Why Inequality Matters

Finally, the third part of our response to Barton Hinkle’s critique of economic populism.

Hinkle in effect poses this question: why care about inequality at all, as opposed to simply caring about poverty?

After all, he reasons, if real living standards are improving for everyone, why worry that some are getting much more than others?

That question invites five kinds of responses.

The first is simply to observe that for the bottom quintile, life has not gotten a whole lot better as measured by income standards in the last quarter century. In 1979 the bottom quintile had an average post-tax income of $13,500 (in 2003 dollars). In 2003, they had $14,100. Over that same time period, the proportion of families in poverty has actually risen, from 9.7% in 1975 to 10.2% today. All this has taken place over the same time period that the real (post-tax) average income of the top 1% of the income pile has more than doubled, from $305,000 to over $700,000.

Nor, as Hinkle suggests, does the advance of technology make up for the stagnant prospects of the poor. Yes, some of the poor have access to cable TV and computers and cell phones and Playstations—more sophisticated forms of entertainment. But do they really derive dramatically greater utility, satisfaction, and happiness from those items than they did 30 years ago from black-and-white network TV and old-fashioned pinball machines? That’s questionable. What’s not questionable is that an American child or family that does not have access to most of those items is going to feel left out, socially excluded.

That observation points us to our second response: there is good reason why the “goalposts” (Hinkle’s term) of living standards should change over time as a society develops. The necessaries of life are to a substantial degree socially determined. In some societies historically, it was not a big deal not to have a pair of shoes. But in contemporary societies, to go shoeless would be unthinkable, and a sure sign of utter exclusion from mainstream society.

 In short, what people need is not simply calories and shelter and medicine, but also the goods which make it possible to be a fully functioning, fully-respected, and indeed self-respecting member of society. The content of those goods changes over time, and as societies get richer, people need access to more and/or better goods in order to perceive themselves and be perceived by others as full members of the society.

Third, consider again the issue of class mobility across generations. Many conservatives, cogently, insist we should be concerned with not just inequality but with social mobility. But few recognize or acknowledge that there is an internal connection between increases in inequality and rates of mobility. Simply put, the wider the gap there is between classes, and in particular between the very top and everyone else, the more difficult it will be for those in the bottom to climb all the way to the top (and the harder it will be for those at the top to slide very far down the ladder).

Fourth, apologists for growing inequality often write as if workers are simply getting their just desserts in the marketplace. But there is strong evidence that since the mid-1970s, the American worker has simply not been getting a fair share of the economic growth his or her efforts have helped produce. Average productivity per hour jumped 76% between 1973 and 2004; but the median compensation only increased by 18.5% over that same time period. If compensation had increased at the same rate as increases in productivity over that entire time period, the median compensation in 2004 would have been $25.76 per hour, not the $17.36 it actually was.

That huge gap can be explained by two primary factors. First, average compensation only went up 46.4% for workers as a whole over that time period, compared to productivity growth of 76%. In short, workers’ compensation as a whole grew just over 60% as fast as the increase in their own productivity. Second, the best-off workers captured the lion’s share of the increase in compensation which did take place. When the top end gets huge gains and the majority not very much, you end up with what the data show–a big difference between the average increase and the median increase in compensation.

Finally, and perhaps most fundamentally, large-scale inequalities call into serious question the meaning and relevance of two fundamental American ideals: equal opportunity and democracy. Hinkle (and others) seem all too willing to accept as “normal” the fact that some persons within this society have dramatically less promising life prospects than others. But would conservatives who say inequality is no big deal be willing to take their chances and trade places with someone in the bottom quintile of the income bracket? Would they be willing to send their kids to a randomly selected public school within the city of Richmond?

The idea that anyone can make anything that want to of themselves is fundamental to Americans’ conception of this country and what it stands for. The fact that, increasingly, it just ain’t so points to a troubling and growing contradiction between what American claims (or aspires) to be and what it actually is.

The other threatened value is democracy. Democracy is not simply about the right to cast a ballot; it’s about the right and ability to exercise meaningful self-governance over the conditions that shape one’s life. In short, the ability to have a genuine say about decisions and policies which affect them, and the ability to have one’s ideas and viewpoints be taken seriously by others.

