David R. Henderson  

Gerson's Confusion about Inequality

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Putnam's goal is to reveal the consequences of inequality on kids. This unfairness is rooted in various, interrelated trends: family instability, community dysfunction and the collapse of the blue-collar economy. The result is a growing, class-related gap in social capital between rich and poor.
This is from Michael Gerson's "The effects of inequality on America's kids," Washington Post, March 16, 2015. It's Gerson's op/ed on Robert D. Putnam's book Our Kids: The American Dream in Crisis.

Gerson goes on to tell some heartrending stories from the book about kids with no parents around because they are dead or in jail and kids who go to lousy (apparently government-funded) schools.

But ask yourself this: Imagine that you read these same stories and imagine that each family and household in the top third of the American income distribution had 10% less income. That way, there would be substantially less income inequality. Would you feel less bad about these stories? I wouldn't. But if you feel the same as me, what are we saying? We're saying that our concern is with these kids, not with income inequality.

I don't know Putnam's goal. Gerson could well be right that revealing "the consequences of inequality on kids" is his goal. What I do know is that the Putnam concerns that Gerson highlights are moving not because of income inequality but because of the absolute state of the kids in these positions.

Interestingly, one of the main quotes that Gerson uses from Putnam, identifies poverty, not inequality, as the problem. Writes Gerson:

"Poverty produces family instability," he [Putnam] argues, "and family instability in turn produces poverty."

It's important to be clear about our goals. If our goal is to reduce income inequality, we can do that by much heavier taxes on high-income people. And that won't necessarily do anything for poor people. The California state government has very high taxes on high-income people and uses some tax money to build an expensive railroad in the Central Valley.

It's not even clear that the problem is poverty per se. If Gerson is quoting accurately, then the problem is more one of broken families, violent neighborhoods, and poor schools. If our goal is to help kids without families and if they live in "drug-ridden and violent" communities, to use Gerson's words, we could end the drug war and thus end the part of the violence that's due to the drug war. This measure, moreover, would reduce government spending, freeing it up to be spent on other things, to reduce the deficit, or to reduce taxes.

The point is that if we really care about kids in dysfunctional communities, we should focus on measures to help them. Gerson writes "And the more influence this [Putnam's] book gains, the more just and generous our country will become." Maybe, but Gerson has already had a false start. Will Gerson join me in calling for an end to the unjust drug war?


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COMMENTS (29 to date)
Jon Murphy writes:

Check out this chart

The bottom 10% of the US live better than the top 10% of many countries, including: Russia, Italy, Israel, Portugal, Brazil, Turkey, and Mexico. Of these countries, only Mexico and Brazil have higher income inequality than the US. So no, inequality does not equal poverty.

Dan writes:

When people mention inequality, they are usually referring to some some unrelated factor that's driving both inequality and poverty.

But in the case of schools, I think inequality itself can exacerbate the underlying problems. Inequality results in geographic segregation. Rich either send their kids to private schools, or move to neighborhoods with good public schools and are more likely to be actively involved in these schools.

There are also more indirect effects on schools. Greater geographic segregation means they are not attending the same church, going to the same playground, birthday parties, etc. Some of these problems are discussed in Murray's book Coming Apart.

Kevin Erdmann writes:

Dan,

Churches in poor neighborhoods seem at least as vibrant and meaningful to their parishioners as those in high income neighborhoods. And, they tend to be highly segregated. I don't see black church leaders bemoaning the fact that their churches don't serve them well because there aren't more white people in them.

The problem with schools isn't the poverty or the segregation. It's that they are public. We have this confusion because, in the South under Jim Crow, it was the fact that schools were managed through public monopoly that allowed them to serve black people so poorly. Given the problems inherent in having a public school system in a jurisdiction that is explicitly racist, desegregation was seen as a way to force the schools to be more fair. But, this Band-Aid solution was really just a way to avoid fixing the real problem, which was that racist Southern whites had political control of the education of Southern blacks. This was only possible because schools were a public institution.

If schools were like churches...well, they'd perform more like churches.

