foreign education is restricted to those same few, is a country that will probably not try to become very just.

Still, it seems to me that your argument entails not merely making more education available to the American public, but also doing away with elite schools. A year at Berkeley pays off a lot better than a year at CSU Hayward, at it's a lot easier to get into Berkeley if you've had well-to-do parents who've bought you a good education - either at private schools or through property taxes in nice neighbourhoods. A number of countries mandate that all publicly supported universities take all or nearly all qualified students - and the qualification is often simply completion of secondary school.

Alternately, if more education has a greater pay-off for those with little education than those with greater education - a claim which strikes me as true, since I suspect my current doctoral program will probably damage my lifetime earnings dramatically - then why should the state subsidize elite education far more heavily than non-elite education? I don't have figures on hand, but I'm pretty sure that the public cost of a year at Berkeley has to be higher than a year at Hayward, and is unquestionably higher than a year at California's junior colleges.

I guess I'm trying to find out if you're willing to accept what seems to me to be the corollary of your argument: The kinds of solutions your argument entails do not just mean higher taxes on your marginal income. I realize that the last dollar you earn has lower marginal value for you than for someone who makes half as much money and that you're prepared to see that last dollar taxed more heavily for the benefit of living in a happier and more secure society. But you enjoy a fairly elite social status apart from your income. Are you willing to lose some of the benefits of that status for yourself and your children? I imagine that you expect your children will be able to attend universities as elite as your own and enjoy the same kind of access to education you yourself enjoyed. Are you willing to see them lose that benefit? Would you be willing to see your income aligned with junior college teachers, or be forced to teach over at Vista Community College because there's a higher social return lecturing 40 freshmen from Oakland in Econ 101 than advising PhD candidates in Berkeley?

[Gaurav Monga (LSE/Columbia)]

An interesting note by the Economist on inequality 18th Jan.

http://www.economist.com/opinion/displaystory.cfm?story_id=8554819

[sa]

hi brad,
i would be interested in your response to scott marlens above who raises an interesting point.

[Aniruddha G. Kulkarni]

I completely agree with: "Any society that justifies itself on a hope of equality of opportunity cannot help but be undermined by too great a degree of inequality of result.".

Hope of equality of opportunity is just a balm for our aching conscience.

In India where I live, when our maid walks in our house everyday, philosophy is the only balm my wife and I have. We try to do our bit for her but her condition has hardly improved. Worse, I think she may be losing her hope.

I think when I was growing up, my parents' maid had higher hope. Her child and I & my siblings had similar education, similar healthcare, similar food, similar sports and so on.
Today my maid's kids are getting far rougher deal than my child.
We will keep doing our bit but......

[Observer]

" Some have worked harder; some have applied their intelligence more skillfully; some have been better people; some have been worse people; many more have just been lucky enough to be in the right place at the right time."

Last time I saw a number about 80% of the wealth in the US is inherited, despite the public notice the Bill Gateses of the world get.

[Eric]

Dear Sir

Singapore
-has a higher Gini coefficient than US.
-is ranked 146th in press freedom
-has no minimum wage
-has no welfare system
-has relatively draconian laws

but is doing fabulously well with a world class economy. Soon there will be an increase in consumption tax with a corresponding cut in corporate tax. Yet the people are happy and has given the government a 66.6% approval (82 out of 84 seats in parliment).

How do you explain the economic miracle that is Singapore?

[Jonathan Goldberg]

"Still, it seems to me that your argument entails not merely making more education available to the American public, but also doing away with elite schools. A year at Berkeley pays off a lot better than a year at CSU Hayward, at it's a lot easier to get into Berkeley if you've had well-to-do parents who've bought you a good education - "

I don't see that the conclusion follows from the premise. We need the people who are the result of elite education, and I am sure they will continue to enjoy high earnings relative to most. It seems to me that the policy that is indicated by our hosts post is to set a floor on educational opportunity; this will be a very expensive policy, but will probably (we hope) pay off well in economic terms for everybody, as well as producing a more equal society.

I am also worried about the environmental impact of international inequality. Koyto is criticized for ineffectiveness, conveniently letting us off the hook, because developing countries will soon contribute as much as or more than we do to greenhouse gas production. It has been pointed out here that the currently developed world got a cheap carbon-emissions-intensive ride to prosperity. These things taken together make it IMHO imperative for the developed world to subsidize the use of low-emissions technology by developing countries, whatever it costs (and it will cost plenty).

[Reg Hall]

I would rather let Bill Gates apply his wealth to good causes than see 300 million Americans (mostly) spend it - and not unfortunately on education.

[mds]

"This is a matter of supply and demand: the skill requirements of the American economy have outstripped the educational system's ability to educate and train,..."

I keep wondering every time I hear this: what exactly are these amazing new high-paying jobs that require a college education? I mean, yes, Wall Street analyst, but somehow I suspect that's not what people have in mind (I also suspect that an MBA or the like isn't really making these people better Wall Street analysts, but that it merely signifies being "in the club.")

"A year at Berkeley pays off a lot better than a year at CSU Hayward, at it's a lot easier to get into Berkeley if you've had well-to-do parents who've bought you a good education..."

Indeed. This is related to my suspicions. If we're experiencing a widespread "skill gap" in this country, why are the largest incentives provided to attendees of elite schools, or for professions that involve shuffling vast sums around without adding actual value? Community college or vocational school should be the ticket to those terrific new jobs that are as financially rewarding and secure as the vanished union manufacturing jobs. Yet the highest educational premium tends to accrue to those who already are advantaged.

[Barry]

Eric, if we were to bubble chart a lot of different things, Singapore would be a teeny tiny little spec, well off of the regression line.

[ken melvin]

Amazed, I'm continually amazed how machinations of markets are adapted as morals.

