Inequality: the root of all problems?

[DuckOnWarpath]

This is a very simplistic way of explaining societal trends and "efficiency". I am especially apalled at the notion that the 20:20 method is relevant in current age global economy - the fact is that formerly national economic giants can easily take advantage of the globalization of the economy, thus amassing even more wealth, whereas the bottom 20 are stuck to work in their countries (or in cases such as males from Burkina Faso, who are migrating on a yearly basis to nearby states to work) with minimal wages, which are governed by that specific nation's GDP and thus do not really evolve much.

Also I cannot easily stomach the idea that more equal societies work better (as if that were the only cause), because one of the greatest incentives to actually work hardER is specifically the desire to be rewarded better. It is not the only incentive of course, but if that wasn't relevant (= an equal income society), I don't see why the average man/woman would go to a great deal of trouble to do better - we are unfortunately (in general) conditioned to think that way. But then again that's capitalism.

 

[epeeist]

This is a very simplistic way of explaining societal trends and "efficiency". I am especially apalled at the notion that the 20:20 method is relevant in current age global economy - the fact is that formerly national economic giants can easily take advantage of the globalization of the economy, thus amassing even more wealth, whereas the bottom 20 are stuck to work in their countries (or in cases such as males from Burkina Faso, who are migrating on a yearly basis to nearby states to work) with minimal wages, which are governed by that specific nation's GDP and thus do not really evolve much.

Also I cannot easily stomach the idea that more equal societies work better (as if that were the only cause), because one of the greatest incentives to actually work hardER is specifically the desire to be rewarded better. It is not the only incentive of course, but if that wasn't relevant (= an equal income society), I don't see why the average man/woman would go to a great deal of trouble to do better - we are unfortunately (in general) conditioned to think that way. But then again that's capitalism.

Believe me, I favour capitalism and have no problem with income inequality, it is the degree/extent which is actually sometimes anti-capitalist (for instance, jurisdictions with corporate laws that are over-deferential to executives setting their own compensation despite shareholder objections are, in my view, anti-capitalist in a sense - I have no problem if e.g. a corporation hires a "star" for a huge amount because they have good skills, my problem is with incompetents rewarding themselves and considering themselves better than others because of their paycheck).

More generally, a specific example that may help illustrate what I mean. I know several people who had worked at law firms as staff (e.g. in the accounting department) who later went to good law schools, got good marks, became lawyers, etc. Out of the three people I can think of who were in this situation, one was explicitly told by her former firm that they would not even interview her because they wouldn't hire her - lawyers who had known her before would have "problems" treating her as an equal/fellow lawyer. Another received the same message but more subtly. These sorts of attitudes are indicative of an attitude of inequality that has nothing to do with different levels of income or education or whatever.

A different example, let's say I'm out shopping and someone who works for me and who I address at work by their first name, says hello and addresses me by my first name. If I am annoyed (if I expect "deference" outside of work in settings unrelated to work), that is suggestive of an inequal society. There's also an issue (in my view), if at work one addresses assistants by first name but expects "Mr./Ms..." or "sir/ma'am" in return. That has nothing to do with income inequality but everything to do with a different sort of equality.

I've been in social settings with people of a wide variety of incomes and education (ranging from high school graduate "blue collar" workers to post-doctoral science researchers) and everyone got along fine, there were interesting topics of conversation, that suggests equality. Nothing to do with distribution of resources, everything to do with attitudes.

 

[Francesca R]

why does the Big Boss make 15x as much money as the Common Lackey in one place, while at another place it's 3x and at another place it 952x? Can anyone seriously say that one place's Big Boss is worth 15x as much as his Lackeys are and another place's Big Boss is worth 952x as much as hers?

The difference between the ratios at these two places has to be influenced largely by some other factors.

It is influenced by a lot of factors. Laissez-faire enthusiasts would say it is the work of the know-all market price system and therefore it is correct and superior to anybody's calculation who is minded to mess with it. Those who have studied it in a bit more detail than that are aware of a number of market failures (agency problems, special-interest-group distortions, incentive incompatibility) that prevent CEO:minion pay ratios from even being an unbiased wealth-maximising outcome (So that means: it can be financially quite inefficient before you get to consider whether it is socially inefficient which is what the OP-cited organisation seems to be answering "Yes" to).

A good paper on this was published almost three decades back. Rosen 1981 AER

 

[Francesca R]

Believe me, I favour capitalism and have no problem with income inequality, it is the degree/extent which is actually sometimes anti-capitalist (for instance, jurisdictions with corporate laws that are over-deferential to executives setting their own compensation despite shareholder objections are, in my view, anti-capitalist in a sense - I have no problem if e.g. a corporation hires a "star" for a huge amount because they have good skills, my problem is with incompetents rewarding themselves and considering themselves better than others because of their paycheck).