Hazel Meade writes:

it seems like "inequality" has become a kind of sleight of hand term to talk about poverty. Even though by most absolute measures, poverty has been declining, inequality hasn't. So you can "prove" the inequality is rising, and then segue directly into talking about the problems of poverty, and proceed to blame them on "deregulation" and "reaganomics" of the past 30 years, without ever having to address the fact the actual poverty rates have gone down with those same policies.

David R. Henderson writes:

@Kevin Erdmann,
Well put. By the way, I was driving around Sheboygan, Wisconsin this morning and channel surfing on A.M. radio. I heard a black guy exhorting his listeners to use the same methods that white people used to let Vanguard and Fidelity make them rich. Good for him, I thought. For some reason, your comment reminded me of that.
@Hazel Meade,
Good point. And notice, as you yourself said, they aren’t really even talking about poverty, given that these problems seem to be increasing while poverty is declining.

David R. Henderson writes:

@Jon Murphy,
Wow! Thanks.

Lliam writes:

Hazel,

Nicely stated. I think that's pretty close to bang on.

Tom West writes:

The bottom 10% of the US live better than the top 10% of many countries.

Does anyone seriously suggest that the 90th percentile in those countries feel worse off than those living at the 10th percentile in the US?

Are you currently living a life of untold misery because you've got a 2nd percentile income compared to the glorious 25th century?

I strongly suspect that none of the readers here are in the bottom decile of income in their respective countries.

For me, the important thing is that the further away people are in income the less they are viewed as people and more as symbols, and often enemies. (And yes, this also applies to culture, race, religion, etc., but the importance of those seems to decline in modern society)

A country that views the 1% as greedy, evil and rapacious, or 47% as lazy, do-nothings is not going to prosper. And if my experience in countries with truly high levels of inequality is any guide, as that inequality increases, that alienation along the scale of wealth only sharpens.

So, is extreme inequality bad for children, outside of absolute poverty? Well, they're living in a culture influenced by that inequality, so I'd say yes. With less inequality, they're less likely to be viewed as worthless, at best tolerated, and at worst, better eliminated. They're also less likely to view success as a foreign thing that is the result of corruption and unfairness.

Tiago writes:

This is one topic where I generally disagree with Econlog bloggers - even though I agree with y'all on so many other things.
To answer your question, all else equal, I would feel less bad about those children's situation if the top third made less money, because that would mean fixing it through redistribution was that much harder. To see this, take it to the extreme. Imagine that the top third had a hundred times the money it now has but we still saw children in the dire situation that we see now. Wouldn't that make us feel a little worse about being unable to solve it?
From a practical standpoint, however, I think we agree a lot more. Many proposed redistributive policies simply do not achieve what their stated objective is while actually decreasing output. At the same time, there are a number of policies - or non-policies, perhaps - that could decrease inequality and increase wealth.

Maniel writes:

It would appear that Gerson and Putnam do understand that the misery of some children is the result of weak family structures and support. Even if we take at face value the implication that income is correlated with well-being (which, among other things, neglects the element of choice), author and reviewer confuse cause and effect. The children are not miserable because their parents are poor; rather they are miserable for the same reasons – failure to prepare for adulthood or to assume responsibility – that have reduced their parents’ incomes. This lack of focus is an even bigger problem than the expansion of the income-redistribution “solution;” it is a diversion from root causes which are seldom if ever addressed. Thus, the “solution” becomes part of the problem, much as laws against working (so-called “minimum wages”) and drug laws (as you point out) are barriers and disincentives for young people to enter the visible economy.

Philo writes:

Tiago stole my thunder, but let me put the point my own way:

The (usually unarticulated) idea behind inequality alarmism is probably this: we would have to accept the conditions under which the poor live if resources were lacking to improve them, but the existence of rich people shows that the necessary resources are, indeed, available, and could be made accessible to the poor quite easily--directly, by *redistribution* of wealth, or perhaps in some indirect fashion that would have the same redistributive effect without shrinking the quantity of wealth. Thus the U.S. is so wealthy that it--we--need not tolerate the conditions in which the American poor live.

