Countries that are more equal in income terms are also richer. But how about the relationship between inequality and economic growth? The classic causal story, based on work by Simon Kuznets, maintains that there’s an inverted U-shaped relationship over long periods of economic development. As emerging economies grow they initially become less equal as the few with… Continue reading Income Inequality (30): A Primer on Inequality and Economic Growth
When leftists complain about high levels of income inequality, their opponents on the right sometimes argue that inequality is the natural outcome of personal desert. If you’re wealthy, you should be praised for your work, and if you find yourself on the wrong side of inequality you should invest more effort and try harder to… Continue reading Income Inequality (29): The “Get Off the Couch” Solution
The standard “no problem” explanation of income inequality goes as follows: people have different incomes because they have different levels of human capital and productive abilities. Some earn more because they contribute more – to their employers but also to society. They simply deserve, in a moral sense of the word, their higher incomes because of… Continue reading Income Inequality (27): What’s Wrong With It? No Moral Justification
Income inequality may or may not be the best definition of poverty, but it’s certainly one that is often used. In many European countries, you’re counted as poor when your income is below 50% or so of the median income. Maybe this is the wrong way to measure poverty, but if you use absolute measures for… Continue reading Measuring Poverty (14): Measuring Income Inequality
One can argue that high levels of income inequality aren’t much of a problem when social mobility is easy (social mobility being the degree at which people cross into higher or lower income levels than the ones they were born into). Inequality is then the result of skills and effort, the absence of skills and effort, or lifestyle… Continue reading Income Inequality (26): And Social Mobility
As I stated before, economic theory suggests that income inequality is a necessary price to pay for economic efficiency: unequal rewards incite those with talents, skill and perseverance to innovate and to be productive, so they can reap higher benefits. Ultimately, this serves the welfare of the whole of society (a process which is then… Continue reading Income Inequality (25): And Economic (In)Efficiency
It seems that one particular aspect of income inequality – namely the degree of inequality between middle income and lower income people – determines the degree of redistribution in a society, and hence the level of poverty of the poorest: the key factor determining redistribution is the income gap between middle income voters and lower… Continue reading The Causes of Poverty (50): The Structure of Income Inequality
At first sight, income inequality and poverty are completely different things. Poverty is clearly a human rights issue, while income inequality is clearly not, at least not directly (it can have an impact on some human rights). Income inequality is a relative indicator, not an absolute one, and is, for this reason, claimed to be… Continue reading Income Inequality (23): Income Inequality and Poverty
Let’s imagine two fictional societies. One – call it Egalistan – has almost total income equality, as well as consumption equality (the latter following from the former). However, people are stuck in their social roles, and there’s very limited social mobility, vertical or horizontal. The quality of education is terrible. No one has any real… Continue reading Income Inequality (23): The Fable of Egalistan and Opportunistan, or the Relationship Between Income Inequality and Inequality of Opportunity
Despite what foreigners usually believe about the U.S., and despite the confused ramblings of a tiny group of anti-“socialist” loudmouths high on tea, U.S. public opinion is actually very egalitarian: Americans are in broad agreement on the need for a more equal distribution of wealth. … that’s what a forthcoming study by two psychologists, Dan… Continue reading Income Inequality (23): U.S. Public Opinion on Income Inequality
After completing my older post on the subject – in which I argued that Anglo-Saxon economies don’t do a very good job promoting social mobility despite the focus on individual responsibility and policies that (should) reward merit (e.g. relatively low tax rates) – I found this graph which I thought would illustrate my point. Although… Continue reading Income Inequality (22): Social Mobility in Anglo-Saxon Economies, Ctd.
