David R. Henderson  

The Confusion about Inequality and Poverty

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In an article titled "Why People Vote Against Their Own Interests," Forbes, November 8, Bruce Lee, an Associate Professor of International Health at the Johns Hopkins Bloomberg School of Public Health, writes:

Voting seems pretty straightforward, right? Choose what is good for you and avoid what is not. Well, evidence has clearly shown that people (meaning you, unless you are a dog reading this) can be remarkably bad at selecting what is good for them. Indeed, in the end, you may be your own worst enemy. And many entering voting booths simply make the wrong choices for themselves.

To someone like me who understands rational ignorance, this claim is not surprising or controversial.

But then he continues:

Let's look at a commonly cited example: the poorer working class. Logic dictates that the poor should favor people and policies that decrease the gap between the rich and the poor and oppose those that do not.

Logic doesn't dictate that at all. What has Professor Lee done? He has assumed implicitly that if the gap between rich and poor falls, it's because the poor are better off. He has failed to distinguish between inequality and poverty.

What if the poor could have voted to prevent Robert P. McCulloch from inventing and selling a light, one-person-operated chainsaw? Had McCulloch not invented it, he would not have become as wealthy as he did. So inequality, in income or wealth, would have been less. But some of those poor people would be worse off because some of them would have wanted to buy that relatively cheap chainsaw. By Professor Lee's reasoning, that shouldn't matter. By his argument, logic would dictate that the poor vote to prevent him from doing so, reducing inequality and making themselves worse off.

My guess, indeed my hope, is that Professor Lee would have favored allowing Mr. McCulloch to invent his chainsaw. But then he should be consistent and favor at least some other policies that both make the poor better off and increase inequality.

What's one such policy? Reduced taxes on capital. That would encourage capital accumulation. With a higher ratio of capital to labor, labor productivity would rise and real wages would rise.The poor working class would be better off.


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COMMENTS (15 to date)
Steve Schow writes:
Logic dictates that the poor should favor people and policies that decrease the gap between the rich and the poor and oppose those that do not.

I am always baffled that some people so openly proclaim this (people should vote for their monetary interests). I wouldn't even include it in an Ideological Turing Test entry for a "liberal position" because it seems so blatantly wrong to admit this is your line of thinking.

Has no one thought that maybe even a poor person follows some larger moral framework that would celebrate free exchange and commerce, even if those systems and rules left that particular person in a less-than-advantageous condition?

Example: I hate smoking. I hate the smell, I hate people that do it around my kids, I wish people would just stop. But every single time a ballot issue tries to raise taxes on cigarettes or ban smoking in public places (or even force private places to ban it) I vote against it. The ends do not justify the means.

David R. Henderson writes:

@Steve Schow,
Well said.

Kevin Erdmann writes:

I've noticed a similar pattern lately in reactions to Trump cabinet appointments, where his appointments of wealthy businessmen are treated as betrayal of his working class base, assuming they all feel fooled. I haven't heard many complaints from his base because they would consider a bunch of Ivy League lawyers to be more of a betrayal. But, many people who see the world through a Marxian framework can't imagine that the proles they presume to defend don't share their worldview.

Procrustes writes:

A lot of the compulsory voting literature is framed the same way (for reference see Lisa Hill's part of Brennan and Hill "Compulsory Voting: For and Against").

Much of this research says that income or wealth inequality narrows in countries with compulsory voting compared to countries without. Hill concludes (among other reasons) that as compulsory voting is in the interest of the less well off, voting should be compulsory.

For similar reasons to David Henderson's examples in this post, I don't think that logical leap necessarily flows at all. Compulsory voting could be good for narrowing measured income inequality but bad for future growth in all living standards.

EB writes:

[Comment removed. Please consult our comment policies and check your email for explanation.--Econlib Ed.]

Capt. J Parker writes:

Dr. Henderson said:

What's one such policy? Reduced taxes on capital. That would encourage capital accumulation. With a higher ratio of capital to labor, labor productivity would rise and real wages would rise.The poor working class would be better off.

More capital means the aggregate real wage would rise. It does not mean wages would necessarily rise for every type of labor and so, it does not mean wages would necessarily rise for the working poor. How the gains from increased productivity are distributed still matters. I believe that the working poor would be better off economically in an economy made richer by greater productivity but, the proof has to come from empirical measures of living standards and well-being across income classes. Progressives always turn a deaf ear to "rising tides lift all boats" arguments and not without some justification.

