David R. Henderson  

Unclear Thinking About Income Inequality

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I wanted to let you know that on Wednesday, October 22, Intelligence Squared US will hold a debate on the motion "Income Inequality Impairs The American Dream of Upward Mobility."
This is the opening sentence of a note I received from Ray Padgett.

Here's the public announcement.

I don't think that the participants will really be debating that motion. If they were, it's clear that the No side should win. If people take language seriously and 1000 people vote, the vote should be 1000 to 0. And this should be regardless of whether the voters think income inequality is good, bad, or indifferent.

Why? Consider. The only way you can have upward mobility is if there's somewhere to be upwardly mobile to. There cannot be upward mobility if there is total income equality. So the only way there can be upward mobility is if incomes are at least somewhat unequal. So the statement, ""Income Inequality Impairs The American Dream of Upward Mobility," is definitely false.

I recommend that Mr. Padgett figure out a way to reword the statement so that people can actually be voting about something that divides them.


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CATEGORIES: Income Distribution




COMMENTS (25 to date)
vikingvista writes:

Perhaps what he means is that income inequality makes possible the dream, which only by existing can possibly be impaired.

Not likely? Then we must assume he meant something like "Large Income Inequality Impairs The American Dream of Lesser Income Inequality". That doesn't seem any more likely.

Ultimately, he may have to simply reduce it to a debate against upward mobility or the American dream itself, since egalitarianism has no place in either.

JLV writes:

Income inequality is, last I checked, not a binary phenomenon.

JLV writes:

To flesh it out a little bit: the phrase "income inequality", as used in the literature and in popular conversation, refers to the degree of inequality (i.e. the size of the Gini coefficient), not whether the Gini coefficient is zero.

Fighting against that is like insisting that we say "the data are", or refusing to admit that "ain't" is a word. It is not a good look.

JLV writes:

Sorry to triple comment, but: the very fact that you use the phrase "total income equality" implies that income (in)equality is a continuous rather than binary concept.

MikeP writes:

So the only way there can be upward mobility is if incomes are at least somewhat unequal.

That's the only way there can be relative upward mobility. But of course there can be absolute upward mobility, where everybody moves up.

The people who decry inequality for inequality's sake believe that it tamps down absolute upward mobility, in that those on the low end of the distribution cannot increase their absolute incomes as much because something something.

But regardless of the fact that they can't explain how inequality holds down absolute upward mobility, they do believe it, and they will try arguing it. The motion statement does divide the two sides.

Don Geddis writes:

Surely the original statement is supposed to mean something like: "greater income inequality causes less upward mobility [for regular folks]". Or, to reverse it, less income inequality than the US has today, would result in greater upward mobility.

The causal factor is supposed to be that rich elites horde their wealth, and then also control the political process, and conspire together to prevent regular folks from having a chance. By analogy, a monopoly supplier uses pricing power to keep competitors out of the market. If you break up the monopoly, suddenly competition flourishes. Similarly (goes the argument), if you prevent a ruling class of super-wealthy, then regular folks have much more opportunity to achieve economic success, once "the playing field has been leveled".

The argument (which I don't particularly support) is suggesting a kind of Laffer curve, where there's a peak amount of income inequality that produces the most upward mobility. And then the second part of the argument is that the US is past the peak, and the current levels of inequality are hindering mobility.

JLV writes:

@Don Geddis:
See Corak (2013, JEP) - the reference is to the Great Gatsby curve, which implies a monotonic and increasing relationship between inequality and intergenerational earnings elasticity (note that we only observe this in the cross-section, though.) The usual mechanism posited involves differential child enrichment expenditures across the earnings distribution.

vikingvista writes:

JLV,

"To flesh it out a little bit: the phrase "income inequality", as used in the literature and in popular conversation, refers to the degree of inequality"

Placing inequality on a gradient doesn't make the statement much better, unless you think it makes sense to assume he is complaining that the dream-worthy goal of inequality is being curtailed by greater inequality.

To make better sense, you'd probably have to interpret the statement as an us-versus-them zero sum game complaint--some people's success at achieving the American dream comes at the expense of others' success.

Chris Lawnsby writes:

Long time lurker.

I love your posts, David, but I disagree with you here. It's patently obvious that the motion means "Especially high levels of income inequality make it difficult for the poor to improve their lot in society."

I assume you disagree with this statement, so in my opinion it makes more sense to advance arguments against the motion rather than nitpick its wording.

Daniel Kuehn writes:

What's your reason for assuming the relationship between income inequality is stable across the distribution of income inequality and mobility?

If it's not stable - if the relationship between the two can change (which I think is very reasonable) - then sensible people can clearly vote in favor of the motion.

We might want them to polish the question of course, but if they don't and we have to make sense of the question as written there's no reason to prefer that everybody vote against.