[Hektor Bim]

Studies have been done on the outcomes of attending a variety of colleges, controlling for students who got into both Mississippi State and Harvard (for example), and it turns out what school you went into didn't end up mattering in the end for lifetime earnings, etc. That's been shown to be true for CEOs of companies as well - most of them didn't go to the Ivy Leagues.

The much bigger determinant is your pre-college education. So Scott Martens has it exactly wrong. The thing to do is spend a lot of time and effort improving pre-college public education. Plenty of countries in Latin America have free or reduced tuition for public universities for everyone, but stint on pre-college education. So what happens? Rich people and people from good schools get into these subsidized universities based on superior test scores and connections and poor people have no chance at all.

[luis_enrique]

"This kind of inequality should be a source of concern. Bill Gates, Paul Allen, Steve Ballmer, and the other hundred-millionaires of Microsoft are brilliant, hard-working, entrepreneurial, and justly wealthy. But only the first 5% of their wealth can have any justification as part of an economic reward system to enourage entrepreneurship and enterprise."

I'm not sure your right here. I see your point that people don't need $30bn incentives to work hard, but that's not quite what's going on here is it? Gates et al are so rich becuase they own the company they created, and they happened to create a mind boggling valuable company. The idea of being allowed to own the company that you create certainly does have a justification as part of an economic reward system to encourage enterprise.

You may have in mind some mechanism to take some proportion of ownership away from company founders if they get happen to get really successful, but I can't immediately see how that would work.

If you believe that allowing company founders to own the companies they create is the best way of creating wealth (and I suspect you do) then in the presence of gigantic addressable markets like the global software market, you are going to get a small number of very successful entrepreneurs worth $30bn or whatever. And this is "justified" as the inevitable outcome of a justifyable system which governs all businesses from a cornershop up to Microsoft, not because particular individuals need $30bn to motive their work.

[Hektor Bim]

Luis Enrique,

This isn't right. Microsoft is the way it is because government regulations and laws allowed it to be so. If anti-trust legislation were applied consistently, Microsoft wouldn't be worth $30 billion now and neither would Bill Gates. It's just like Andrew Carnegie.

There is no way to become this rich without exploiting massive structural defects in the economy and government. That's simply the way it is. In a less unequal society, these defects wouldn't exist.

[Denis Drew]

Once again, one of our brilliant progressive economists can get through a entire exposition on inequality without once using the words "labor union".

Education of workers has not kept up with demand?: why then is it that when technology slows and productivity LAGS that most workers in America fall far behind average income growth -- but when technology races ahead and productivity soars most or our workers keep much better pace with average income growth?

Too simple answer: how human nature responds to boom and busts when there are no checks and balances in the labor market. During the boom, bargaining pressure is down, everyone is allowed to make money -- during the dip the pressure is on and those with small bargaining power will lose the share they had previously gained.

This works in CEO favor at all times: today's firms are flush with money either because of boom times or because unionless workers are being squeezed to keep profits up during the down cycle, leaving little pressure to keep CEOs from looting.

None of this exists in Europe -- not because of heavy market regulation there but because of fair labor market balance of power there: sufficient unionization.

Everybody seems to understand the need for a free market for efficiency and innovation. Nobody, even progressives -- at high academic levels -- seem to catch on to the unconditional need for checks and balances in the labor market to achieve fairness.

[Rich Gibson]

"A year at Berkeley pays off a lot better than a year at CSU Hayward,"

This just doesn't seem true to me. A year at Berkeley seems far more likely to lead to an elite position in research or academia, or government. By certain value systems that has a large payoff, but not in money.

PhD's make less than Master's-right?

[Paul Reber]

I mused philosophically about inequality in other thread a week or two ago here. That Tyler-induced discussion was more about the philossphy of inequality (e.g., an academic not practical discussion). This article is more specifically about the practicalities of inequality.

Practically speaking, I think all reasonable people ought to worry some about inequality. Merit should matter and there's no question that there are meritorious impoverished people and non-meritorious wealthy people (e.g., thieves and the corrupt). Even those who would argue against a need to distribute wealth evenly usually feel that opportunity should be distributed evenly.

I would only expect disagreement here from pure totalitarian Communists aiming for absolutely forced equality in wealth and everything else. I think there's enough data on how bad that economic system is for productivity that we can safely say that no reasonable people are arguing for that level of redistribution.

So it's a practical question -- how much wealth to take from the haves to distribute to the have-nots and how to administer it? While merit/wealth are not perfectly correlated, we can assume they are at least mildly correlated (e.g., Bill Gates), so we have to be careful. We are potentially taking capital from those who might use it well to give it to those who may not, which will inhibit total productivity growth. But some of the redistribution will address the reverse correlation and provide opportunity to high-merit impoverished people and might increase growth. I cannot imagine how one would empirically determine the values for this cost/benefit analysis. However, I strongly suspect that any person's intuitive opinion of those costs/benefits strongly predicts how much redistribution they are in favor of (and their position on the left-right spectrum for economic questions).

Because we don't know, the obvious path is to proceed cautiously. This is consistent with my intuition that an appropriate redistribution applied to professors like Prof DeLong (and myself, fwiw) is a higher tax burden than those earning less. Demanding we re-task ourselves to more service oriented teaching at different universities (or high school) seems to push too far -- e.g., too great a cost for an uncertain benefit. In general, I don't want to impoverish the wealthy to enforce equality, but I am willing to constrain them (via tax) in order to ameliorate inequality for both social justice purposes and to gain additional productivity by making opportunity more equal.

The original article focuses on education as an area where redistribution could be profitably applied. I don't disagree, but I think health care has a very similar profile and should be addressed. Unavailability of healthcare has to also have a strong effect on access to opportunity by reducing the average health among the impoverished and also increasing the likelihood of needing to support a health-impaired family member (making eduction or other entrepenurial opportunities unavailable).