LD Bottorff writes:

You are being very kind to Mr. Lee. I would have started by arguing against his first paragraph:
Chose what is good for you and avoid what is not.
Most of our voting is not for or against specific policies, but for or against people. We vote for representatives in our legislatures. We also vote for someone to lead the administration of our governments (federal, state, and local).
Democracy is not straightforward.


At times, Mr. Lee seems to be making fun of everyone but when I read the entire piece, it is apparent that his basic assumptions include that one party really does represent the interests of the working class and the other party doesn't. We've heard this for years. Thomas Frank asked What's the matter with Kansas, Howard Dean said his party should appeal to the guys with shotguns in their pickups, and James Carville can't understand why 77 of the 100 poorest counties voted Republican in 2012.

I'm sure that there are many in the Democratic party that sincerely believe that their party is the one that stands up for the poor, the working class, and minorities. I'm also sure that there are many Republicans who believe that their party stands for smaller government, individual rights, and the rule of law. In reality, both parties are full of flaws and inconsistencies. Democracy is not straightforward.

David R. Henderson writes:

@LD Bottorff,
You are being very kind to Mr. Lee.
No, I’m not. I’m singling out an important confusion. One can argue with many things in his article. I singled out this one because I see it time and again and I see how sloppy people are generally at distinguishing between inequality and poverty.

Khodge writes:

This has been the standard rhetoric of the progressive side of the aisle since Piketty's book became its bible. The rumblings had already been there but Piketty inspired the anthem.

Julien Couvreur writes:

Capt. J Parker,
You raise a good question about aggregate wages/productivity, versus that of the lower-skilled workers.
The law of diminishing returns suggests that low-skilled workers would benefit from additional capital the most.

Example: how much investment does it take to raise a low-skill teenager's productivity, compared to an experienced, trained and equipped specialist (doctor, engineer, ...)?

ZC writes:

@Steve Schow and DRH.

So, if you guys are uber libertarian on smoking, can we please 1. Hold smokers liable for the harmful second-hand effects that result from their actions and 2. Force them to have a bond or some other means to pay for what will otherwise likely become socialized healthcare costs (millions of smokers incur billions of dollars in smoking-related health care costs annually in the US, much of which is paid for by Medicare, Medicaid, or unreimbursed at all).

I'm all for freedom...but if you get freedom of choice, you must also be responsible for the results when those choices have negative results.

Alex writes:

Hi David,

I wonder what you think about this argument by Branko Milanovic http://glineq.blogspot.hr/2015/08/all-our-needs-are-social.html

Handle writes:

Transfers. He's euphemistically talking about transfers. 'Inequality' standing in for Robin Hood Democracy, steal from the rich, give to the poor, that kind of thing. It's just the language progressives use to rationalize grabbing for their political client vote banks. And historically, in most places with democracy, voters do indeed know which party butters their bread. The reason many poorer people in the US don't vote for the 'more transfers for you' party is because that party is also committed to too many other positions that many of those poor people don't like. That is, there is no real "what's the matter with Kansas?" problem of poor people not voting their interests, because their interests are multi-faceted than the details of the country's redistributive system.

Capt. J Parker writes:

@ Julien Couvreur,
Your argument about diminishing returns is a good one if you are talking mainly about human capital and not as good if you are talking about other forms of capital such as those affected by taxes on capital accumulation.

When I was a teenager I worked at a McDonald's. A McDonald's kitchen then was filled with specialized expensive capital equipment designed to reduce the labor content of the store's product. Even more capital resided at the suppliers of frozen, ready to grill hamburger patties and other suppliers of bags of frozen, ready to fry french fries. It's hardly clear to me that my low wage then was due to low capital investment in the fast food industry or that even more capital investment by McDonald's was likely to boost my pay.

Steve Schow writes:

@ZC

You raise good points and I don't really disagree with you.

For 1) In private places, if they want to allow or ban smoking, fine. If I show up and somebody is smoking, I can leave, and tell the restaurant/bar/Walmart I'm not coming back. There should be some equilibrium where smokers have certain places they can go to smoke and I have certain places to go that are known to be smoke free. For public places I would imagine there is some kind of Coasian (sp?) solution but how to put that into practice I'm not sure. We both show up to the park. You light up a cigarette. Do I leave or should you put it out? What's the equilibrium here?

For 2) If there is a well-crafted ballot measure (I haven't seen one yet) that applies cigarette tax funds to a pool of money specifically to help those hurt by second hand smoke that would be great. But they are usually put into some kind of loose slush fund that I don't feel strongly would be spent wisely.

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