 Democracy in this sense requires a fairly substantial degree of equality, if it is to be real. Incomes and wealth do not need to be literally equal, but opportunities, skills, and resources to participate in politics need to be broadly distributed over the population. Moreover, no group should be so wealthy or so powerful that they can exercise disproportionate influence over the political process and claim unequal access to and influence over decisionmakers.

That’s a test that American democracy simply can’t meet right now, and growing inequality is both cause and symptom of that failure.

So what would a more fair distribution of income look like? That’s a difficult question to answer with a high degree of specificity, but we can begin to gauge the gap between where we are and where we might and should be by considering this hypothetical scenario: what if, between 1979 and 2003, the bottom three quintiles of the income distribution experienced an increase in income equivalent to the average growth of the income of society as a whole over that time period?

Well, people in those groups would be dramatically better off. After taxes, the average family in the poorest quintile would now earn in $17,900, not $14,100—equivalent to an annual raise of over 25%. Families in second poorest quintile would have post-tax income of $36,200, not $30,800. And families in the middle quintile would earn $51,600, not $44,800. (All figures in 2003 dollars.)

That would have been an economy in which economic growth led to broadly shared prosperity. It also would have been an economy that lifted millions of people out of poverty and made life better and easier for the bulk of workers and middle class folk who form the backbone of American society.

But that’s not the economy we have, and it’s not the economy we are going to have in the absence of some substantial shifts in public policy aimed at bolstering workers’ bargaining power and distributing the benefits of economic growth much more equitably.

That’s where economic populism comes in.

We can’t go back and undo the enormous increase in inequality of the 25 years. But we can take steps to assure that the next quarter century (and beyond) produces something quite a bit better for ordinary people.

 All data derived from charts compiled by the Economic Policy Institute

Defending Economic Populism, Part One and Part Two

Published in: on December 7, 2006 at 4:44 am  Comments (1)  

Income Mobility and the Social Structure

Okay, let’s get down to brass tacks here in looking at Barton Hinkle’s critique of Jim Webb’s populism. The topic here is one of the most fundamental social questions we can possibly ask—whether or not the American social order is a just one—so it’s worth sinking our teeth in just a bit.

In tackling that question, we need to distinguish between two related yet distinct concerns. The first is whether the basic structure of American society is just or fair; the second is whether the long-term trend in the United States has been towards more or less fairness and equality. This is an important distinction:  if, for instance, long-term trends are static, but the basic structure of society is unjust, then we should be less than heartened to learn that an unjust society is not getting any more just.  

Keeping that in mind, let’s look at the data.

 

The specific data in question here are snapshot analyses of income distribution, divided by quintile, i.e. how much income is the top 20% getting compared to the bottom 20%, and each sector in between? Hinkle, like many others, correctly notes that this sort of snapshot, taken in itself, provides only limited information about the fairness of the overall structure of society.

Why isn’t the snapshot data enough? Because the snapshots don’t provide us information about mobility over time between the quintiles. Consider the child of an affluent family who goes to a selective private college. As a young adult that person might well be in the middle or bottom quintiles of income as he or she finds her feet in the labor market or struggles through graduate school. But eventually that person has a very good chance of making it to one of  the higher quintiles—at least until he or she retires (or gets laid off), when they will likely see income decline.

The quintile snapshot essentially abstracts from all this churning and provides a static shot of how the income distribution looks at a given time. So it’s a limited tool, if we think that we should take not just absolute levels of inequality but also social mobility into account in evaluating the justice of the social structure.

If we compare several quintile snapshots over a long period of time, however, we can garner useful information about the long term trend in the distribution of income, towards more or less inequality. Indeed, looking at how these snapshots have changed over the past three decades produces some striking results:

In 1974, the bottom (poorest) quintile of American families captured 5.7% of aggregate family income; in 2004 that same group captured just 4.0% of such income. In 1974, the top (richest) quintile of American families captured 40.6% of aggregate family income; in 2004 that same group captured 47.9% of such income. Perhaps most strikingly, in 1974 the top 1% of American families, captured 14.8% of aggregate family income; in 2004 those same fortunate few claimed 20.9% of such income. (This data comes from the Economc Policy Institute.)

This is exceptionally strong evidence that the distribution of income in the United States has gotten (just as Jim Webb claims) substantially more unequal over time. In fact, the trend is so strong that it simply is not in dispute among economists and other social scientists who study inequality—in those circles the live debate is not about whether inequality has grown sharply, but what the causes of that growth have been.

