Income Inequality 101

John Cassidy in The New Yorker, Inequality 101: The Picket Fence and the Staircase.

Nothing you shouldn’t already know, but it is very concise and clear and it can’t be said too often: US inequality is at a historically high level, and higher than in most of our allies. Plus social mobility is relatively low both temporally and compared to other democracies.

Note, though, that the article is primarily about income inequality. There is also the issue of wealth inequality, which is the cumulative effect of this trend. Maybe that’s the 102 course.

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11 Responses to Income Inequality 101

  1. Vic says:

    All you have to do is examine chart 6-7 to see that this whole argument is comprised of at least bias, if not downright misstatement of truth.

    Look at what countries are on there and where they are in the chart. Now think about postwar Europe, Japan, and North America. Think about what might have been going on in say…1945-60 in those countries, which would have laid the baseline for these numbers. This is EXACTLY the chart I would expect to see by comparing, say 1955 with 2000.

    Now also consider that most of the countries of the world are missing from this chart. It is not World economic data, but well-chosen specific data. If you added the rest of the world it would very likely either skew the data, or mess up the narrative. What about the massive numbers of people living in Communist countries? Eastern Europe generally? Or the Third World? Can you really gauge “inequality” (economic being a proxy for actual) without taking these places into account? More importantly, should one really use economic inequality as a proxy for real inequality (which is the implication of this entire thing)?

    Whatever one might really think about the ideas presented in the article, I have to wonder at the sieve-like thinking sued to expound them. Or maybe it’s just that people tend to think everyone else is too stupid to notice the obvious problems.

    • I really and truly don’t get the thinking that motivates this sort of comment, especially the third paragraph of it. No one disputes that there are some horrible countries out there. That life here is better in innumerable ways than in horrible countries seems to me to teach nothing of interest about us and nothing surprising about them. The question should be whether we live up to our potential, and what we are doing to improve. Part of that inquiry involves as close to an apples-to-apples comparison as one can manage. Thus, in most cases, for social indexes we don’t compare ourselves to North Korea, or Russia, or Malawi (except that if even they are beating us at something, we really have cause to worry!). We compare ourselves to the countries that are most like us economically and politically: OECD countries; large and largish capitalist democracies. If countries in that group are consistently beating us at something we care about (life expectancy, education, equality, cost of health care, whatever) that is a red flag. The point is NOT how the US stacks up compared to the world average — that is low expectations indeed for a rich and powerful country — the point is how the US stands up to our relative peers.

      This seems so obvious to me that I don’t even understand why this point is difficult or controversial.

  2. Vic says:

    And the fact that you don’t understand why I wrote what I did is not the least bit surprising.

    Do you honestly believe that Germany and Scandinavia has more social mobility than the U.S. – that the U.S. is, in fact, even worse than France in that respect? Does that REALLY pass the laugh test for you?

    Look, I’ve come to realize that you will never publicly back off one of your closely held ideologies once asserted in a post (you weren’t even able to admit (after asserting it) that Glen Beck is not, in fact, an actual Nazi – dancing around it for days), but if you honestly think that the U.S. is near the bottom on this measure, and that U.S. citizens are slaves to the wages of their parents, and stuck in the positions they were born in, then I honestly don’t know what to say anymore.

    • Michael says:

      I understand what you wrote. It’s how anyone literate could believe it that I find mysterious.

      I honestly believe that Western Europe provides most of the relevant comparison set. I have a sufficiently open mind to be prepared to believe well-sourced data that informs me about relevant comparative metrics. Your comment above suggests that your preferred tactic is to attack the messenger rather than to engage with data. In academic circles, this does not tend to command respect; perhaps it’s different elsewhere.

      If in fact we in the US have a nearly unrivaled concentration of income, which appears indisputable (see, for example, today’s article in the New York Times, For Two Economists, the Buffett Rule Is Just a Start), then why is it risible that this would lead to greatly reduced social mobility? Seems to me quite plausible — not inevitable, but plausible — that one would move in tandem with the other. And indeed that’s the correlation suggested by Chart 4 (“figure 6-7”) in the New Yorker article I linked to. Correlation is not causation, but it’s not hard to imagine the mechanism.