Standard economic theory suggests that these problems created by income inequality are a necessary price to pay for economic efficiency: unequal rewards – however unpleasant they are and whatever consequences they have – incite those with talents, skill and perseverance to innovate and be productive. Ultimately, this serves the welfare of the whole of society.… Continue reading Income Inequality (21): And Economic (In)Efficiency
I know that talking about national or international economic models should be avoided because it’s highly simplistic, but I’ll do it anyway because I want to show that people who do sincerely talk about such models make some assumptions about them that are, in my view, incorrect. The Anglo-Saxon economic model, when compared to the mainland European model, is… Continue reading Income Inequality (20): Social Mobility in Anglo-Saxon Economies
What to do about income inequality? Assuming of course that you agree that income inequality is a problem. How can we do something about the problem without destroying the incentives behind economic growth (assuming that much of economic growth is driven by financial rewards for effort, creativity, innovation etc. and that taking away resources from wealthy… Continue reading Income Inequality (19): What To Do About It?
Attitudes towards income inequality in the U.S. differ widely. There are those who deny that there is any, or better that there is enough to be worried about (see here for an example, or here). Others say that it’s a good thing, and that there should be more of it. People are very different in… Continue reading Income Inequality (18): No Such Thing – Good Thing – Necessary Evil – Gone Thing?
Will Wilkinson’s recent paper on income inequality argues that it’s an overrated problem (see also here). Before I deal with his arguments in detail, a quick reminder of my personal views on income inequality. From the point of view of human rights (which is my default starting point), the most urgent problem is not necessarily the… Continue reading Income Inequality (16b): Its Moral Significance
Yes, I know… another post (and a long one) on income inequality, something which isn’t even a human rights issue, strictly speaking. I repeat, the most important thing to me is the provision of basic necessities, not the unequal distribution of these necessities. The fact that someone is poor and homeless is a more important… Continue reading Income Inequality (15): Progressive Taxation
America and Britain … have the highest intergenerational correlations between the social status of fathers and sons; the lowest are found in egalitarian Norway and Denmark. Things are even worse for ethnic minorities; a black American born in the bottom quintile of the population (by income) has a 42% chance of staying there as an… Continue reading Income Inequality (13): Social Mobility in the U.S. and Britain
It’s a fact that many rich countries – rich in terms of total GDP – have a substantially unequal distribution of income; or, to put it in other words, these countries accept that there is huge inequality of wealth between people. It’s also a fact that, in many countries and particularly the U.S., these inequalities… Continue reading Income Inequality (11): Why Should We Care?
The problem of poverty and related problems such as income inequality have received a lot of attention on this blog, because I consider poverty to be one of the most urgent human rights problems. Now and again, I’ve also mentioned the possibility of distinguishing between different types of poverty, and one such possibility in particular, namely… Continue reading Income Inequality (9): Absolute and Relative Poverty
Conventional wisdom has it that automation comes at the expense of low-skilled jobs and aggravates income inequality because of labor displacement at the bottom of the income distribution. It turns out that this is a bit too conventional, and not only because it runs afoul of the lump of labor fallacy (machines need to be built and… Continue reading The Causes of Wealth Inequality (31): Automation and the Hollowing Out of the Labor Market
Intuitively, it seems obvious that assortative mating leads to higher wealth and income inequality. If rich people marry each other and poor people marry each other, then family incomes will be more unequal than when people routinely marry across class divides. Hence, recent increases in inequality may be due to higher rates of assortative mating, at… Continue reading The Causes of Wealth Inequality (30): Assortative Mating
What I want to do here is look at a possible cause of increasing income inequality, namely the relative shares of labor and capital income. Your labor income is your wage, your pension, your bonus, your company health insurance etc. Most people have a labor income. You only have capital income if you receive dividend… Continue reading The Causes of Wealth Inequality (29): The Declining Share of National Income Going to Labor
Does income inequality result from “political capture” by the rich? Political capture is the process by which wealth buys policies that are favorable to the wealthy, who in turn become more wealthy. Through campaign contributions, lobbying, the monopolization of discourse etc. the wealthy may be able to convince politicians to approve policies such as deregulation,… Continue reading The Causes of Wealth Inequality (28): Political Capture and Deregulation
A social welfare function (henceforth SWF) ranks conceivable or possible worlds – also called “social states” – according to the aggregate levels of welfare they produce. Each social state is given a numerical value by the SWF allowing it to be ranked. This should help policy makers and individuals to achieve the social state with… Continue reading Human Rights Promotion (14): Aggregating Rights (A Social Welfare Function Based on Human Rights)
If you’re a political leader, a church leader or anyone else with the ability and willingness to change some people’s behavior and promote respect for human rights – to some extent that includes all of us – what should be your policy priorities? On which human rights violations should you focus? Ideally, you would like to be told… Continue reading Human Rights Promotion (9): Most Urgent Human Rights Policies
Globalization is the usual suspect when people discuss the causes of contemporary increases in income inequality in many Western nations. As a result of easier transportation, trade and communication, low skilled workers in those nations now face ever tougher competition from cheap workers in developing countries, and this competition drives down wages at the poor end of… Continue reading The Causes of Wealth Inequality (25): Globalization, Ctd.