Even so, we might not be so disturbed by this growing inequality if it were offset by an increase in social mobility. But how best to measure social mobility?

To answer this question we must again introduce another distinction: between the movement of individuals up and down the quintiles due to variations in income over the course of the life cycle, and between genuine social mobility, in which an individual sees a permanent increase (or decline) in one’s relative position. Conservatives are correct to point out that the income quintiles are not very static over time, with individuals moving in and out of each group all the time, but many (including Hinkle in this case) make the mistake of confusing variation in income over the course of the life cycle—the fact that you’re likely going to make more money in your 40s and 50s than when you’re in your 20s or 70s– with genuine mobility.

The best way to measure mobility is not via snapshots of the whole population, but by tracking a set of individuals over the course of their lives and seeing how they do compared to how their parents did. Economists who undertake such studies have found that, at a minimum, genuine social mobility has not increased over the past generation, and in fact may have actually slowed.

This is important because if mobility has been static, but the distribution of family income has gotten sharply more unequal, than we can only conclude that the American social system as a whole has in fact become more unequal and less fair to the folks on the bottom over the past generation.

But the mobility data can also give us needed insight into the justice of the social structure itself. If you are born into the bottom 10% of families, income-wise, what are your chances of making it out of that bottom 10%? What are your chances of making it into the top 10?

The best recent data on that question comes from Tom Hertz’s study “Rags, Riches, and Race,” which examines mobility among black and white families using data from the Panel Study of Income Dynamics. (The paper is reprinted in the book Unequal Chances: Family Background and Economic Success, the best collection of recent academic work on this set of questions.) 

After adjusting for changes in household size, Hertz finds that if you are born into a family in the bottom decile (poorest 10%) of the income distribution, you have a 36.6% chance of remaining there as an adult, and a 57.1% chance of staying in the bottom quintile. You have just a 2.3% chance of making it into the top quintile, and a mere 0.5% chance (1 in 200) of making it into the top decile.

Conversely, if you are born into a family in the top decile, you have a 26.7% chance of staying there as an adult, a 43.2% of being in the top quintile, and a 77.7% chance of being somewhere in the top half of the income distribution. You have just a 5% chance of falling into the bottom quintile, and only a 1.4% chance of falling into the bottom decile.

In short, if you are born in the poorest rung (decile) of American society, you are over 26 times more likely than someone born in the top rung to stay on that bottom rung as an adult. And if you’re born into the top rung, you’re over 53 times more likely to get there yourself as an adult that someone born on the lowest rung.

Is that fair? Not if you take seriously the notion that America should be characterized by substantive equality of opportunity. (And by the way, from the point of view of African-Americans, the actual picture is even worse than these figures suggest, as Hertz found that upward mobility among African-Americans from the bottom to top quartile was less than half the rates observed among whites.)

Confronting the actual data about intergenerational mobility in the United States forces one to confront some hard truths about the basic structure of this society. Where you start has a huge impact on where you end up, and there is no evidence that it’s getting easier for people to move up. And, as we have also seen, the consequences of ending up near the bottom as opposed to near the top have become more severe, as income inequality has grown over time.

None of those conclusions are controversial among academics who study these questions, and in fact some of those scholars have been trying to ring the alarm on this issue for a number of years. Jim Webb just happened to be the Virginia politican who answered the bell.

Next installment: Do the rich pay too much in taxes? 

Published in: on November 22, 2006 at 4:09 pm  Comments (2)  

Jim Webb’s Economics, II

The Times-Dispatch finally saw fit to give Jim Webb space to air his economic views on Tuesday, reprinting an op-ed which originally appeared in the Wall Street Journal last week. Curiously, however, the op-ed staff chose to give top billing on the printed page to a piece by regular columnist Barton Hinkle—even though Hinkle’s piece is clearly a response to Webb.

Webb writes that many of the relatively privileged have put great effort into downplaying the scale and significance of the vast increase in economic inequality witnessed over the last generation. Hinkle proves Webb’s point in his article, intended to persuade us that Webb’s economic populism only “skims the surface” of the real economy.

Hinkle’s piece trots out several old chestnuts of conservative “wisdom” concerning economic justice. First, Hinkle assures us of the degree of social mobility which American capitalism affords, by pointing to the fact that many people rise and fall through the income quintiles over the course of the life cycle. Second, Hinkle assures us that the rich are already paying a great deal in taxes. Third, Hinkle argues that inequality measures really aren’t important anyway, because the real standard of living is rising over time.

