Cato Unbound tackles the meaning and consequences of income inequality this month. Will Wilkinson opens with a further development of his paper, “Thinking Clearly about Economic Inequality” (pdf). Wilkinson presents his three core points as,
- The level of real economic inequality is lower than popular treatments of the issue have led many of us to think.
- The level of economic inequality is an unreliable indicator of a society’s justice or injustice.
- Inequality distracts us from real injustices that are given too little attention.
I think he is wrong on all three counts.*
In order to argue that real economic inequality is lower than the income inequality figures suggest, Wilkinson urges us to shift from a measure of economic inequality based on income to a measure of inequality based on consumption,
Suppose you made a million dollars last year and put all but $50,000 of it in a shoebox Now imagine you lose the box. What good did that $950,000 do you? Maybe it purchased some temporary peace of mind. It’s certainly reassuring to know that you have resources at your disposal. But it likely did rather less for your well-being than did the $50,000 you spent on housing, food, entertainment, health care, transportation, gadgets, toys, and so on. (p. 4)
Wilkinson has gently glossed over the difference in exposure to risk when he remarks, maybe the extra $950,000 has bought you some temporary peace of mind (after all, who goes bankrupt due to health costs?) The difference between fifty thousand and a million is vulnerability. You are exposed to exogenous shocks, like global economic downturns, poor health, natural disasters, etc. It’s difficult to quantify the cost of exposure, but the (multi-billion dollar) insurance industry exists precisely to hedge against these kinds of dangers – that is, if you can afford insurance. Hedging against risk is a valuable thing indeed. (A good lens through which to view this discussion, the Australian Treasury’s Well-being Framework here)
Additionally, the extra income buys opt-outs. Unsatisfactory local schools, you can opt-out of that – move to a better school district or send your kids to private school. Medical care in your city not up to par, you can opt-out – travel to a medical facility that specializes in your illness. Local authorities considering building something loud, smelly, inconvenient, or unsightly near your manicured McMansion or penthouse, lo and behold, money helps with that too; there’s a pretty strong case to be made that NIMBY and income inequality intersect in ways that don’t redound the benefit of the less equitable scenarios. “In Longstanding Plan for Met Expansion, Battle Line is Fifth Avenue” (NYT), or Googling this will bring up a good deal of relevant environmental equity literature: “Commission for Racial Justice United Church of Christ. Toxic Wastes and Race in the United States; A National Report on the Racial and Socio-economic Characteristics of Communities with Hazardous Waste Sites”. I don’t think it’s unreasonable to propose that extensive opt-outs for certain sections of society have invidious consequences for everyone else (witness America’s experience with segregation).
Wilkinson continues, the consumption optic for measuring inequality makes sense because more people have access to more and better stuff, like refrigerators and cars; in the early 20th century, only the rich had access to this quality of life. He adds, the quality of the goods we have access to is pretty high, or at least good enough to get the job done,
The Sub-Zero PRO 48, which the manufacturer calls “a monument to food preservation,” costs about $11,000, compared with a paltry $350 for the IKEA Energisk B18 W. The lived difference, however, is rather smaller than that between having fresh meat and milk and having none. The IKEA model will keep your beer just as cold as the Sub-Zero model. (p. 6)
Here, Wilkinson makes a good point, as far as it goes. When talking about a certain fixed set of material goods that make day-to-day life easier, yes, the serf and the lord of the manor may possess neat stuff; and yes, the distinction between no-frills and all bells and whistles means less. However, there is a class of goods, hinted at in the discussion of opt-outs, that is obscured by focusing on cars and fridges. Here, I’m going to steer clear of a discussion of Rawls’ primary goods and head towards addressing Wilkinson’s second claim, “The level of economic inequality is an unreliable indicator of a society’s justice or injustice.” Next post.
* Some disclosures (read, admissions of ignorance): First, I’m not an economist; the dismal science and I only share passing acquaintance. Second, perhaps relatedly, where I am as a pseudo-possibly future academic/researcher I do a whole lot more qualitative research than quantitative research. Finally, possibly unrelatedly, I’m looking forward to the follow-up discussion at Cato Unbound, hopefully the respondents will present the uncluttered version of what is here cluttered.