Why inequality? A reply

07/02/2014 § 4 Comments

Paul Walker asked a question recently — why are some of us focusing on inequality? That started a discussion on the Dismal Science feed at Sciblogs. Since I’ve been implicated by link, I figured I should say something.

Why inequality?

Well, first, other people are talking about inequality, but they are getting it wrong. One thing I’m trying to do is establish a sort of factual basis for the discussion. For example, people like to point to The Spirit Level as somehow the final word in the evils of inequality. So I’ve read the  book and pointed out its faults, which I think are serious enough that the book doesn’t prove its thesis. Or, alternatively, I’ve calculated that mobility of income quantile doesn’t tell you as much as you think it might. I’m doing this work 500 words at a time, so it takes a while.

Secondly, I’m interested in the economy as a human construction. We’ve designed it, and we can re-design it. Note that I’m not suggesting something like a New Socialist Man. I’m not advocating that we re-make people. But if as economists we believe that (a) incentives matter and (b) institutions matter, then changing incentives and institutions produces different results. So, I’m interested in exploring how we make changes to meet different goals.

Finally, I’m acting according to my preferences. I like fairness. I like symmetry and order. There’s something about equity that appeals to my sense of order. Now, perhaps you think the economy is fair, in the sense that people get what they deserve and actions lead to appropriate consequences.  Or, perhaps you think that life is not fair and that’s enough of an explanation. Me? I look around and see more than just the background cussedness of it all. I see people using power and privilege to maintain their own positions, and then saying that it’s just The Way Things Are. Or, more academically, that we shouldn’t turn away from the fraud that accompanied the global financial crisis, for example.

That’s why I’ve been writing about inequality. It’s just my tiny little effort to make the world a better place.

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§ 4 Responses to Why inequality? A reply

  • Paul Walker says:

    Bill. My basic reason for asking the question is that its not clear why people are talking about inequality. What is wrong with inequality? What great evils follow from it and why should we believe the causation? The Spirit Level at least tried to answer these questions, albeit badly. So are there better reason for worrying about inequality?

    Just because we can redesign something dos mean we should. Also I’m not sure we did design the economy, it looks more like a spontaneous order than a deliberate design, to go all Austrian.

    • Paul — To start, I think the discussion is about appropriate levels of inequality — how much should there be (to provide fair incentives) and how much is too much? I recall work years ago in developmental economics on necessary levels of inequality — not sure whether that work continues.

      People clearly have preferences about levels of inequality, and they are acting according to those preferences like they would any others. Too much inequality is bad for their personal utility functions, which they are trying to optimise.

      Inequality can also be a problem for those on the wrong side, or even who fear being on the wrong side. In a Harsanyi-Vickrey framework, people may be protecting their future selves or descendents.

      I’m also trying to find a way to discuss paths of future economic development, but keep getting hung up on the incommensurability of utilities, which keeps economics from applying value judgements to different future states. I wonder if that is a limit to the economics contribution to the discussion, and we have to recognise that it is ultimately a value-based issue.

  • Maurice says:

    The question has been asked, “Why worry about inequality and poverty” I maybe confused at a technical level between poverty and inequality: however, I can think of three reasons:

    First: A concern with income gaps, poverty and so forth is an ethical challenge. We are concerned because of our shared humanity. Our concern and action is because it is the right thing to do.

    The second reason is the pragmatic one: There is evidence and good reason to think that helping others, and cooperating is a successful approach to doing well in the world. My understanding of Wilkinson’s work and others like him is that the studies makes this pragmatic link much clearer. And I don’t think his work is as easy to dismiss as some I have read on these economics blogs. He has published in peer reviewed literature all his career and has earned the title professor in the British system, and has a clear public profile. Maybe we should pause and think a little more carefully about the overall message rather than just dismissing him.

    The third reason is this: we live on a physically limited world and unrestrained economic growth is not possible indefinably. Additionally technology is not likely to give a simple solution, allowing growth to continue unabated. (Rockstrom et al, 2009: Huesmann and Huesmann, 2007; Meadows et al, 2004). Thus our economic systems need new answers to two questions: “How do we contain the physical and energy flows within human systems within the constraints of the biosphere?” And, “How do we distribute the goods and services fairly?” Within these questions we must be concerned with the challenge of the inequality gap, and poverty.

    Huesman and Huesman (2007). Will progress in science and technology avert or accelerate global collapse? A critical analysis and policy recomendations.:

    Meadows et al. (2004). Limits to growth: the 30-year update

    Rockstrom et al. (2009). A safe operating place for humanity.

    (The two papers are available from internet sources, the Meadows book from many libraries).

  • […] up to scrutiny". And various local bloggers have also been on the case, including Anti-Dismal, Groping towards Bethlehem, and The Visible Hand in Economics.I have to admit that income inequality in New Zealand is […]

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