Economics

Unequal Rights

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Occasional Reason contributer Tyler Cowen thinks about income inequality over at the New York Times. One of his conclusions: Blame it on the old and the college graduates–two groups with a lot to answer for:

Much of the measured growth in income inequality has resulted from natural demographic trends. In general, there is more income inequality among older populations than among younger populations, if only because older people have had more time to experience rising or falling fortunes.

Furthermore, more-educated groups show greater income inequality than less-educated groups. Uneducated people are more likely to be clustered in a tight range of relatively low incomes. But the educated will include a greater range of highly motivated breadwinners and relaxed bohemians, and a greater range of winning and losing investors. A result is a greater variety of incomes. Since the United States is growing older and also more educated, income inequality will naturally rise.

Thomas Lemieux, professor of economics at the University of British Columbia, estimates that these demographic effects account for about three-quarters of the observed rise in income inequality for men and 69 to 95 percent of the observed rise in income inequality for women ("Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?" The American Economic Review, June 2006). In other words, rising income inequality is not just a result of unfairness or bad public policy.

Cowen further notes that there are a couple of measurements that are not going up, even if measured income inequality is: "inequality of consumption — the difference between what the poor consume and what the rich consume — does not show a significant upward trend" and

Studies of personal happiness, based on questionnaires and self-reporting, indicate that the inequality of happiness is not growing over time in the United States. Furthermore, the United States has an inequality of happiness roughly comparable to that of Sweden or Denmark, two nations with strongly egalitarian reputations.

Leisure time also is rising more among the less-educated than the highly-educated in the past 40 or so years as well. In other words: money isn't everything–and a world where most everyone is pretty much getting richer, in many ways not adequately measured by money income, can be a pretty nifty world, even if everyone doesn't get richer at the same rate.

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  1. FWIW, I think wealth inequality is probably a bigger problem.

    And the problem, I think, is that wealth is relative and that wealth is power.

    The more money you have compared to someone, the more power you have over them.

  2. “The more money you have compared to someone, the more power you have over them.”

    This seems like a perverse way of looking at it. Do you have more power to sell them something they need, or do you have more power to give them money in exchange for something you want?

  3. His comments on the topic are a sight bit better than CATO’s red herring, but it still avoids the direct topic of evidence.

    There is a simple way.

    What was the average maintenance worker employee’s salary at (pick a bank that is still in existence)in 1970 compared to the rist rank of VP’s. Now compare that with today’s number. I have done this with two banks that I have worked for. In both cases the the spread has increased by significant numbers…hundreds of percent significant numbers.

    Nothing is better than direct evidence. Of course econimics without evidence is all the rage these days.

  4. The more money you have compared to someone, the more power you have over them.

    Just exactly what is this power?

    What can a rich person do to me that a poor person can’t, besides give me money.

  5. MikeP,

    I would suggest that you ask OJ Simpson that question. I know a gang crimes specialist here in Cook County, he believes the majority of cocaine is sold in the higher income areas of this county, but he is forced to put the majority of his resources into arresting folks in lower income neighborhoods. He also told me that he has never seen the States attorney use the “plea bargain and plead guilty to one charge or we will charge you with dozens of crimes and you will spend the rest of your life in jail”, in anything but poor neighborhoods.

    Just two examples of how income distrubution effects power distribution.

  6. Johnny,

    You could not come up with an example where a rich person really and truly has more power over me than a poor person. It’s the state that actually has the power.

    Tell me something I don’t know.

  7. MikeP,

    If being able to kill someone and get away with it isn’t power, I guess I really don’t know what power really is.

    However, you are quite correct, the power is held by the .gov, and only shared with certain people, with certain size bank accounts.

  8. Actually, slavery would not have been possible without the .gov, but it also would not have been possible without using wealth to control other people. If the .gov is for sale (not saying it is, just positing that possibility), it will go to the highest bidder.

    And one can fairly assume looking at the contritutions to politicians, businesses and people think their buyin’ something. I wonder what that is that all that K street money was about? Favorable legislation? No couldn’t have been, I’m sure Amazon and Chase just give politicians money because they really care. I’m sure they don’t think they are buying something. I mean Mickey Mouse is no longer copyright protected.

    Wait….this just in, there was apparently new laws just passed that extended that protection to infinity and beyond.

    Naw, money doesn’t buy power.

    Of course as has been reported on these very pages recently, reps of the private RIAA now go on armed raids with cops. Hmmm….I wonder who paid for that?

  9. “Cowen further notes that there are a couple of measurements that are not going up, even if measured income inequality is: “inequality of consumption – the difference between what the poor consume and what the rich consume – does not show a significant upward trend”

    And that illustrates a significant factor in difference in income between people. Some people make more stupid decisions in life that have a major effect on their wealth over time than others. People who have children that they cannot afford to raise, people who spend ever cent they make as fast as they make it on shiny toys like new cars, boats, motorcycles, home theater systems, etc. People who buy more house then they need or can really afford. They all put themsevles behind the 8-ball compared to those who prudently save and invest their money.

    But when the former type people wind up broke at age 65 you can always count on some demagogic politican to come along blovating about the “haves and have nots” to promise those people some sort of handout collected from those who WERE prudent and saved and ivested their money.

  10. FWIW, I think wealth inequality is probably a bigger problem.

    I have never understood how someone else making more or owning more than I do was a problem for me.