Just putting more money in the hands of the impoverished is also obviously reasonable. Either by empowering labor unions to more effectively bargain for better wages, increasing the minimum wage, or expanding the EITC. In theory, these let the impoverished allocate their own resources to address the opportunity gap. Oddly enough, there are plenty of voices on both the left and right that seem to favor the "nanny state" approach of trying to directly enhance opportunity instead of a more libertarian "let them spend it" approach (even here we see hints of "they don't know how to spend it").

Personally, I'd take whichever approach is more expedient politically. You could argue all day over differences in efficiency and effectiveness, but the important thing is to move policy in this direction one way or another. For a society as productive as ours, the poor are too poor. Whether the rich are too rich is a philosophical discussion. They are certainly rich enough to afford to make the poor less poor.

[Paul Johnson]

Let's consider what Bill Gates is doing with most of that 95 per cent. Here is the Gates Foundation link:

http://www.gatesfoundation.org/default.htm

(or look up the url on Google if you are understandably nervous about following what could be a bogus link.)

Brad - dividing that money among Americans would increase world inequality, not decrease it.

The contribution of philanthropy to human welfare is grossly underestimated. And it's not just the direct wealth transfer. What about the demonstration/shaming effect on other rich people. And the entrepreneurial/outside the box options for a philanthropist - who does not have to convince a government bureaucracy to fund a new idea? How many institutions, artists, inventors, scientists in history have been supported by rich patrons? Philanthropists can experiment with new ideas and approaches, that do not have an established political constituency.

The zero-sum static approach to inequality is not very persuasive to me.

[wkwillis]

Eric
Singapore has a rigid government requirement that you save 40% of your income every year. This tends to increase your next years income significantly and this has been their policy since about 1965.
Forty years of saving 40% of your income and you are going to be doing pretty well. Compound interest in a capital short and high return on investment society is a powerful force.

[Cranky Observer]

Again, it would help me if someone (Dennis Drew: I know, I know!) could explain how so much innovation and growth happened in the US from 1940-1980 when there seemed to be a social prohibition against the top earners taking more than 10-20 times what the average employee was paid? Yes, there were some exceptions (entertainment companies, Wall Street {of course}), but by and large the typical employee (hourly or white collar) took home $40k and the typical President took home $400k - $800k. And yet plenty of work, innovation, and growth happened, and plenty of people strove very hard to get that President's office.

Note that I am specifically not talking about Bill Gates; even among those I know who hate him for his software and/or business tactics very few begrugde him his wealth because he made it all in hard stock (his salary was $200k during MSFT's boom period). No options or bonuses - he took the risk of ownership.

So help me understand: why the sudden need for these gigantic compensation differentials?

Cranky

[johne]

"It's a mystery to me why so many people in this country want to turn us into an Anglo Brazil."
For the same reasons that the Brazilian upper crust steered their own society in the direction that it has taken: to make sure that they, their friends, and the "proper sort" of people remained in control. As they saw (and see) it, the welfare of Brazilian society and the nation demands no less.
Remind you of anything in the United States, like, oh, say, a political party?

[jon livesey]

I grew up in the UK in the fifties and sixties, and there isn't much doubt in my mind that today the UK is both a richer society - in both absolute terms and by comparison with its peers - and a more unequal society.

But what "caused" this? Government didn't legislate inequality. Maggie didn't use her witches wand to unequalise people. What happened was that many of the rules of the game which rigged the labour market simply went away.

Back in the sixties, mere existence was a significant personal asset. If you existed, Government would ensure some basic living standard, whether or not you used your other talents to gain it, and it confiscated income from the successful at a marginal tax rate that rose to 95% to pay for it. Put brutally, government rewarded indolence and penalised hard work.

Today, existence is a less important asset than intelligence, education or hard work. People who "get ahead" in the UK of today owe their sucess less to social legislation than they do to their own abilities and determination, and they can be sure that if they succeed, the government will not step in and confiscate their income.

And I doubt if the UK will ever go back to legislating equality, because people know very well that at the end of the road what awaits is national bankruptcy and the IMF.

[C. Lawton]

Who cares what a CEO makes if you aren't a shareholder?

[dick mulliken]

As income and ownership concentrate, so does poltical power. I'd like to see some sociology on this: I suspect that patterns of association indicate that the ultrwealthy are increasingly relating only to other ultrawealthy people. Classes solidify, which only intensifies class -as opposed to national- loyaltiy.

[theCoach]

Once you begin diving into the world of counterfactuals it gets hard to discriminate between real possibilities and wishful thinking, but I think the different levels of inequality are more realted than you imply.

Take the case of US policy and United Fruit in the last century. Because of inequality, some people had enormously outsized influence on US policy in Central America. That policy was focused on exploiting the even less equal populations down there, leading to corrupting and corruptible governments.
Again, I am not sure how you can discover the counterfactual where that all goes away, but it certainly appears that outsized political influence due to inequality transfers across the groups that you specify.

[Clifford Staples]

A discussion for a lifetime (it certainly has taken up most of mine), but just one point for now. One of the significant ideological touchstones of the U.S. is a belief in some sort of meritocracy-- that the unequal distribution of income and wealth is an inevitable and desirable result of the uneven distribution of individual talent and effort. Okay, fine. Meritocracy sounds great. Let's have one. Let's get the meritocrats to put their privileges where there mouths are.

First step, complete, 100% confiscation of wealth when someone dies, subject to minimal distribution to dependent relatives. No more passing on the wealth to offspring-- a highly anti-meritocratic practice that ensures inequality in the next generation will NOT be the result of individual ability and effort.

Instead, when people die their wealth is put into a communal pot for equal distribution to the next generation, so that everyone gets to start the race with the same resources. That is a social policy and practice far more consistent with a meritocratic principle than anything we have today. Other things equal (they wouldn't be, of course) any resulting inequality from generation to generation would be the result of innate ability and effort, probably with a lot of unexplained variance due to sheer (though randomly distributed) luck.