It is usually not considered whether massive direct or semi-direct redistribution would, indeed, leave the quantity of wealth the same in the long run. (There may actually be some policy changes that would reduce inequality without reducing wealth in the long run: good ones such as eliminating occupational licensure, the minimum wage, and the public-school monopoly, bad ones such as keeping out poor immigrants--not to mention exiling poor natives!) It is also not explained why the American "poor" are the exclusive focus, when there are so many absolutely poor people outside the U.S.

Mark V Anderson writes:

Excellent post. Part of a series of postings I've seen here about the constant interchangebility amongst many of the Left between poverty and inequality, when they are extremely different concepts. Keep hitting on these; maybe eventually the concept will escape the libertarian community.

Yes, Tiago and Philo make good points, but it is still very important to differentiate between the concepts to have coherent ideas and make rational policy.

By the way, I suspect I was in the bottom decile during my years in college. I think my son was in the bottom decile for about a year, when he moved out of the house, although I think he's moved up a decile now that he's got a better paying job. I think many of us have had such temporary poor episodes. It's not as foreign as implied. It's just that the intelligent thing to do in such situations is to work hard to get out of it, which is often successful.

RogC writes:

People want to be seen as working to solve poverty but there are no methods left that work and are also politically correct to talk about. Thus they resort to a bit of slight of hand to attack inequality since it's perceived as easy for government to take money from those who have it and thus show 'progress'. This does nothing to help the poor work their way up but it can be presented as a success and make the envious feel content. Just another flimflam act by the normal assortment of mountebanks.

Richard Fulmer writes:

@Jon Murphy,
I second Dr. Henderson's "wow." That's really an eye-opening chart. If nothing else it should make us question whether we want to follow the (socialistic) economic policies of Russia, Italy, Israel, Portugal, Brazil, Turkey, and Mexico.

Walter Clark writes:

Inequality and poverty allows the same person to be both Baptist and bootlegger. The bootlegger inside every liberal is an emotion that used to be called envy. The word envy is still pejorative, but that feeling is now called by a word that the Baptist inside them drops a tear for: poverty.

Walter Clark writes:

When inequality is measured by a ratio of rich to poor, the reason for the progressive’s jihad can be associated with a number which gets larger and larger as the economy creates a higher standard of living. Their jihad is actually due to the pain caused by their own envy; an envy that seems to be much stronger than the poor have for the rich. The progressive pretends even to themselves that the reason for their hate is the poor.

Tom West writes:

If nothing else it should make us question whether we want to follow the (socialistic) economic policies of Russia, Italy, Israel, Portugal, Brazil, Turkey, and Mexico.

While I'm certain American policies have contributed to its growth, I suspect that having the temperate zone of an entire continent all to itself just may have had something to do with its success.

I've played enough Risk to know that what happens if one player gets to monopolize North America :-).

Jon Murphy writes:

@Richard Fulmer:

I second Dr. Henderson's "wow." That's really an eye-opening chart. If nothing else it should make us question whether we want to follow the (socialistic) economic policies of Russia, Italy, Israel, Portugal, Brazil, Turkey, and Mexico.

I agree. I think it really shows how incredibly wealthy the American "poor" really are.

trent steele writes:

@Hazel Meade
This is why I try to always read the comments before posting. You nailed it!

trent steele writes:

@Tom West

While I'm certain American policies have contributed to its growth, I suspect that having the temperate zone of an entire continent all to itself just may have had something to do with its success.

NA in Risk was great because of the ratio of units produced (due to monopoly at the start of your turn) to entry points/points necessary to defend in order to keep your monopoly. (I know you were joking, but humor is lost on some)

In real life, a continent-wide "temperate zone" would have given some advantages, perhaps; but were that the whole (or most) of the story then we would see the gap closing just based on the Globalization of the world economy. Since you can get what you want wherever you are, Tropical or Temperate should have lost significance and correlation with wealth to a much larger degree in the last 50 years (or even longer, as evidenced by this classic Monty Python https://www.youtube.com/watch?v=JHFXG3r_0B8 scene:


