David R. Henderson  

Poverty and Income Inequality are Separate Issues

Schooling Ain't Learning, But ... Frederick Douglass on What He ...
"One reason that action to limit growing income inequality in the United States is difficult is that the growth in inequality is not a simple picture. Old-line leftists, if there are any left, would like to make it a single story--the rich becoming richer by exploiting the poor. But that's just not a reasonable picture of America in the 1980s. For one thing, most of our very poor don't work, which makes it hard to exploit them. For another, the poor had so little to start with that the dollar value of the gains of the rich dwarfs that of the losses of the poor. (In constant dollars, the increase in per family income among the top tenth of the population in the 1980s was about a dozen times as large as the decline among the bottom tenth.)"

The above is a quote from a book published in 1990. The author is a well-known economist. Question: What is that economist's name? Hint: he won the Nobel Prize in economics in 2008 and writes a regular column and blog for the New York Times.

That's right. Those words were written by none other than Paul Krugman.

I quote this paragraph, not to embarrass him, pleasurable as that is, but to make a more serious point. It is this: the income inequality in the United States today cannot be explained by rich people exploiting poor people.

What matters is not whether inequality increases but whether people of all income levels are doing better.

These are the opening paragraphs of my piece, "If Obama's worried about poverty, he should focus on it, not income inequality," FoxNews, January 24, 2014.

Read the whole thing, which is short.

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CATEGORIES: Income Distribution

COMMENTS (14 to date)
Daniel Kuehn writes:

I am a little confused about this line: "I quote this paragraph, not to embarrass him, pleasurable as that is, but to make a more serious point."

Why would anyone think this would embarrass him anyway?

David R. Henderson writes:

@Daniel Kuehn,
Why would anyone think this would embarrass him anyway?
Because it’s the kind of thing he would never write today.

Daniel Kuehn writes:

OK I guess that's what I'm confused about. Just the other week when he was criticizing Bret Stephens on income inequality by citing CBO data on how everyone's income grew since the 70s, the rich just grew faster. He's attributed the growth among the rich to what's been going on in finance and that's not an exploiting the poor argument (and I don't think anyone is doubting that finance has a lot to do with the growth of the top 1%).

OK - cool. At least I know what you're referring to, but I think you're being a little pessimistic.

Thucydides writes:

The reason for the focus on inequality rather than poverty is political; the former mobilizes envy and resentment.

TMC writes:

1990 was back when he was an economist, Daniel.
Since the late 90's he' rarely be confused with one. I think the embarrassment come from how many of his present positions are easily rebutted by citing Economist Krugman from the era when he wrote Nobel quality work.

Peter Gerdes writes:

I don't buy that people genuinely care primarily about their absolute economic wellbeing.

If this was indeed true than the poor today should be far happier with their lot in life than the rich of 100 years ago. Accounting for the decreases in warfare and crime the poor today are much less likely to die violently than even the wealthy (excluding, perhaps, the topmost 1% with enough money to have serious political influence) and with the advances in health care have a longer life expectancy than the wealthy of 100 years ago.

In terms of material possessions the poor of today have microwaves, refrigerators, indoor plumbing, gas/electric stoves etc.. They also have access to fruits, vegetables and other goodies (twinkies) that didn't even exist 100 years ago. In terms of access to material goods the poor of today are substantially better off than even the wealthy of 100 years ago.

So why does it (pretty obviously) suck to be poor today? Well you don't get to live near your work (if you have a job) and your work is probably boring with long hours. But land is (virtually) impossible to create so possession of desirable land is ALWAYS reserved for those who have more wealth than the rest of society. No amount of absolute economic expansion can change the fact that if you are relatively poor (very small fraction of your societies resources) you won't have access these kinds of rare goods.

Why else does it suck to be poor? Well your children don't get the educational opportunities of the rich. Again, however, this isn't about making everyone better off, since many fewer would have completed HS 100 years, but about making sure you have roughly the same level of educational achievement as the richest part of society.

Pajser writes:

David Henderson: "What matters is not whether inequality increases ..."

When you invite your friends on dinner, you are careful to give all of them equally good meal. If you intentionally give large ice-cream cups to all guests except to chosen few, the chosen few will be seriously offended. Adults do not care much for ice-crime - and in developed world they can buy as much as they want. So, it cannot be much of envy. It is probably about need to be recognized as important members of the group; the same need that dominates life of teenagers. It is heavy issue. I checked few studies, it appears likely that inequalities cause crime and depression (medical condition). There is even some rank theory of depression. To some degree, then, crime and depression probably cause absolute poverty. It appears there are lot of criminals and depressed on very bottom of the society.

Surely, relative inequality is not only problem, but it is hard to dismiss it. However, politician should be explicit about his actions, almost like judge should, and he should left people without doubt why/if he wants to reduce inequality. So, I guess you have some right here.

Jody writes:

I, for one, do not give all of my guests the same size serving of ice cream - the women would protest such a large serving, the lactose intolerant would feel slighted having even been served icecream, those who wish seconds (or thirds) would be unhappy...

My point being, beyond the fact that your specific metaphor rings particularly false to me, is that there are an infinite number of hierarchies and the focus on income inequality seems to me to be one where those at the top of the political hierarchy (DC) are trying to quash those atop of the economic hierarchy (NYC) because the political hierarchy is zero sum.

Alex writes:

You say in your linked article that "What matters is not whether inequality increases but whether people of all income levels are doing better." I believe that's true, but there's psychological research showing that relative income/inequality matters, not just absolute inequality.

To the progressive, there are poor people, working just as hard as many rich people, and yet they see far lower gains. Often there's very little they can do, due to unlucky circumstances. Is that "fair"? If fairness matters, doesn't this relative income gain? Even if it's not unfair, could not redistributing from rich to poor, in theory (I don't believe it works), combat poverty and inequality simultaneously?

Life is what it is, and there's not a lot we can do to make a big change. But it's too simplistic to say that these things just don't matter.

Roger McKinney writes:
What matters is not whether inequality increases but whether people of all income levels are doing better.

True, if you lack envy. For the non-envious, the only thing that matters is whether the rich acted legally to get their wealth. If so, then we should be happy for them.

No one will understand the issue of inequality without reading Helmut Schoeck's "Envy: A Theory of Social Behavior." Unless concern for inequality focuses on whether the rich violated the law, then all concern about inequality is pure envy.

As Schoeck shows, socialism has made envy a virtue. We should only be concerned about equality before the law, not equality of incomes or wealth.

Steven H Noble writes:

While I'm personally more sympathetic to his old position than to his current position, I'm now inclined to take his new position more seriously.

First because it is hard to change one's mind. The fact that Krugman has means that he must be so concerned about inequality that he could get past the dissidence of contradicting himself.

And second, it now clearly can't be argued that he simply doesn't understand the position that inequality doesn't cause poverty. We know he understands this side of the argument because he has expressed it himself.

People should take pride in their changes of heart. It allows them to say "ah, I used to believe as you did. And then I grew wiser and saw the folly of those ideas."

RPLong writes:

Isn't it remarkable that we can very much solve most of our scarcity problems, but can never hope to solve our envy problems?

dave smith writes:

The dinner analogy is so awful I had to comment. Wealth and income are not distributed like ice cream at dinner. Income and wealth are created.

Glen Smith writes:

Envy creates opportunities. I've seen many a successful marketing program based on envy. I've also read about many dictators who built their armies of loyal followers through the manipulation of envy.

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