Of course the idea of meritocracy only exists as ideology and myth. No one takes it terribly seriously otherwise, least of all the ruling class, most of whom live well off the hard work and abilities of others, and so justifiably fear sinking like stones to the bottom of society were they actually required to survive on their own abilities and hard work. This is of course why they hire apologists of one kind or another to declaim that this really is the best of all possible worlds and that if it looks unequal, that's as it should be.

[Denis Drew]

Jon Livesey,
There are TWO differences between the labor market in the UK and USA: a) the welfare state we never subscribed to over here (but which is the only difference that anybody seems to notice there or here, and b) the fair balance of power between labor and ownership that you still have we no longer have (as in disappeared unions).

The labor market in the UK may once have been out of balance in the labor's favor back when the socialists took power after WWII and strong unions faced weak (gov.) ownership -- leading to both overbearing labor and excessive welfare.

That did not happen in Germany where the old Nazi era (for want of a better word) ownership remained to balance off against the most powerful union set-up in the world: sector-wide labor agreements. Thus German (along with North Italian and Japanese) workers are the best production line workers in the world -- as well as the best paid.

[I am not sure of the entire time line here but I am working on it.]

Like I said above, everybody talks free market v. regulated market -- nobody who is smart enough to debate economics seems to remember the need for CHECKS AND BALANCES (via labor unions); possibly because they have never personally known the degrading powerlessness of being an American worker in this era when American bean counting management may approach Nazi ruthlessness.

We need bargaining power not welfare, people!

[a different chris]

A large wealth gap causes a dangerous power imbalance. You may not see it (or be willfully blind to it like the libertarians above) but it's like rats living in a cage with a huge python. The python does not eat very often, but when it wishes to there is no chance for the unlucky rat it picks.

Weathy people can take any stance they want, and they can buy your legislators, your police, your neighbors for what to them is chump in-the-couch-cusions change. Just because they don't like you. This is as un-American as can be imagined.

Somebody brought up some good research about what class of people politicians respond to. Did you guys notice the phrase in the previous post, about how how hard it is to roll back a "popular tax cut"? Popular with who? There was never a national, all-classes poll that was really interested in Bush's tax cut even when he was popular. But it's popular with the upper 1/3, so it's "popular".

In Pittsburgh we've been thru quite a bit of yakking over the last decade or so about "how to save the downtown". Despite the fact that Richard Florida for chrissake's is a resident here, you never heard about affordable housing, ideas for bringing the white collar middle class (and keeping the graduates of Pitt, CMU, Duquesne, etc. around even if they got married out of college) into the city and letting the retailers compete for their money.

Nope, it was all about providing subsidies to bring "upscale shopping" in. In support of that one I remember a newspaper article that quoted that need not from a graduating college student, not from a middle-aged white collar worker, not from a small business owner, not even from one of the many local guys who did get rich by starting their own company, but from the goddam CEO of Bayer USA.

Like of all the possible life outcomes anybody given person has, then even filtering out using some magic crystal ball those that are gonna be rich, you still don't get many hits on "CEO of Major Old-Line Company". No matter how talented you are, that kind of job takes a very specific mix of intelligence, personality, opportunity and just plain luck. And I do mean "specific" as in "different", rather than "better". Because most bright people I know want to either start their own company or hop into a small or midsize where they can have an impact.

But that's who they presented as a guy who understands the rest of us. Give me a break. He probably asked his wife.

It's this simple: the more the rich pull away the more the rest of us lose our political voice. And that is very dangerous.

[wilsod]

Anyone who has worked or spent time in neighborhoos with high concentrations of poor people, especially poor minorities, can tell you that merely increasing money or educational opportunities is not going to solve problems of inequality. There are serious cultural, social, family, health, crime and other issues that overwhelm efforts to improve education. When my wife and I walk the few blocks from our house into these neighborhoods to work with kids there or to help in schools, I am amazed at how much the lives of our children differ from the lives of their children even though incomes may not vary that much and they attend the same schools and have the same teachers.
Conservative have a point that we cannot overlook morality when addressing issues of poverty or inequality, but I am not convinced that the way they go about addressing morality does any good.

[The Black Monk]

Large scale inequality between rich and poor nations creates a kind of...of...of...oligopsony. Is that a word? When just a few buyers buy pretty much everything?

That could have both good and bad effects on the poorer parts of the world. It's good that the poor can see clearly what will sell enough to bring them out of poverty.

But it's bad that the things that sell cater to demand created by the wealthy few - Oligopsony creates a kind of comercial culture homogenity.

I guess this boils down to demand being a function of both need and available financing, huh?

[jon livesey]

Dennis Drew makes a couple of very interesting points. One is about the welfare state. My own view on this is that when poverty is dire in absolute terms, as it was in the UK in the nineteenth and early twentieth century, a welfare state is essential for raising the general educational and health standards of society. A good reference here is "The Peoples War", which documents social conditions in Britain up to 1939. There was some truly shocking stuff that needed to be fixed. But in my lifetime the welfare state has grown to the point where it acts as a disincentive to work, and today in the UK there is a lot of concealed unemployment due to the ability to "game the system" and live off the state, masquerading as unemployable or "handicapped". I'm not talking about the genuinely handicapped, by the way.

Similarly, Union organization was an essential counter-balance to the very real abuses of capitalism pre-1939, but in the post-war era two malignant aspects of unionization emerged. The first was the ability of unions to make labour contracts that employers were legally bound to observe, but which unions could break with legal impunity. The second was the takeover of a significant number of Unions by leftist activist who had an explicit agenda of economic sabotage ultimately aimed at producing civil unrest. Popular myth holds that Maggie was the first PM to take on the Unions, but in fact it was a Labour Party leader, Harold Wilson, back in the mid sixties who first denounced the wrecking strategy of the unions and who took the first steps towards bringing them back under the rule of law. Maggie simply pushed his reforms further along.