Agreed. Government intervention (or rather--government sanctioning of private intervention which amounts to government failure in my view) often distorts redistribution the wrong way and increases inequality and harms the poor. This ranges from minimum wage laws and trade union pay scales, through to competitive barriers set by professional associations, through to the tax break on carried interest that private equity investors still have, whereby they can pay a lower tax rate on a profit of a billion than a bus driver does on a salary of 25 thousand. (I think it was W Buffet Esq. who pointedly remarked once that his all-in tax rate was lower than his assistants)

This doesn't mean one should not ask government to get involved. It means one should be aware that government can screw things up more than markets can sometimes.

ETA: http://www.timesonline.co.uk/tol/money/tax/article1996735.ece

 

[Beerina]

I have recently been reading a lot of The Equality Trust's material and was wondering what other people thought of them. Their basic idea is that most social problems (physical and mental health, obesity, violence, teenage pregnancies drug abuse etc) in developed countries vary closely with the amount of income inequality within the country (it also seems true on a state level within the US).

Can anyone spot any major flaws in their evidence or reasoning?

Yes. Income inequality itself derives from lower levels of education.

To say "income inequality" causes it is designed to support a particular political position.

Generally speaking, the higher the average salary of a country, the better off the people are, independent of some richey riches. The inequality argument is a red herring designed around class warefare political rhetoric.

 

[Professor Yaffle]

Yes. Income inequality itself derives from lower levels of education.

To say "income inequality" causes it is designed to support a particular political position.

Generally speaking, the higher the average salary of a country, the better off the people are, independent of some richey riches. The inequality argument is a red herring designed around class warefare political rhetoric.

And yet the factors measured vary much more closely with income inequality than they do with average wealth.

Another thing that I noticed is that people seem to think that America is this land of great opportunity, where even the lowliest person can become rich and successful. Yet it seems looking at the figures, that social mobility is quite low in the USA compared to many other developed countries. And that makes sense to me when I thnk about it. It must be much easier to move in social status when there is less difference between the top and the bottom, then when there is a very large gap.

 

[Francesca R]

No no. That's all disproved by a mixed race bloke being president.

 

[kellyb]

Hunter gatherer societies live with less of a buffer from death than we do in modern societies. If they don't pull their weight they will and do die. It's a motivation for them to be reasonably productive and cooperative. We don't live in those conditions and what works for them doesn't work in modern society. What do hunter gatherer societies do with members who are non productive? I'm not sure but bet there are harsh realities that we don't face.

What's interesting, though, is that unemployment tends to be lower in the N European welfare states than it is in the US or UK, so the motivation to be a productive member of society must go beyond fear of starvation and death. It seems that it might primarily be a social drive.

Also, I wouldn't call the people working in housekeeping at hotels, or doing roofing "unproductive". They're just not valued.

 

[kellyb]

No no. That's all disproved by a mixed race bloke being president.

You're joking, right?

 

[Francesca R]

What's interesting, though, is that unemployment tends to be lower in the N European welfare states than it is in the US or UK

That's incorrect, unemployment rates are persistently higher in countries like France and Germany (and Sweden) than they are in the US and UK. However, job losses in an economic collapse like 2008 are faster in the latter, primarily because reducing employment is "easier". In general, countries with less labour regulation hire and fire people faster, but have lower unemployment over time.

so the motivation to be a productive member of society must go beyond fear of starvation and death. It seems that it might primarily be a social drive.

I doubt it. That may be a secondary or tertiary motivator in general.

 

[Francesca R]

You're joking, right?

Eh, he's not president?? (Yes I was )

 

[Dogdoctor]

What's interesting, though, is that unemployment tends to be lower in the N European welfare states than it is in the US or UK, so the motivation to be a productive member of society must go beyond fear of starvation and death. It seems that it might primarily be a social drive.

Also, I wouldn't call the people working in housekeeping at hotels, or doing roofing "unproductive". They're just not valued.

I am talking about drug addicts, criminals, bums, disabled people and unemployed. It may be that in certain societies there is a stigma from being unemployed but that may not persist as the societies change with time. In the USA of the past, people worked for a living, but now there is a growing class of our society who are routinely unemployed (for a living). Within their class their is no stigma of being unemployed, it is a fact of life.

 

[kellyb]

That's incorrect, unemployment rates are persistently higher in countries like France and Germany (and Sweden) than they are in the US and UK. However, job losses in an economic collapse like 2008 are faster in the latter, primarily because reducing employment is "easier". In general, countries with less labour regulation hire and fire people faster, but have lower unemployment over time.

I doubt it. That may be a secondary or tertiary motivator in general.

I don't really consider Germany and France the more traditional "North European welfare states".

