This plebian reviewer read Professor Sir Anthony Barnes Atkinson’s Inequality: What Can Be Done? so you wouldn’t have to. Inequality inadvertently persuaded me that its topic is even less important than I’d thought it was when I began. But make no mistake, Atkinson’s a celebrated lion of the Left—the economist whom Thomas Piketty called “the Godfather of historical studies on income and wealth.” If he can’t persuade us inequality is a problem, no one can.
Passing a kiosk in France recently, I noticed a magazine on the rack that promised to reveal to the multitude the secrets of the One Percent. The One Percent in question was, of course, that small and now infamous proportion of humanity that is separated from the 99 Percent by its wealth and, presumably, happiness and all other desirable things.
In my last post, I discussed why one should care about economic mobility for the poor rather than income equality. The basic point is that we should care how well the poor are doing rather than their relative position compared to the rich. If we can increase the wealth of the poor by $100, we should do so even if that involves giving the rich an extra $200.
So why do some people on the left focus on income equality rather than mobility for the poor. One possibility is that focusing on income equality allows them to argue directly for the result that they like – equality. If they had to discuss whether certain institutions, such as free market institutions, helped the poor, it would at best make their arguments messier and at worst sometimes support free markets. It is safer and simpler to argue for income equality and implicitly assume that money provided to the rich is always taken out of the pockets of the poor.
But this explanation simply moves us back a step: why don’t these people on the left care enough about the poor to focus on their situation, even at the risk of allowing these “argument costs.” There are several possibilities.
In his most recent New York Times column, Tyler Cowen writes about two competing goals concerning economic distribution:
Income equality is about bridging the gap between the rich and the poor, while economic mobility is about elevating the poor as rapidly as possible. Finding ways to increase economic mobility should be our greater concern.
I agree completely. In fact, I find it hard to understand how anyone can be concerned with income equality rather than economic mobility.
First, it seems clear that people should be concerned with economic mobility. If one is concerned about the poor, the relevant normative question is not how much poorer than the rich they are, but how high their standard of living is. If the only choice is increasing a poor person’s income by $100 while also increasing a rich person’s by $1000, one should do it. Otherwise, you do not really care about the poor.
As a law professor, I earn a lot less than my law school classmates who graduated with similar records, and a small fraction of the income earned by those at the very top. But I am compensated in other ways. In the loveliest line of the wonderful song “If I Were a Rich Man,” from Fiddler on the Roof, Tevye says that the “sweetest thing of all” from becoming wealthy would be the leisure gained to “discuss the Holy Books with the learned men seven hours a day.” The secular equivalent is what I get paid to do.
My situation illustrates what economists call compensating differentials. I get less income from my job because I get more enjoyment than I would in a job requiring similar skills and education. Thus, as Tyler Cowen and Alex Tabarrock note in a recent video, the market would pay a sewer inspector a lot more than a lifeguard even if it had to attract equally skilled job takers. Similarly, if a job creates risks of death, injury or ill health, it will have to pay more to workers to compensate.
This simple observation suggests that focusing only on earned income from employment can provide a misleading picture of any growth in inequality.
At this year’s Federalist Society student symposium Richard Epstein and I spoke on a panel on Innovation and Inequality. We agreed that the innovation created by capitalism has hugely benefited the poorest in society. We disagreed over the extent to which the very nature of modern innovation itself has a tempering effect on inequality.
In my view, modern innovation helps reduce real inequality both around the globe and in the United States. And it does so for fundamental reasons. Information technology creates value by better arranging material resources. And because of the nature of our accelerating technology the know-how for such information technology rapidly becomes common property benefiting everyone.
Another way of putting this point is that modern information technology dematerializes the world and thus democratizes it, because it is material things that are scarce. The move from its to bits is also a move to equality, because bits can be enjoyed by the many simultaneously. Income inequality gives a misleading picture because we all enjoy the benefits of a growing pool of expressions of ideas.
Let me give some concrete examples. Watson, the machine that beat the best players at Jeopardy, is going into medical diagnostics.