Each of those claims is contentious and, I believe, either wrong or seriously misleading. To provide an adequate response to each of those points would be too much for a single humble blog posting. So over the remainder of the week, this space will roll out responses to each of those core claims in three separate blog postings; look for the first one tomorrow morning.

Published in: on November 21, 2006 at 4:00 pm  Leave a Comment  

One Step Forward, One Step Back

In the last couple of days, the RTD editorialists have seen fit to revisit a couple of issues previously blogged about in this space.

On the issue of gun control, the RTD, noting that New York City has reduced its crime rates while maintaining tough gun laws, has backtracked remarkably from its August editorial. The RTD now says that one can cite evidence for or against gun control’s effectiveness. This is hardly a sophisticated social science position, but it represents progress. (See our original post on gun control here.)

On the other hand, Tuesday’s RTD takes up the Chicago Wal-Mart ordinance again; the Chicago Board of Aldermen narrowly failed in its effort to override Mayor Daley’s veto of an ordinance to require large big-box retailers to pay a living wage. The RTD congratulates Daley on dashing the ordinance, using arguments no more impressive than its original August editorial on the matter. That big-box retailers threatened to scale back plans to expand in Chicago is not a strong argument for not implementing this ordinance. As noted in our earlier post on this topic, claims for strong employment gains resulting from big box expansion need to be taken with a grain of salt.  Moreover, there is good evidence that in urban economies, total retail earnings actually decline when big box stores move in, as local retailers are displaced.

But perhaps more annoying than the RTD’s position on that particular ordinance is its insistence on speaking of a “so-called living wage” and on mocking efforts to improve the wages of working people in the U.S. The RTD gives little if any indication that there is anything wrong people working full-time and not being able to make ends meet or provide their families a measure of security; in the RTD’s reckoning, the interests of the millions of working poor in the U.S. (and the many thousands in Richmond) can be ignored, or simply brushed aside as a fact of life not worth the effort to correct.

Published in: on October 3, 2006 at 1:49 pm  Leave a Comment  

A Gun Control Head-Scratcher

Beware when editorialists deliver bromides such as “Facts are stubborn things.” Case in point is today’s brief Times-Dispatch editorial note using the homicide rate in Washington, DC to point to the folly of gun control. The fact cited by the RTD is that even though the nation’s capital introduced fairly tough gun control laws in 1975, the homicide rate subsequently increased in DC faster than the national average.

The editorial writers probably didn’t come to this observation independently–citing the Washington, DC case is a favorite trick of conservative editorialists. (Do a quick search engine search on Washington, homicide, and gun control and see what comes up.)

But let’s look at the argument on its merits. What we have here is a bivariate correlation, drawn from exactly two data points, the Washington, DC of 1975 and the Washington, DC of today. There are two problems with drawing extensive policy conclusions from this little evidence. First, correlation does not equal causation. There are many possible explanations for the increase in homicides in DC since 1975: the crack epidemic beginning in the 1980s; thirty years of concentrated poverty, social neglect, and dysfunctional schools; changes in gang activity; possibly even changes in drug shipment routes. (Needless to say, none of these alternative explanations for DC’s homicide rate are explored by the editorial.) It might in fact be the case that without the gun control laws, homicides would have risen even faster in DC than they actually did; or it might be the case that gun control laws didn’t really make much difference either way; or as the RTD wants to suggest, it might be the case that gun control laws actually contributed to homicides.

The RTD’s interpretation seems to rely on a mental image in which we think of most homicides as involving criminals preying on obviously defenseless people–as if most murders in DC consisted of professional criminals causing mayhem in the white neighborhoods of upper Northwest. If in fact most homicides are drug or gang-related, then this interpretation is far less plausible: gang members are probably not thinking to themselves “this guy who’s invading my turf couldn’t possibly have a gun, because that would be violating the local gun laws, so I’m going to shoot him and know he won’t shoot back.”

But the bigger point is, we have no way of knowing which of these three interpretations is correct in the absence of much more detailed information.

This brings us to our second problem: two data points is not enough to draw any kind of firm conclusion about the relationship between two different phenomena, and there’s no excuse for just relying on two data points when there are hundreds of other data points we might consider (such as the experience of other U.S. cities).