Greg G writes:

It is entirely obvious that this debate is about whether or not there is TOO MUCH income inequality. It is not about whether or not there should be none.

Here is a description from the link David provided:

"Four authorities - including a "one-percenter" on each side - will debate whether the deck is stacked against the poor and middle classes or if the existence of the extremely wealthy is a catalyst for job creation and economic expansion."

Virtually all human speech rests on a large body of conventions, assumptions and shared understandings. The "income inequality" in the title of the debate is shorthand for "too much income inequality."

It is true but trivial to note that this and many other conventions in everyday speech should not be taken in the most literal way.

MG writes:

Considering the sleight-of-hand that I have seen even in research briefs on income inequality, which rely on objective numbers/data and which have the luxury of 50+ pages in which to amplify and qualify...I think this little nine word sentence could be cut some of the slack some of the comments suggest.

Greg G writes:

vikingvista,

I suspect you are being disingenuous but, if you really do find it to be such a big mystery what the wording of this motion means, you will easily be able to find out by tuning in on Oct. 22.

If you do, I predict you will find that "upward mobility " means two quite different things both of which are crucial to the concept. One is the ability to increase your material standard of living over time with regard to the goods and services you are able to consume. The other is the ability to increase your economic well being relative to others through talent and hard work.

Some people believe that increasing inequality is a drag on economic growth because it results in more and more people not participating as effectively as they could as workers and consumers. Taken to an extreme this could result in smaller than optimal markets for wealthy people to sell to. Others (like Conard) disagree and think more inequality will benefit everyone in the end.

I predict that no one will make a "zero sum game complaint" unless it is as a straw man caricature of someone else's argument. This is an empirical question. We will be able to tune in and find out.

Either way "if people take language seriously" (to use David's phrase) they will stop acting like it is a big mystery what is being debated here.

Lee Waaks writes:

I am confused about equality as an ideal. If no one wants absolute equality because it would require tremendous amounts of force to be achieved and lead to the destruction of the economic system, then it doesn't seem like an ideal worth striving for. Then the ideal becomes "less inequality". But if we are not striving for absolute equality, then how much "less" inequality should we strive for if absolute inequality is no longer the ideal? This seems very arbitrary if not incoherent. It's no longer even an issue of a trade-off between equality and efficiency. If we must always strive for less inequality to be an ethical society, that would suggest we are trying to move towards absolute equality, which, again, no one wants. Maybe the ideal should be less human suffering/poverty at an absolute level, which has nothing to do with inequality. I would much rather be unequal under capitalism than equal under the poverty of socialism.

David R. Henderson writes:

@MikeP,
Good point.
@JLV,
Either income inequality exists or it doesn’t. So if they meant to say some degree of inequality or extreme inequality or some other descriptor, they should have said so.
@Daniel Kuehn,
I don’t understand your point.
@MG,
Are there some words missing in your statement? I didn’t understand it.

Daniel Kuehn writes:

David -

So you've pointed out that obviously inequality must be positive for any mobility to exist. So at the margin between perfect equality and some inequality there's a positive relationship between inequality and mobility.

But that's just one margin.

To assert that people can't support this statement you have to assume that that's true across the whole spectrum of inequality and mobility, and that doesn't seem obvious. It seems like reasonable people can agree with this sentence (I feel like I'm reasonable and a clear thinker, and I suspect it may be true [although I suspect the reverse is even more true - that mobility problems make inequality worse]).

Tom West writes:

Agreed that the motion is technically nonsense. But if 99% of those reading the motion understand exactly what is *meant*, it seems mildly pedantic to pointing out the error as a problem.

Instead, I think it would be a useful point for the opposition side to point out that too much equality is likely dangerous for the American Dream as well.

(Albeit not that we're likely to see too much equality any time soon...)

Of course, I'd like to see a definition of the American Dream. Does it mean that anyone gets a lottery ticket that allows them the chance to become the next Bill Gates? Or does it mean the expectation that hard work will give almost any American a middle class living?

I don't see the former going away, in fact the 1 in a million shot (for white males, anyway) at huge wealth may be better than ever. The latter? Well, that's seems to be dying big time.

Pat writes:

I try to convince people that every older person wants income inequality compared to their 25 year old selves so why is it bad to have income inequality with some 25 year old now?

I never get anywhere with it though.

You can't have increasing income growth without increasing income inequality. We all start as babies with no skills.

Daniel Kuehn writes:

Tom West -
I don't think it's even right to say it's "technically nonsense". If the statement was "All Income Inequality Impairs The American Dream of Upward Mobility," that would be nonsense for the reasons David states but it doesn't say that.

When we say that fog impairs visibility on the road, nobody thinks it means that there is never an instance where fog and visibility can't coexist. What it means is that fog has properties that impair visibility with enough significance and frequency that it's a real relationship in many situations.