The “culture of poverty” narrative claims that people are poor because they have the wrong values and habits and therefore make the wrong choices: they tend to be unable to resist drugs, violence and crime, they drop out of school, have a problem with punctuality and discipline etc. I’ve already made my own views about… Continue reading The Causes of Poverty (60): Early and/or Single Motherhood?
Another reason not to worry too much about the supposed incompatibility of equality and freedom is the fact that an equal level of monetary resources promotes freedom. Money in the form of a relatively decent income allows us to choose from and engage in a wide variety of activities. It makes it possible for us… Continue reading The Compatibility of Freedom and Equality (13): More Income Equality Makes Us More Free
A lot of income inequality is hereditary: wealthy parents can offer their children better education, connections, support and other resources that help to advance their prospects in life. Hence, these children will also be comparatively wealthy, on average. An initially unequal wealth distribution results in a self-perpetuating and perhaps even self-enhancing cycle of income inequality.… Continue reading The Causes of Wealth Inequality (24): Self-Confidence
I mentioned before that trade liberalization – the removal of trade barriers such as tariffs, subsidies and other distortions of international trade – is, on aggregate and in the medium term, a powerful mechanism for poverty reduction. I say “in the medium turn”, because some structural adjustment may be necessary, and “on aggregate” because some… Continue reading The Causes of Poverty (54): Lack of Trade Liberalization
It’s hard to investigate the causes of income inequality without looking at the sources of income. In turns out that, in the U.S. at least but probably also in other developed countries, the majority of a population gets almost all of its income from wages, while people at the top of the income distribution get… Continue reading The Causes of Wealth Inequality (23): Capital Gains
This post applies to the U.S., but I guess the same conclusion are valid for a number of other countries as well. In the case of the U.S., very high levels of income inequality could, in theory, be reduced in several ways: offering people better education (better education means better jobs, and more applicants for… Continue reading The Causes of Wealth Inequality (22): Non-Progressive Taxation and Weak Transfers
Many of the people who are considered poor in developed countries have a higher living standard than the average middle class citizens of some centuries ago. If we bracket the minority of the extremely poor in developed countries (the homeless for example), poverty today seems to be a relatively comfortable position to be in, once… Continue reading What is Poverty? (4): Does the Concept of Poverty Collapse Under the Weight of Historical Comparisons?
Not all countries where income levels are very unequal are also countries where labor unions are weak or in decline; but some are, notably the U.S. For that reason, and because labor unions are generally regarded as forces advocating for a more equitable wage distribution, it’s tempting to see a causal link between declining unionization… Continue reading The Causes of Wealth Inequality (20): Weak or Declining Unionization, Ctd.
The marginal utility of something – usually a consumption good or a service – is the utility (pleasure, happiness, wellbeing or whatever) gained from an increase in the consumption of the thing. The law of diminishing marginal utility states that the first unit of consumption of a good or service yields more utility than the… Continue reading Why Do We Need Human Rights? (26): Human Rights and Diminishing Marginal Utility
Once upon a time, An Randy made her life. She wrote stories and became famous and wealthy. She attributed her success to her talent, effort and intelligence, and to the near total freedom she enjoyed in her beloved country of residence. Her freedom-loving philosophy permeates her writing, inspires her readers, and has become a social… Continue reading The Fable of An Randy’s Libertism
As I mentioned before, when people talk about equality they mean equality of something very specific. The problem is, they hardly ever agree on the specifics. So it’s not uncommon to see two people talking about equality and actually talking about something completely different. And even when they’re talking about the same specific type of… Continue reading What is Equality? (2): Or, Equality of What?