In fact, quantiative criminologists have considered the relationship between gun control and crime, as well as the relationship between gun ownership and crime, in some detail, drawing on many more than two data points. The basic story seems to be this:

1. According to a 1993 study of the 170 largest U.S. cities, local gun control laws generally don’t have a strong effect on local crime, though they might affect certain types of crime. It would be interesting to update the story through the 1990s, when crime rates fell, but I’ll accept this provisional finding.

2. On the other hand, local gun ownership rates are, according to a recent study by scholars from Duke and Georgetown substantially correlated with increased homicides, controlling for a number of other factors (including the overall local crime rate). This paper uses proportion of suicides by gun as its proxy for rates of gun ownership at the county and state level; an earlier study, much hyped by the anti-gun control crowd, which relied on voter exit poll data to estimate local rates of gun ownership produced opposite results. The exit poll method is flawed, because, as the Duke-Georgetown study notes, “voters are by no means a representative sample of the adult public.”

The paper’s authors (Philip Cook and Jens Ludwig) go on to argue that gun ownership rates are causally related to the homicide rate. One obvious reason why is that fights carried out with guns are far more lethal than fights carried out with knives and fists; another is that as the quantity of guns in circulation increases, it becomes easier for criminals to acquire one. Notably, they also find that their measure of gun ownership is not strongly correlated with other types of crimes, or even with homicides committed without guns. That finding actually increases confidence that is the presence of guns, not some unmeasured factor, that is decisive in the relationship between gun ownership and the homicide rate.

3. In the international context, national rates of gun ownership are also correlated with national homicide rates. The most plausible interpretation of this evidence is that there is a causal relation between the fact that the U.S. has much higher homicide rates than Europe and Japan and the fact that we have much higher rates of gun ownership, for the same sorts of reasons noted by Cook and Ludwig.

There might be a slight puzzle in understanding how finding 1 could be consistent with findings 2 and 3. If more guns are associated with more gun-related crime, why don’t local gun control laws seems to have a strong effect on reducing crime (with possibly some exceptions)?

The answer is suggested in the RTD’s editorial itself: that in places like DC, gangs and criminals can easily acquire guns from outside the immediate locality. That explanation, in turn, implies that are needed are truly national efforts to restrict the supply of guns to criminals, since isolated local efforts are likely to be ineffective.

The head-scratcher in all this is the RTD editorialist’s attempt to dissuade readers from that interpretation. “If that were the case,” the editorial states, “the national homicide rate would not be 22 times lower than Washington’s.”

I’ve been struggling all morning to try to make sense of what that statement is supposed to mean. Upon reflection, I think the claim is supposed to be this: that in the rest of America where guns are plentiful and people can defend themselves, homicide rates are low, but in DC, where no one can defend themselves, homicide rates are very high.

Note however that this claim is perfectly consistent with, rather than a contradiction, of the view that the reason the DC gun control laws don’t work is because guns come in from elsewhere. So this statement doesn’t prove what it is intended to prove.

Nor does the claim stand on its terms: as noted above, the best academic evidence suggests that as a general phenomenon widespread gun ownership encourages rather than restricts gun-related violence.

There are hardly any local issues more important than crime, and the RTD could have made a healthy contribution to public understanding of the issue by arguing that local gun control laws in themselves are unlikely to be a panacea to Richmond’s crime problem. They might even have gone on to suggest that the city needs to tackle the social roots of crime rather than rely simply on gun laws, or alerted readers to the efforts now going on in the city to do just that, such as the Richmond Youth Peace Project.

But instead of going for the scentifically defensible, constructive point, the RTD went for the ideologically sweeping claim resting on just two data points as well as some highly questionable assumptions, a claim that can’t be sustained once we look at a broader range of evidence.

As for the utility of gun control itself, there’s no question than figuring out how to reduce gun-related violence in a society that already has 250+ million guns in circulation is a massive challenge. For a sobering, even pessimistic look at the problem, check out James Jacobs’ 2002 book, Can Gun Control Work? Jacobs thinks that we can and should take some regulatory steps to make it more difficult for criminals to get guns, but that effective policing strategies and targeted social welfare policies and interventions will be far more important in reducing violent crime in the long run. That seems like a plausible conclusion, though some critics, such as this thoughtful reviewer, contend that Jacobs is too pessimistic in assessing gun control’s value as an anti-violence tool.

Published in: on August 25, 2006 at 7:10 pm  Comments (1)