    The more money you have compared to someone, the more power you have over them.

    I know a fair number of pretty wealthy people (net worth north of $10M), whereas I am still accumulating my first, umm, million. None of them have any power over me.

  11. “If the .gov is for sale (not saying it is, just positing that possibility), it will go to the highest bidder. ”

    which i’ve always thought to be one of the stronger selling points for the libertarian position.

  12. Johnny,

    You illustrate very well the difference between a libertarian and a progressive.

    A libertarian sees this problem and says, “The state should not have that power.”

    A progressive sees this problem and says, “One private individual should not have more wealth than another.”

    One would think that the example of, oh, every nation that ever existed, would tell you that wealth is the lesser issue here. If the state does not have the power to sell, there will be no buyers. If the state has the power to sell, it will be bought, even if — as was the case in the Soviet Union — wealth is officially outlawed.

  13. “A libertarian sees this problem and says, “The state should not have that power.”

    A progressive sees this problem and says, “One private individual should not have more wealth than another.”

    To start at square one, those who keep harping on wealth “inequality” have yet to prove that that SITUATION is in fact a PROBLEM to begin with.

  14. Gilbert,

    The problem I was noting to Johnny was that wealthy people can use that wealth to direct state power.

    I agree with you that wealth inequality in and of itself is not a problem.

  15. Most people will be happy if they make more than their brother-in-law.

  16. inequality of consumption – the difference between what the poor consume and what the rich consume – does not show a significant upward trend

    This data ultimately comes from the Consumer Expenditure Survey, which, if I understand its methodology, equates paying rent with making mortgage payments. Sure both types of consumption will give you a roof over your head, but there’s a big difference in terms of quality of housing and wealth accumulation.

    It’s also notable that the Consumer Expenditure Survey doesn’t survey prisoners. That’s a big group of poor people who aren’t even in the income/consumption game.

  17. “You could not come up with an example where a rich person really and truly has more power over me than a poor person. It’s the state that actually has the power.”

    Rich people can purchase the power of the state, for one thing.

  18. Mike P,

    You would think that the lesson of, oh, every nation that ever existed would teach you the lesson that personal wealth and state-backed power are inseperable.

  19. You would think that the lesson of, oh, every nation that ever existed would teach you the lesson that personal wealth and state-backed power are inseperable.

    So, joe, if everyone had exactly the same wealth, what is the magical force that would either (a) prevent state abuse of power or (b) prevent some of the population from directing that power?

    If there is no such magical force, then is it not the state’s having abusive powers that is the problem, rather than how that power happens to be rationed among the population?

  20. Power, by itself, is neither abusive nor appropriate. The use of that power can be either.

    In a situation in which people have roughly equal power, it is harder for one group of them to abuse another.

    Isn’t that why you people believe the general public should be armed? So ordinary people will be less likely to be vicimized by criminals or government agents?

    What’s that term you use for firearms in reference to this dynamic? “Peacemaker?”

  21. Like a firearm, the government is a tool that people can wield against other people.

    You clearly understand why allowing one group of people to pick up firearms, while leaving another group unarmed, is a recipe for the latter group’s victimization. Why is it so hard to acknowledge that the same thing holds for the ability to influence the government?

  22. In a situation in which people have roughly equal power, it is harder for one group of them to abuse another.

    There you go again, implicitly equating power with wealth. They are not equivalent, and the latter does not automatically imply the former. Even if everyone in the population had roughly equal wealth, they would not direct roughly equal government power.

    Some of them serve in government. Some of them have friends who serve in government. Some of them are simply good at manipulating government to give themselves advantages over those who’d just as soon get by on their own.

    As for the rest of your argument where you seem to equate limited government to gun control, I’ll just let that be.

  23. “Even if everyone in the population had roughly equal wealth, they would not direct roughly equal government power.

    Some of them serve in government. Some of them have friends who serve in government. Some of them are simply good at manipulating government to give themselves advantages over those who’d just as soon get by on their own.”

    Oh, yeah, we know how much pull those meter maids have.

    But seriously, while there are other routes towards greater influence with the government, your pretense that the “pull” produced by wealth is equivalent to being able to organize a meeting or write a good letter is not terribly persuasive.

  24. “…your argument where you seem to equate limited government to gun control…”

    Nope, you missed. Try again?

  25. If the rich were so all powerfull at manipulating government power, we wouldn’t have a so-called “progressive” (i.e socialist) income tax system where the top 50% of income earners pay 96% of the income taxes collected.

  26. “…your argument where you seem to equate limited government to gun control…”

    Nope, you missed. Try again?

    As I understand your analogy, we should fix the problem of the wealthy using government power against the poor by letting the poor use government power against the wealthy.

    As one who thinks the problem is government power, not who hapens to be wielding it, you could see how I would find the analogy specious.

  27. “This data ultimately comes from the Consumer Expenditure Survey, which, if I understand its methodology, equates paying rent with making mortgage payments. Sure both types of consumption will give you a roof over your head, but there’s a big difference in terms of quality of housing and wealth accumulation.”

    Which leads us to Nick’s point made the other day that home-ownership is at an all-time high.

  28. If the rich were so all powerfull at manipulating government power, we wouldn’t have a so-called “progressive” (i.e socialist) income tax system where the top 50% of income earners pay 96% of the income taxes collected.

    Thanks, another fact to be pissed about.

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