JLV writes:

@David -

If inequality either is or isn't then the phrase "inequality has increased" makes no sense unless we started from perfect equality (inequality=0), and inequality switch on to 1. Which is not how any native speaker of English would understand the phrase.

I would submit that since substantially everyone who read the title would have correctly understood that the debate was over whether increases in income inequality lead to decreases in mobility, whether you are technically correct on grammar pedant grounds (which I do not concede*) is moot. "Taking language seriously" != "writing things in David Henderson's preferred manner".

This sort of reasoning applies to enough Economics paper titles that I have to assume you are trolling. Essentially any applied micro paper that contains the question "does x cause y?" in which x is some continuous variable can be willfully misunderstood in the way you willfully misunderstand "inequality".

R Richard Schweitzer writes:

There is a host (with banners) who:

1. Wish (and strive) to recast the concept of what constitutes "upward mobility."

2. Wish to eliminate improvements in material well-being from that concept.

3. Believe that individuality and its expressions must be subordinated or suppressed to further the mobility of "society" as a whole, rather than by its parts.

4. Deny that the aspirations that drive mobility are directed "upward."

5. Which consists of many who find self gratification in simply carrying a banner.

vikingvista writes:

Greg G,

I suspect you are being disingenuous
Why?
if you really do find it to be such a big mystery
It is only a mystery if you assume the writer of the title has coherent notions of income inequality and upward mobility. One way of exposing bad ideas is too assume the one expressing it knows what he is talking about, and see where it must lead.
I predict you will find that "upward mobility " means two quite different things both of which are crucial to the concept. One is the ability to increase your material standard of living over time with regard to the goods and services you are able to consume.
Which entails income inequality.
The other is the ability to increase your economic well being relative to others through talent and hard work.
Which also entails income inequality.

Greater abilities to do either entail greater income inequality. UNLESS, as I said, you are intending to partition the population into those who have that ability, and those who don't BECAUSE of the success of the former. If there is no BECAUSE, then there is no issue to debate.

Some people seem to think you can have rising incomes for everyone without income inequality, but of course, that is an impossibility, unless you think children can all earn the same as each experienced 50 year old, and that each 50 year old wishes to produce the same amount (and countless other ridiculous scenarios). And of course, increasing ability to save makes both wealth and consumption inequality increasing phenomena.

Some people believe that increasing inequality is a drag on economic growth because it results in more and more people not participating as effectively as they could as workers and consumers.
Maybe they are right. I think it is nonsense (what is not nonsense is that there may be a 3rd factor producing both greater inequality and a population of disenfranchised). It is very easy to imagine the extreme opposite being the case, isn't it? That rapidly growing inequality is a result of rapidly increasing returns to experience and education FOR ALL?
I predict that no one will make a "zero sum game complaint" unless it is as a straw man caricature of someone else's argument.
I predict that no one will make a "zero sum game complaint", because exposing the obvious fallacies of others is too often considered offensive. But if growing income inequality per se is a problem, then the problem must be in the diminished opportunities of some people. In other words, the success of some is at the expense of others.

Greg G writes:

vikingvista,

Disingenuous because I don't believe you are nearly as unclear about what will be debated on Oct. 22 as you have claimed to be above. I think you are smarter than that.

>---"Some people seem to think you can have rising incomes for everyone without income inequality"

Really? Who are they? I have never met any of them or seen any of them comment on Econlog. You will certainly not see any of them participating in the debate in question. No one in this debate is advocating total income equality.

For about three decades after WWII we experienced a rapidly growing economy with all income groups participating roughly equally in that growth. In the last couple decades the income growth has accrued much more unevenly towards the top income groups. Some people think this change of trend towards more rapidly growing inequality is bad. Some think it is good. The issue will be debated on the 22nd. No one will be advocating zero inequality. If you don't believe me tune in and watch.

Eric Hosemann writes:

David- well said. Your reasoning reminds me of a passage in Human Action (I can't remember precisely where) in which Mises refers to the mythical "Land of Cockaigne," a place of plenty but of stasis as well. When pressed, inequality-scolds usually admit that a certain amount of inequality is necessary, and that they have figured out just how much. I found shades of this in Russ Roberts' excellent interview with Thomas Piketty.

[The passages in Human Action via Econlib's search engine.--Econlib Ed.]

Tom West writes:

When pressed, inequality-scolds usually admit that a certain amount of inequality is necessary, and that they have figured out just how much.

Unless you're okay with *total* inequality, i.e. one person has all the wealth and thus dictates life and death over all other people (get off my land, and I own all the land), then you also believe that a certain amount of inequality is necessary *and* that you have an idea of how much is too much.

All we're negotiating over is where the line should be.

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