Here:

http://www.economywatch.com/economi...Unemployment_Rate_Percentage_of_Labour_Force/

US: 5.8
UK: 5.5


Belgium: 6.8
Denmark: 1.7
Finland: 6.3
Iceland: 1.6
Netherlands: 2.8
Norway: 2.5
Sweden: 6.1
Switzerland: 2.6

Those are the "most socialist" countries, right? "Their" average appears to be about half of the US and UK?

 

[kellyb]

I am talking about drug addicts, criminals, bums, disabled people and unemployed. It may be that in certain societies there is a stigma from being unemployed but that may not persist as the societies change with time. In the USA of the past, people worked for a living, but now there is a growing class of our society who are routinely unemployed (for a living). Within their class their is no stigma of being unemployed, it is a fact of life.

I do agree that there is a "culture of poverty", but I've seen no evidence that it is a growing class.
What I'm wondering is why it doesn't exist in the most equal societies, and if it might be both a cause and symptom of US inequality.

 

[Dogdoctor]

I do agree that there is a "culture of poverty", but I've seen no evidence that it is a growing class.
What I'm wondering is why it doesn't exist in the most equal societies, and if it might be both a cause and symptom of US inequality.

I am sure if you look at cultural pressures and what is done with the unemployed and unemployable and criminals you will find an answer. Equality is an illusion. it doesn't exist.

 

[kellyb]

I am sure if you look at cultural pressures and what is done with the unemployed and unemployable and criminals you will find an answer. Equality is an illusion. it doesn't exist.

Of course perfect equality exists nowhere, but inequality can be significantly lessened, and seems to have large positive effects.

 

[DuckOnWarpath]

First of all in Denmark and Sweden the ministries in charge have stopped worrying about unemployment rates, instead focusing on helping people find jobs faster, which may not produce better employment rates, but imho is an overall better tactic (than trying to fund businesses to keep probably disinterested and inefficient people on the job).

Secondly the issue of the inequality between the top 4% and the bottom x% (x can be quite large, but is vastly different from country to country) is critical, because democratic states rely a lot on the willingness of their people. One cannot force a citizen to work better, to vote with the public good in mind and so on. Disinterested or rather disillusioned citizens, those thinking all politicians are the same for example, are the bane of our societies ~ and having the general public be "awed" by some bloke's dozens of luxury vehicles, private jets etc. is a very good way to "breed" generations of jaded citizens, who are rarely given the chance to pursue the dream of a better life.

Smaller version: Some inequality can be a great incentive, gross amounts of it (especially as a smallish elite dominates the general public) is counter-productive.

 

[Kevin_Lowe]

I am sure if you look at cultural pressures and what is done with the unemployed and unemployable and criminals you will find an answer.

Why are you sure? You're coming across as akin to a religious kook.

Equality is an illusion. it doesn't exist.

The degree of economic equality/inequality in a society can be measured objectively, and those objective measures are the subject of this thread.

 

[bpesta22]

I think my post here fits in this thread rather than the thread that was split from this.

I coded gini ratios for the 50 US states. From the link in the OP, this seems like the best way to measure income equality (lower numbers means more equal).

Equality correlates -.51 with state IQ.

In every case, IQ is a better predictor-- often substantially-- than is equality.

Out of parenthesis is the correlation with IQ and x. Inside is the correlation with equality and x.

x=
religiosity -.55 (.35)
crime -.75 (.41)
education .41 (-.22)
health .75 (-.54)
Poverty .57 (-.33)

IQ predicts state poverty better than does an index formed using income levels among state residents!

Here's a regression predicting poverty, entering equality and then IQ.

Step 1.
equality b= -.33, r squared = 11%

Step 2.
equality b= -.05 (not significant)
IQ b=.55
r squared = .33


Note that controlling for equality does about nothing to reduce the correlation between IQ and poverty. But, controlling IQ completely wipes out the relationship between equality and poverty (even though equality has lots more face validity than IQ as a predictor of poverty).

I submit that my data squarely falsify the claim that equality is the causal mechanism driving state differences in poverty rates.

I'm pretty sure the only way around this conclusion is for the equality people to find a supressor variable that when entered into the equation changes things in their favor (i.e., wipes out the beta for IQ while increasing that for equality).
Good luck with that!

 

[Beerina]

And yet the factors measured vary much more closely with income inequality than they do with average wealth.

Another thing that I noticed is that people seem to think that America is this land of great opportunity, where even the lowliest person can become rich and successful. Yet it seems looking at the figures, that social mobility is quite low in the USA compared to many other developed countries. And that makes sense to me when I thnk about it. It must be much easier to move in social status when there is less difference between the top and the bottom, then when there is a very large gap.

Not caring about social status. Only care about health, longevity, and so on.