      I admit that the relative position of the US to France on the social mobility index is somewhat surprising (Scandinavia less so given equality in health and education and relative equality in wealth distribution), but surely the job of data is to show us the world as it is, not as we imagine it to be. France has a national health care system; perhaps that explains part of the variation? In any case, our job is to learn from the data (or explain why the data are not accurate), not to stick our heads in the sand.

      In the words (I think) of Daniel Patrick Moynihan, everyone is entitled to his own opinion, but not his own facts.

      • Vic says:

        The chart in question STATES that it was made by comparing some older generation with some more recent generation. While somewhat vague about exactly whom, it does suggest that some post-war reconstructive generation is being compared to some more current one. I don’t know about YOU, but I would EXPECT there to be greater disparity in incomes intergenerationally, and even intragenerationally, in countries that either had vast reconstructive efforts (France, Germany, Britain, Italy, Japan) and/or became industrial powerhouses in that period (U.S., Japan, Germany). I would further EXPECT that countries which did not have vast reconstructive efforts, tended to be more socialized, and are relatively racially homogenized (Scandinavia) to show lower levels (again, both intra and inter) than the previous group. This would all have to do with vast changes from the norm in how currency flows through societies. Societies that have been leveled out (for one reason or another) and whose economies don’t have to be completely restructured as a result of some traumatic event, would tend to show more stability over time.

        This is not at all a surprising presumption and in fact, it’s what the chart may actually show. Sow how is it that I’d have to be an illiterate to suggest just that? I may or may not be correct (we can argue about that) but my argument is NOT based on being ignorant.

        You are operating from a presumption (which is arguable at least) that it is usually bad to have above some level of income equality at some fixed point. That may, or may not, be true. I would suggest that while the “rich” in the U.S. have both a greater level of wealth than most anywhere else, and a higher multiple over the “poor,” I don’t think you can just assert that two things must follow from that:
        1). Being super rich, above a certain level is somehow detrimental to anything.
        2). That the “poor” in the U.S. are REALLY poor and have no hope of ever being anything else.

        The first is just an ideological argument. I don’t think there really is a serious and undisputed economic argument that too many rich people, or having too much money, is bad for an economy or country. At least as a single datum.

        The second point is problematic in light of actual data. You can look at U.S. census and IRS data (I’m not pointing you to it, you can do that for yourself) that indicates that those in the bottom quintile in the U.S. (those whom we would call “the poor”), over the course of a decade, are no longer in the bottom quintile, but have moved upwards – very often by more than one quintile. Only about 3-4% of people actually remain in the bottom quintile and make up the long-term poor.

        So even if you point to the top quintile and then the bottom quintile and say “look at how the gap is getting bigger and bigger” it may not be meaningful in light of the fact that from decade to decade the people are not the same. You are taking a snapshot and saying it’s a moving picture.

        Additionally, you have the very real problem of comparing apples to oranges even in comparing the living standards of U.S. citizens and Europeans. We simply have very different lifestyles and goals. One can envy one or the other, but any sort of ratings system naturally reflects bias about whether having 5 weeks of vacation for everybody is better in some way than only having 2. Sure, we all WANT 5, but that doesn’t necessarily mean that you’ve built a better mousetrap by implementing it. There are obviously exceptions on both sides of the pond, but by and large American’s enjoy a much higher standard of living in a lot of particular ways than the Europeans – in terms of having STUFF. Even our “poor” tend to have multiple cellphones in a family unit, air conditioning is now the norm, multiple color TV’s with cable, cars or even multiple cars in some cases, we expect our houses to be larger – and they mostly are, etc. Our “poor” for example, are much richer than REAL poor people that you can encounter in the world, even in European countries. There are some truly poor people living in Europe ( arguably, some by cultural choice) like we just don’t see here. Our poor, generally, don’t pile up with multiple generations of huge families living in the same apartments (oft times because we have laws against it). These statements reflect the lifestyle viewpoint that perhaps having greater freedoms to do what you want with your money might be “better” than having less freedom, but more “free” healthcare.

        We can argue about whether our poor are richer than their poor all night – and who knows what the truth really is when we all see the world with different priorities? (even in THIS country) But I don’t think the article you linked is some sort of slam dunk case, nor do I think I am an illiterate for questioning its most obviously apparent flaw, or at least suggesting that there is another explanation capable of showing why France and the U.S. are in similar places, a admittedly vexing point for you.

        (and I’d say that calling me illiterate and questioning whether this is all to “difficult” for me to understand is attacking the messenger by deffinition, since you are keeping track so closely.)