Guard: Where'd you get the coconuts?
King Arthur: We found them.
Guard: Found them? In Mercia?! The coconut's tropical!
King Arthur: What do you mean?
Guard: Well, this is a temperate zone.
King Arthur: The swallow may fly south with the sun or the house martin or the plover may seek warmer climes in winter, yet these are not strangers to our land?
Guard: Are you suggesting that coconuts migrate?
King Arthur: Not at all. They could be carried.
1st soldier with a keen interest in birds: What? A swallow carrying a coconut?
King Arthur: It could grip it by the husk!
Guard: It's not a question of where he grips it! It's a simple question of weight ratios! A five ounce bird could not carry a one pound coconut.
King Arthur: Well, it doesn't matter. Will you go and tell your master that Arthur from the Court of Camelot is here?
Guard: Listen. In order to maintain air-speed velocity, a swallow needs to beat its wings forty-three times every second, right?
King Arthur: Please!).

I would argue instead that it is the role of institutions (notably freeish-market--now crony--capitalism) and a culture of entrepreneurship and distrust of centralized authority that was far more determinant of the United States' success. Having visited or lived in many of the countries also appearing on the graphic I will say that, while the people are--as anywhere--gracious and wonderful, it is not their weather that is holding them back. At this point hotter or colder climate just doesn't seem to be a big disadvantage.

[comment revised by commenter--Econlib Ed.]

Ted writes:

Capital migrates toward opportunity to profit. I should think we can agree on that. Now......... that said, tear-jerking sob stories aside, household instability is far more destructive to productive livlihood at all ages of life than any descent into lifesyle envy could ever be. Inequality per se is not destabilizing but predatory capital migration surely is.

As others have pointed out, American poverty would appear to be wealth in many countries around the world. Where I take issue with the implied "so quit yer gripin'" is that a native village that is ignored by their ruling class is yet able to offer a certain stability that, within a favorable cultural context, allows the "poor" to retain their dignity (such as it may be) and take solace in whatever religious and cultural modalites their circumstances provide.

Not so the American poor displaced by gentrification and usury. Speaking as one who knowingly joined the predatory classes and contributes to the above-mentioned displacement by having made losers of those weaker and less learned than myself, I cannot escape my own role in enabling inflationary predation by paying the ever-increasing "market rate." I can do so because my gains have been the losses of others and my financial power exceeds that of the losers.

I chose to chase the money in preference to living in a culturally pleasant form of dignified poverty because the perpetual influx of predators repeatedly endangered that dignity. Having perfectly adequate yet comfortably shabby living quarters gentrified and sold out from under me is only one example of they myriad reasons for that choice.

One should be allowed to know their place and be allowed a modicum of contentment within it. Impossible to sustain that ideal when the moneyed refuse to accept the responsibilty that accompanies the power that their wealth represents. Relentless ambition does not, as a universal mandate, a stable and productive society make.

I posit that we'd hear a great deal less about income inequality if, along with wealth accumulation, our economic culture gave equal weight to Noblesse Oblige.

Rich Berger writes:

Several assumptions seem to underlie the comments by those who believe that inequality is bad:

There is a fixed supply of income and the rich have simply elbowed the poor out and grabbed it.
The problems of the poor could be fixed with money if only "we" had the will to take more from the undeserving rich.
The poor are passive victims who have no ability to improve themselves and therefore must be saved by the right thinking, armed with money taken (er, redistributed) from those who have unfairly benefited.

I don't think any of these assumptions are correct.

Tiago writes:

Rich Berger,

I don't see why we need those assumptions at all.
We don't need a fixed supply of income.
1) We need only that production doesn't fall by as much as is being taxed - meaning you can get revenue from taxes. This is clearly true.
2) The problems of the poor can't be fixed by giving them more money, but they can be helped get rich faster if we give them money. There is a lot of evidence for that.
3) There is no need to think in terms of victims and villains. The poor are not passive, but helping them may alleviate poverty faster. If we have the resources, why not?

Rich Berger writes:

Tiago-

The underlying fallacy of your last comment is that you assume, by the use of "we", that other peoples' money is your money. If you want to give money to the poor, be my guest. If you think you can take my money so that you can feel generous and liberal, I will surely resist.