For what it's worth, I think that the US has these issues more or less right today. But then, I also think that the average American voter has an rough intuitive grasp of basic economics that is completely foreign to the average Briton or European. For example, Tony Blair has said that when he visits High Schools, one common question he gets is why the Government doesn't fix poverty by printing more money.

[GF]

There is in fact a good deal of cross-cultural and cross-temporal evidence, which indicates that marked disparities of wealth correlate with concentrations of political power. And, similarly in time-series, increasing economic inequality often corresponds with the greater centralization of power. Thus, it seems like more than simply serendipity that at the same time that we are witnessing far greater disparities of income and wealth in the U.S. than in any period since the Gilded Age, we also are seeing threats to basic rights, serious talk of the 'decider' and a 'unitary executive' and a general diminishment of the constitutional role of the legislative arm of our government.

The concentration of executive power shifting in concert with more marked differentials in wealth are actual trends that have been going on for a number of decades, however, the tempo of these changes certainly has increased under the present administration. Politically, the reaction to Watergate (which was part of Nixon's efforts at consolidating power) was a blip against this longer trend, quickly washed over during the last two+ decades.

[DRR]

Who cares what a CEO makes if you aren't a shareholder?

Ditto.

[TJM]

As a different someone from Pittsburgh, a different chris is a wee bit off. There are several areas that have attracted development like the Southside (built on the site of a closed J&L steel plant), the Strip District. The other areas such as Squirrel Hill, Shadyside, Bloomfield are still vibrant and even Lawrenceville is making a comeback.
Inequality arises in part from lack of opportunity but also from lack of effort. I grew up blue collar,went into the service because I couldn't afford college and had to work for 5 years after I came home to save the money for college. I got through MBA school and arrived at my 1st job with nothing left of my savings. In the last 25 years, I worked hard and can now send both my kids (who went to high school in a district that arose from court-ordered desegregation; hardly an "elite" district) to college without borrowing a dime. I have also set up a fund for band instruments as well as a (modest) scholarship fund (only 40% of the graduates of my kids' high school go to college).
Inequality? Yes. Can you overcome it? Yes. If you don't, maybe it's your fault.

[CapitalistImperialistPig]

Brad - "...It is hard for me at least to envision changes in economic policies or in political arrangements over the past fifty years which would have transferred any significant portion of the wealth of today's rich nations of the global North to today's poor nations of the global South."

I think that you are ignoring the obvious. It's hard to find a stronger correlate of growth in GDP per capita than 1/fertility rate. The nation that adopted the most draconian population controls (China) has consistently since been the fastest growing in per capita GDP. Play with the numbers on gapminder. The most desperately poor all have very high fertility rates.

Supplying sub-equitorial Africa with abundant birth control would likely be more effective than any plausible conventional macro-economic policy or transfer.

[JDR]

I have traveled extensively in post-communist countries and have spoken to many "Average Joes" regarding the changes in their society, both politically and economically. What surprised me the most was that they weren't complaining about the few individuals who were becoming extremely rich (with the exception of corrupt government officials and the mafia which tend to be tightly intertwined) while most struggled to eke out a living.

Rather, people expressed a desire for a more limited government - less bureaucracy, less corruption - and lower taxes. Why? Because many of them had recently started or wanted to start their own business, whether that be a software company or a corner grocery store, and the greatest hindrances they faced were the result of the government. They weren't looking for handouts, but rather to be left alone.

[Isaac]

About the Bill Gates example, the comparison was about consuming that wealth:

"And the last 95% of their wealth? It would create much more happiness and opportunity if divided evenly among the citizens of the United States or the world than if they were to consume any portion of it."

So it is about the redistribution of the consumption, and inequality when it comes to consumption. I don't think many people would care about owning shares in Microsoft if they could not sell the shares and had to reinvest the dividends, because they would not gain any additional consumption.

So it is about buying expensive cars for example and putting them in private garages where only they can enjoy them. Very expensive spaceflights and private spacecrafts for the wealthy few. Huge private mansions where they stay only a couple of weeks each year, or private man made islands in Dubai.

We can consume now, or invest in future consumption. Redistribution of wealth could result in a shift towards consuming more today at the cost of consuming less in the future than would have otherwise been the case. But it could also just mean a shift within investment, for example investing more in public education instead of investing in the development of a spacecraft.

Maybe just like Cuba has too much poverty, there might be too much extravagant consumption by the rich. Where a lot of the wealth that has been created is consumed in a wasteful manner. For example first with a relatively small amount of work Gates created a lot of value. We all benefit a lot from it, and it was simply handed to us. But it is his and he could keep it for himself if he wants to, and that would be our loss. But instead of that he wants to keep something else for himself, so he wants to trade his company for something we will have to create. Something of the same value. So we would have to do a lot of work for which we will experience no benefit, because we get to keep what was already there, only Gates himself would benefit from it. (This is an example, not what Gates is actually doing)

So you could say that when he created MS, that created wealth was distributed between all of us, even though Gates owned the company, because we use it in the same way as when we would own it ourselves (except for the power that this wealth gives the owner, that power is not redistributed). But when he would consume his company, he would take all that formerly distributed wealth back. So control over the company doesn't need to be redistributed for the wealth of that company to be redistributed.

[VennData]

Too the dittoheads: I care if the CEO of my heath care company makes $1B. For example UNH of a 40B revenue company. I could get a 2% discount if the guy made 20 times the janitors. Oh and the employees that deliver my health care are aren’t—happy which I do not like at all. Have you enjoyed the warm service on American, United, or USAir recently?

I think DD is wrong about the unionization, in the tails you end up with work pools, union corruption, and dependency and worst of all, lack of flexibility. Japanese car maker Toyota and who just surpassed Ford would agree with me.

Corrupt option back daters are just as corrupt as union officials, posters.

Also, CIP, China has 40% marginal tax rates. Ha!