        • Vic says:

          I see that ONCE AGAIN, you just call your interlocutor ignorant and take your ball and go home when someone challenges your beliefs in any way. Nice.

          Do you actually WANT a blog with back-and-forth?

          • Michael says:

            I sort of have a conference to run this week. But more generally, I consider it polite not to abuse the host’s privilege by always demanding the last word.

            • Vic says:

              Apologies if you are too busy to keep up with your blog.

              But I have not demanded the last word, I have in fact simply noted that you called me ignorant again and ran.

              You made a post, I pointed out an argument that could be made, you implied I was to dumb to understand your simple point. I responded. You called me illiterate and left. I gave a more detailed response of what my point has been, since you appeared to misunderstand it (what me being illiterate and all). Now YOU’RE feeling victimized? Really? All I wanted was a civilized, intelligent conversation, but was instead insulted twice. Perhaps you should not allow comments on your blog if you don’t want that.

              And if you are going to invoke some rule of politeness, maybe you owe me an apology for calling me, as a guest on your blog illiterate, etc.?

              • Clever: I never called you illiterate. By forcing me to say that, you make me point out you didn’t read what I said carefully, which sounds like….never mind.

                I do believe economic equality tends to be good, but I also believe that to harness the benefits of mixed market capitalism we have to be prepared to tolerate considerable inequality. But how much? The economy seemed to be doing fine 30 years ago when the inequality was much less. I don’t see anything about current economic achievements that suggests to me we have gained anything from the rise in the Gini coefficient; I’m prepared to believe in fact we lost quite a lot from the processes which caused that change.

                In addition to the suspected economic effects, It is clear that our inequality is now infecting our political process: rich people have a very disproportionate influence in it. … to the point where they now use the state to extract subsidies from the rest of us (or tax subsidies, which is economically the same thing).

                NB: the Gini coefficient and like measures do not measure, and are not concerned with, the extent to which people at the bottom are desperately poor. That’s an issue, but a very separate one. It’s a
                measure of INEQUALITY not poor-person-quality-of-life. Disentangle those.

                Yes, this is all very brief. But now I’ve got to go finish my slides.

  3. Even here, discussing and arguing further about the meaning of the word inequality extend more the scope of it and delivering to the conclusion that the scale might not be that accurate supposing only certain grounds to measure. Wealth and Race already impose some inequality issues, what about gender? physique? age? etc.

    [URL edited pursuant to comment policy para 3.]

  4. Vic says:

    “I understand what you wrote. It’s how anyone literate could believe it that I find mysterious.”

    Maybe I misunderstood your wiley lawyer-talk. 😉

    I’m not sure you can really argue that the economy at the end of Carter “seemed to be doing fine” and I doubt you are saying the Reagan economy was great… I don’t follow you at all on this one. And even assuming, arguendo, it was, how do we know that it was because there was less inequality? I’m not prepared to say you are wrong on your general point, but I just also don’t see any basis of thinking that evidence shows you are right.

    And the rich have ALWAYS (for the last 100 years or so at least) had disproportionate sway in DC. Look at the Progressives and their reworking of a lot of things with the help of the Government – including implementing Eugenics to get rid of those nasty poor and minority peoples. Look at the New Deal programs, which were certainly the dream of very rich Democrats in the NE. On the other side, the anti-communist Republicans and all the war they made after WWII, and the constant economic reworking that is part of whomever is in power. The difference, I think, is that liberals have always done a much better job of using the poor as props (sometimes helping, sometimes not, but always hovering over them), so we tend to think of the Rich as Republicans and ignore the many more multimillionaires across the aisle. The rich are in change and always have been. A big part of the Tea Party movement that I actually RESPECT (much of it I do not) is the idea that Government should be given back to the people in ALL strata of American life. It’s more wealth and aloofness as a combination that will earn you the TP’s wrath, than simply being a liberal.

    And I think there is far less inequality than merely showing the numbers really shows. The vast majority of people in the country, even among those we generically think of as “the poor” are doing just fine in the great scheme of things. Go about 100 miles South of your current position if you want to see “the poor” on a grand scale. We mostly have people that should be paid more and want to have more stuff than they do, than actual poor here.

    Good luck on your conference.

    It’d be nice if we could one day actually have a real exchange that didn’t end with you getting mad and leaving two days in.

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