Talented people usually earn more, especially when their talents are “marketable”, highly valuable and in demand among large groups of consumers or users. Hence, it’s tempting to conclude that income inequality is the natural and necessary result of the given inequality in the distribution of marketable talents. However, that conclusion only holds up when you… Continue reading The Causes of Wealth Inequality (19): Talent, Effort or Luck?
Consider these two commonly accepted ideas: the interests of business and government are incompatible: business wants as little government as possible, and government wants to regulate and tax business for the common good wealth or income inequality is to some extent or perhaps even principally caused by differences in effort, talent and productivity: those who… Continue reading The Causes of Wealth Inequality (18): Government Backed Corporate Expropriation
People who have enjoyed a relatively high level of education tend to have higher wages. They are more likely to be employed. And their marketable skills give them a competitive advantage. It would seem to follow from this that countries with low percentages of the population having completed some specified level of education (say secondary… Continue reading The Causes of Wealth Inequality (17): Education
Income inequality doesn’t have the same causes everywhere, as is evident from this study which points to the fact that slavery in the U.S., which was abolished almost 150 years ago, still has nefarious effects today. Within the US, the institution of slavery has historically been associated more heavily with specific areas – primarily the South. This… Continue reading The Causes of Wealth Inequality (15): Slavery
Income inequality has risen in many countries during the last decades, including the U.S. The causes of this evolution obviously differ from country to country, although some causes may be universal. If we focus on the U.S., one important cause is wage stagnation for middle class and poor families since the 1970s. This stagnation, combined… Continue reading The Causes of Wealth Inequality (14): Wage Stagnation at the Bottom of the Income Distribution
Some say that the increase in income inequality in countries such as the U.S. has been the result of deliberate government policy. That’s quite an accusation. It’s not controversial to assume that tax policy under right wing governments tends to be less burdensome on the rich, and that social welfare policy under such governments tends… Continue reading The Causes of Wealth Inequality (13): Deliberate Policy?
Immigrants are usually somewhat poorer than natives, mainly because they come from poorer countries, because they are less well educated and less skilled (on average) and because they are sometimes more at risk of being unemployed. So it’s tempting to use data on increasing immigration flows – such as those that occurred in the U.S.… Continue reading The Causes of Wealth Inequality (12): Immigration
What is distributive justice? Distributive justice is a set of normative principles designed to guide the allocation of the benefits and burdens of economic activity. These benefits and burdens can be material goods and services, income, welfare or something else. Whatever they are, a theory of distributive justice will claim that they should be distributed… Continue reading The Ethics of Human Rights (42): What’s the Best Approach to Distributive Justice?
In the U.S., and probably in other countries as well, there’s been an increase in the number of single parent families. Most of the time, that means a single mother, divorced or unmarried, or with a husband in prison, and raising one or several children on her own. As a result: The percentage of children… Continue reading The Causes of Wealth Inequality (11): Family Structure
In the U.S., the median annual income for black families is 38 percent lower than for their white counterparts. So, income inequality in the U.S. has a racial component, and some of the explanations or causes of income inequality may have something to do with racism. I say “may” because if income inequality were essentially… Continue reading The Causes of Wealth Inequality (10): Racism
In my ongoing exploration of the possible causes of high income inequality in rich countries, I stumbled across this politically incorrect quote: A reason for the “wealth or income gap”: Smart people keep on doing things that are smart and make them money while stupid people keep on doing things that are stupid and keep… Continue reading The Causes of Wealth Inequality (9): Merit
There are people who believe income inequality is a major problem – and I’m one of them – and there are others who say that the real problem isn’t a relational one but rather one of absolute means. Harry Frankfurt for example argues that it’s not important whether a person has less than another regardless of… Continue reading The Ethics of Human Rights (38): Should People Be Equal or Should They Have Enough?