[bigTom]

Lots of very interesting points made here. I wanted to make one about education. Decades ago I read the results of a study which said that the only significant factor in determining success was the attitude of ones peer group. I've never had any reason to question this. We frequently see certain immigrant groups kids doing extremely well, even though the parents are quite poor, while certain minorities continue to lanquish. The reality is that if you belong to the wrong group, it can be quite difficult to overcome one's peer group social pressure. Unfortunately the poor results usually seem to reinforce the poor attitudes for the next generation.

[JDR]

VennData:

I agree - illegal is illegal, and should be punished regardless of whether the person is a CEO of a healthcare company or a union boss.

However, if you don't like your healthcare company, you are free to switch. Consumers make their wants known through their wallets. Sometimes it takes time for the market to react, I don't deny this. But in the long run, the business that provides what consumers want will win.

[rod]

this too: an unequal society, I bet, stands a worse chance to solve problems that affect everyone, such as climate change. More precisely, its solutions will benefit the few and not the many; an unequal society isn't a society; it's two countries, as John Edwards says.

[Darragh]

Clifford Staples- Any attempt to end inequality by doing away with inherited wealth would collide with one of the greatest motivating factors in our society; the urge to provide for and as much as possible assure the future of our descendants. Depriving　people of this incentive to try and create more wealth would seem likely to have and adverse effect on the economy and, in my opinion, would also go against some very basic human instincts.

[Antonio Manetti]

"Today, existence is a less important asset than intelligence, education or hard work. People who "get ahead" in the UK of today owe their sucess less to social legislation than they do to their own abilities and determination"

What utter nonsense -- there are lots of smart, hard working people out there who can't make ends meet. For example, I don't see many poets, writers or actors rolling in dough.

Face it. People who get ahead owe it to nothing more than luck or having some asset that the market values highly.

[Barry]

Posted by: JDR:
"However, if you don't like your healthcare company, you are free to switch. Consumers make their wants known through their wallets. Sometimes it takes time for the market to react, I don't deny this. But in the long run, the business that provides what consumers want will win."

JDR, perhaps there's a misunderstanding about the context; I think that most people here were thinking of the USA. In the USA, one is very lucky to have a choice of healthcare companies. And if one does, it'd still be lucky to have a choice of one where the CEO and his cronies are not skimming everything that they could.

[Barry]

Posted by: jon livesey:

"I grew up in the UK in the fifties and sixties, and there isn't much doubt in my mind that today the UK is both a richer society - in both absolute terms and by comparison with its peers - and a more unequal society."

And the US was a richer society in, say 1970 than before the Great Depression, and more equal. Productivity growth then declined as equality declined. Which, of course, proves that we should prevent large amounts of inequality.

Or perhaps (a) correlation doesn't equal causality and (b) two non-stationary time series will always exhibit correlation.

The rest of your post is, of course, the standard argument which can be summed up as 'unions may have been necessary back in the Bad Old Days, but not in these Modern New Days'. An argument which has been in use for many, many decades. Seems that that present is always the Modern New Days.

[Clifford Staples]

Darragh:

Fine, then let's drop all the prattle about how where people end up in the social hierarchy depends on their hard work and innate ability and acknowledge that we live in in a society in which the distribution of wealth, income, opportunity, and much, much else is hardly at all a function of your own efforts and energy and to a great degree a function of how carefully you chose your parents (as Malcolm Forbes cleverly put it). In short, let's admit that the game is rigged.

Of course, that won't happen because we know well that all rigged and unjust systems need to be legitimated, hence the continuous output of bilge about the importance of talent and effort.

[JonF]

Re: Any attempt to end inequality by doing away with inherited wealth would collide with one of the greatest motivating factors in our society; the urge to provide for and as much as possible assure the future of our descendants.

I disagree. If this were really such a strong motivating factor wouldn't we all be doing a lot more about global warming and other long-range generational problems? Fact is most people have a very close-in horizon on the future, and most people who want to get rich do so for personal gain and pleasure. In fact, if you look at the disastrous way many "poor little rich kids" turn out (Paris Hilton comes obviously to mind, but examples are legion) it would seem that the rich are every bit as insouciant about parenting as the welfare poor are.

[JDR]

VennData -

I am no fan of healthcare / insurance companies, and if CEOs or anyone else is skimming money off the top - embezzlement, I believe is the legal term - they most definitely should be punished.

I (perhaps falsely?) assumed you were recommending regulation of healthcare. If you were instead recommending that we bring corrupt company executives to justice, I couldn't agree with you more!

[Paul Reber]

TJM's story of overcoming inequality got me thinking overnight. There are a number of very interesting points within it (IMHO). Quotes are from his/her comment.

"Inequality arises in part from lack of opportunity but also from lack of effort."

I don't think anybody here really disagrees with this statement. Intuitively, the idea of merit leading to increased wealth seems reasonable and acceptible. If so, we are going to be guaranteed some level of inequality in wealth. As a side point, "merit" here is meant in terms of personal ability to contribute to society-wide growth (e.g., "tendency towards hard work in a productive manner").

However, every rags-to-riches story confirms our intuition that wealth at birth is not perfectly predictive of merit. This is exactly why we need to work towards equality of opportunity. Otherwise we have something like an inefficient market in human capital development, which inhibits our society-wide productivity growth.

"I grew up blue collar,went into the service because I couldn't afford college and had to work for 5 years after I came home to save the money for college. I got through MBA school and arrived at my 1st job with nothing left of my savings."

TJM went on to success, showing how the opportunity afforded to him/her was sufficient to achieve a positive outcome. It's not necessarily safe to conclude that sufficient opportunity exists for all.

* TJM was not failed by the educational system he/she grew up with. It was sufficient to enable entry into the service and subsequently to complete an MBA program. However, I am not sure that our educational system does not still fail to support some people with as much merit as TJM.