Tiago writes:

Rich Berger,
I don't know if you are an anarchist, but unless you are, you accept that the government taxes people to promote public goods all the time - goods that are non-rival and non-excludable. Sometimes, people genuinely would prefer not to have the public good promoted. For example, maybe some people really hate fireworks and would actually prefer there was nothing like that. Still, because it is virtually impossible to refrain from taxing only the people that sincerely are against fireworks, the government tax them all and pays for fireworks on new year's eve.
Poverty alleviation is a public good. It is non-rival and non-excludable. Many people would like to see it done, but feel there's a free rider problem. Some people genuinely would not like to see it done. I don't see why fighting poverty should be the one public good we refuse to use taxes and government for.
Now I'm only arguing this on the theoretical level. On a practical level, I think that most countries would actually reduce inequality much more efficiently if they reduced government intervention instead of increasing it.

Tom West writes:

Rich, 'we' is not a fallacy, it's a premise, and at that, a premise that is held by a strong majority.

You're perfectly within your rights to not use that premise, but if you aren't and taking money from someone involuntarily is *always* immoral, then human suffering is immaterial to your position.

In which case, why the post before it?

Mixing consequentialism with a deontological argument makes it look like you're just throwing stuff out there and hoping some of it sticks rather than believing in either.

ThomasH writes:

I guess Rich Berger has never talked with any liberals I know.

"There is a fixed supply of income and the rich have simply elbowed the poor out and grabbed it."

No. Liberals supports many policies that add to aggregate income such as

removing distortionary "loopholes" in the corporate income tax (as long as we have one)

greater monetary stimulus when inflation is below target

investment in infrastructure projects with npv > government borrowing rate.

carbon taxes instead of other ways of reducing CO2 accumulations (which are reducing income).

"The problems of the poor could be fixed with money if only "we" had the will to take more from the undeserving rich."

No but taxes on the poor could be reduced with more generous EITC and that (later, when the deficit needs to be reduced) could be paid for with a progressive consumption tax.

"The poor are passive victims who have no ability to improve themselves and therefore must be saved by the right thinking, armed with money taken (er, redistributed) from those who have unfairly benefited."

One need not believe this to wish to spend money to transfer income to poor people with say, a Child tax credit or day care or subsidized health insurance.

"I don't think any of these assumptions are correct."

As you stated them, I doubt many Liberals do either.

David R. Henderson writes:

@ThomasH,
investment in infrastructure projects with npv > government borrowing rate.
You mean investment in infrastructure projects with npv exceeds zero, right?

Fred Anderson writes:
If our goal is to reduce income inequality, we can do that by much heavier taxes on high-income people. And that won't necessarily do anything for poor people

This layman suspects it does something negative for the poor. Particularly, I suspect it reduces the likelihood that they can find a job at a decent wage. It does that by reducing investment. (I suspect several posts by economists here already anticipate that.)

Consider what a wealthy family might do with their income: They can spend it; they can invest it; they can give it away.

But at these income levels -- let's say, above $10 million per year -- it becomes quite difficult to actually consume that much. (I would argue that if you buy a villa in France, for example, all you can count as actual consumption is the wear, tear & maintenance on the place: At the end of the year, you still have the villa -- it was not consumed.). From my middle class vantage point, I doubt that you can actually consume over $1 million per year -- you just cannot eat that much steak.

So our wealthy family will be forced to do something else with their income above that first $million. If they are sensitive to the ravages of inflation -- or if they would merely hope to increase their fortune -- they will likely invest it.

Now consider what happens if we raise their taxes. They can cut back their consumption level / their lifestyle; Or they can save / invest less.

Cutting back one's lifestyle is very unpleasant for most of us -- we become habituated rather easily. Complaining about how high our taxes are and how hard it is to save anything anymore seems much easier.

I suspect that they will continue to live in the style to which they've become accustomed, and the taxes collected will come almost entirely from the surplus that would otherwise have been invested.

Those who envy their lifestyle will get no relief. And, with less investment in the economy, working people (and the poor) will find it even more difficult to find a good paying job.

If we are stupid enough to level these taxes not against the incomes of the wealthy, but rather against their investments (and no, I don't know how you'd cleanly separate the two), then they may decide to shift even more from investment to consumption. (Oh joy! Even more to envy and resent!)

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