* TJM does not mention healthcare, but I think it's safe to assume that serious health issues did not impede progress. But imagine if one attempts to exploit opportunity but is held back by a chronic, expensive health condition (e.g., juvenile diabetes) or required to commit all of one's excess capacity to supporting an unhealthy sibling or parent. That would have eliminated the ability to save for college/MBA and severely limited progress and outcome.

TJM's success was due to both hard work and some good luck. Policy things we can do to emphasize the contribution of merit (hard work) and minimize the dependence on luck would be good things.

* TJM is happy with his/her positive outcome, but what might have been difference if a person with his/her ability to achieve had not had to overcome so much inequality. Society-wide we might prefer that very-high-ability people are able to more greatly exert their positive influence on society. Maybe we'd all be better off if TJM had been able to become a captain of industry who contributes massively to global productivity growth instead of being limited only to success in improving the life of his/her offspring. As opportunity becomes more equal, we should have more efficient allocation of human captial and increased productivity growth.

"Inequality? Yes. Can you overcome it? Yes. If you don't, maybe it's your fault."

Nobody minds if somebody fails to get rich because they don't deserve it (opinions may vary on how poor they should be, but that's a separate issue). But just about everybody should agree that we are all best served by minimizing inequality of opportunity as much as possible. To disagree, I think you'd need to claim there are no TJM's left to find, i.e., the current situation reflects a near-perfect correlation between merit and wealth. Given the social context, I'm not sure it's possible to assert that without being racist, sexist and classist.

Guaranteeing equality of opportunity seems so attractive from both social justice and growth perspectives, that I wonder if it should be the *only* thing we worry about. It should be ideologically amenable across the political spectrum. And it seems to focus us on the most important things that need immediate fixing while side-stepping difficult philosophical discussions about how much inequality in wealth is fair or tolerable.

[J]

In general I think both Brad and commenters are too fixated on what the people at the tippy top of income range are earning. Bill Gates and Oprah are complete outliers. Trying to reduce thier incomes will not reduce inequality in any significant way, unless you want to count the Schadenfreude of wathcing the high brought low as some sort of public benefit.

In reality, much of the inequality in our society is the product of government interventions which subsidize the middle and upper middle class. The lower middle class have it the hardest, benefitting neither from the safety net at the bottom or from the largess aimed at the middle / upper middle.

Consider that the upper middle classer gets a mortgage interest deduction on their home, a huge financial benefit for those who can afford a home. Not so for the renter. The child of the upper middle classer gets a college education, often heavily subsidized by the state, which helps them to then capture the education premium. Less luck for the person who gets a job right out of high school.

Heath care is now becomming a much bigger political issue. Why? Because suddenly middle to upper middle class people can no longer count on insurance as readily from their employer, and certainly don't want to purchase it themselves. They would rather make society at large pay for it.

Its this middle / upper middle demographic that effectively controls the political system, often for its own benefit.

[Cranky Observer]

> Bill Gates and Oprah are complete outliers. Trying to reduce
> thier incomes will not reduce inequality in any significant
> way, unless you want to count the Schadenfreude of wathcing
> the high brought low as some sort of public benefit.

Agreed that billg and Oprah! are outliers in this discussion - becuase they are (as much it pains me to say so) entreprenuers.

The problem is not with entrepreneurs (however much they might make). It is with the high _salaried_ managerial class. They style themselves CxOs these days, among other things, but they are just hired managers. In order to take a hired manager from $400,000 _salary_ to $20,000,000 million _salary_ (in one example I am personally familiar with) with no change in gross sales or profits (same example) a lot of ordinary $40,000 joes have to lose their pay, then benefits, then dignity, then jobs. Which is exactly what happened (now the customers are paying the price too). This rips up the social fabric of the community, and makes it everyone's concern.

And that is just $20M - not the $200-$400M _salary_ packages that these managers have been giving themselves the last few years.

Cranky

[jon livesey]

Barry argues by misquote. "The rest of your post is, of course, the standard argument which can be summed up as 'unions may have been necessary back in the Bad Old Days, but not in these Modern New Days'."

Actually, I carefully did not say that, or anything about the UK today. I said they had become malignant by the time of Harold Wilson. That's forty years ago, and that's simply a fact. Perhaps you need to read some recent British history. This isn't controversial.

[jon livesey]

"J" makes a really good point. He says people are fixated on what the hyper-rich make. Yes, it baffles me that a billionaire wants another billion, but it doesn't worry me, because in most cases even the most avaricious eventually give it away.

I think that the really evil effects of socialism are not felt by the super rich, who simply export their wealth beyond the reach of the taxman. The really evil effects are experienced by the skilled middle class who find that no matter how hard they work, their earnings are confiscated to pay for the Governments hair-brained schemes.

As I said before, marginal tax rates in the UK rose to 95% in the sixties. No joke.

[jon livesey]

TJM says "Inequality? Yes. Can you overcome it? Yes. If you don't, maybe it's your fault."

Up to a point, and it depends on the society. If you think of Dickens' UK, this isn't so. Some people were comdemned to poverty no matter what their talents because of lack of education and the debilitating effects of grinding poverty. Even in the US and UK of today, there are minorities where inequality is very hard to escape. I'd suggest looking at poor Moslems in the Midlands of England and poor blacks in Georgia in the US South.

For the rest of us, with access to decent education, TJM is quite right. My own story is similar to TJM's. I escaped a poverty trap, and like TJM I can be quite blunt about people who don't.

Societies that don't educate their young deserve the poverty that results, individuals who do receive an education deserve what they get.

[Denis Drew]

Jon Livesey,
The poor blacks of Georgia wouldn't be nearly as held down by grinding poverty if the US minimum wage had not regressed to the 1939 (!) level: about (expect it to be about $4.50/hr when the new inflation figures come out).

If any two people could make $1000/wk doing ANYTHING, street gangs in urban ghettos would go out of business overnight.

25% (!) of the American workforce are earning less than the European minimum wage ($10/hr w/health coverage presumed). Believe it or not, we already tried $10/hr back in 1968 -- so the money must be there -- the understanding that it is is not there in the common knowledge of our culture and country.

All America has to do to end poverty and inequality is to pay its workers what it can afford to pay them -- this came as quite a surprise to me about 6 years ago at the age of 57 -- especially since I had kept up with all the talking heads and all the political books and mags all my life -- it would surely come as a great surprise to 99% of working Americans, if not 100%.

Over here most folks don't appreciate the critical job of collective bargaining -- over there I get the feeling that most don't either; over there most think very left-wing/welfare state and unions just naturally are considered part of that mix (and not understood to be the most crucial part). Over here it is our pioneer self-reliance myth that blinds our eyes.

Somebody's got to start a major sales campaign over here to get across to people what they are missing out on remuneratively. The whole answer could be as simple as that.

[Jonathan Goldberg]

"Or perhaps (a) correlation doesn't equal causality and (b) two non-stationary time series will always exhibit correlation."

Actually, you mean any two STATIONARY time series...

[PeterW]

Those who sit in ivory towers and pontificate about inequality should rev up their Volvos (or has Volvo been replace by Prius as the correct "wheels" amongst the tower dwellers?....worse yet, am I dating myself???) and spend some time with the proposed beneficiaries of their goodwill.

I came up lower middle class (the old man was a school teacher in the 1950s-60s...enough said?) I thought about teaching as well, but decided I had competing priorities, i.e. a sports car and the occasional steak dinner. My wife and I played the corporate game, saved a few dollars, and, although far from wealthy, jumped off the merry-go-round six years ago.

She now volunteers at a hospice. I’m teaching high school kids at an alternative high school in one of the lowest income areas in New Mexico, which is to say, the United States. I spend my days teaching chollos and 14-year-old mothers how to plan a monthly budget and balance a checkbook, to write a complete sentence, and that the “F word” is generally not acceptable in a job interview.

If I get through to five or ten percent of my kids, and see them accepted into a vocational school, community college, or (gasp!) college, I’m fortunate. “Untipping” the inequality scale starts with education. Raising the minimum wage is fluff. Want to make an impact? Mandate a two-year “Community Service” stint for every 18 year old, deferred only for post-high school education. Train the kids while on-the-job. Let the college grads work with the children as tutors, big brothers and sisters…role models!

I hear so much “Blah blah blah” from the elites. It’s time to Walk the Walk.

[Cassius Chaerea]

What's this "Bill Gates" crap?

Bill Gates is the son of a wealthy corporate lawyer. His mother was a department store heiress and served on national charity boards. He went to private schools and Harvard. He used Harvard resources to develop Microsoft's early products. He lived off a trust fund while starting the company. He got his big break - the IBM DOS deal - because the IBM chairman at the time served on a board with his mother. This is all public record.

Would the child of his janitor have received the same benefits, even if brilliant, hard-working, and enterprenural?

[Michael E Sullivan]

Denis: a $10/hr minimum wage would likely lead to pretty significant unemployment.

What you'd see is maybe 4/5 of the 25% who currently make less than $10/hr finally getting to what most of us would consider a living wage but the other 5% losing their jobs, or being relegated to the black market economy.

Maybe we'd be better off with those people incapable of producing enough to justify a living wage on welfare. I don't really know, but the money doesn't just magically fall off a tree. It comes out of the pockets of employers and they won't be willing to pay it if the work doesn't generate enough profit.

[Denis Drew]

Michael:
If unemployment dropped 5% it would be pretty strange for it to all come out of the bottom 25 percentile income workers -- a 5% jump in unemployment usually means there has been a massive drop in demand for all goods across the board -- though some businesses like taxis and restaurants are hit extra hard.

A wage hike just shifts income from some to others -- and a $10/hr minimum wage would shift about 3.5% (while add less than 2.5% to cost of GDP output) -- surprisingly little money involved at the low end.

The prices of high end goods are not affected much by minimum wage hikes -- mostly low end businesses are affected: where low end customers flush with higher minimum pay may become better customers than ever.

When a $5.15/hr McDonalds goes to $10/hr, its $4.00 meal has to go $5.35. A $400/wk earner can afford a lot more $5.35 fast food meals than a $206/wk earner can afford $4.00 meals.

Guess what?: if more low wage customers do come in to cover fixed costs, prices wont even have to go up that much (I seem to observe this effect locally).

And fast food is the highest user of labor (1/3 of costs). If the $5.15 federal minimum were raised to $12.50 it would add all of 3.5% to cost of GDP output (5% shift of income) -- about how much the GDP grows every couple of years, if we could only figure a way to funnel it right into lowest paid workers pockets.

A raise may be a much more natural way than the EITC.

Besides, 80% of workers (4/5 of 25%) earning twice as much means 160% -- or a 60% more money going to the same bottom group, some of whom are working more than one job because of low pay -- some of whom could make up for a lost 40/hr $5.15 job with part time $10.00/hr job.

Besides: 16 years ago Business Week reported McDonalds suffered 70% turnover every 90 days -- not no more. Mostly smiling Mexican faces -- same faces year after year -- native born workers wont work for the federal minimum wage: many would rather sell drugs (or maybe re-emigrate: to Europe this time).

Worn out?: there's more:

6 million workers will be directly affected by the Democrats modest minimum wage. 120 million others get a raise every year (rough guess: out of 140 million American workers) w/o losing their jobs because they are only getting raises to keep up with EACH OTHER'S raises. If we allow the tail end of the workforce to keep up with everybody else -- too -- the 120 million will just get a teensy larger raise to keep up with the tail end -- that's just the way it works.

Smarter if we don't wait 10 years in between to do it -- if we do it every year like they do in Europe the effect would be invisible.