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Inequality isn't related to economic success

perseus

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Today's National Equality Panel (NEP) report adds further evidence that inequality isn't related to economic success

"Comparisons... with other equally or more economically successful countries, but with lower inequality, undermine arguments about the inevitability or functionality of the extent of the inequalities in the UK that we document. Moreover, the view that greater equality would stifle diversity has to be set against the counter view that it is inequality that suppresses the ability of individuals to develop their talents."

http://sticerd.lse.ac.uk/dps/case/cr/CASEreport60.pdf

However

"Wide inequalities erode the bonds of common citizenship and recognition of human dignity across economic divides. A number of analysts have pointed to the ways in which large inequalities in the kinds of economic outcome we look at are associated with societies having lower levels of happiness or well-being in other respects, and to the social problems and economic costs resulting from these."

http://www.bbc.co.uk/blogs/thereporters/markeaston/indexhealthsocial_notts.jpg

In other words inequality has more disbenefits to society, especially for those who are rational enough to reject the obsession with material wealth focusing on well being or happiness instead.

I think this tells us how to solve many of our social, health and education problem, but why do we never take any notice? Is our obsession with becoming richer than the next man an irrational reaction caused by our selfish genes, and how do we counter this primeval drive?

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Can you explain where that chart comes from and what it is? It looks rather vague, which is odd for one that ostensibly unearths such a tight relationship. The standard unit of "income inequality" is the Gini index (post tax and transfers) which the OECD calculates and is reported here (data here). The OECD data does not look the same as your chart. What's the "index of health and social problems" and what's the source? (I wonder why the US is not on that chart)

Today's National Equality Panel (NEP) report adds further evidence that inequality isn't related to economic success
This is correct to the extent that reducing inequality (by means of a large welfare state) does not consign an economy to poverty, or even non-prosperity (several countries are "rich" yet still "equal", and many poor ones are unequal).

However, it is still very plausible that rich countries could/would be richer if inequalities were allowed to let rip, since the presence of a redistributive state pretty much mathematically reduces output. As such it is disingenuous to claim--if that report is doing so--that more redistribution has no effect on total income relative to less redistribution, unless one can show what economic mechanisms would work to offset the efficiency losses of taxation.

In other words inequality has more disbenefits to society, especially for those who are rational enough to reject the obsession with material wealth focusing on well being or happiness instead.
I'm not sure what "obsession with material wealth" has to do with inequality.

If everyone is obsessed with material wealth, is that going to be less equal than if nobody cares about material wealth? And if we were able to transition, zen-like, into a society that didn't care at all about material wealth . . . then inequality of income would have ceased to be an issue for us, so we would not see any pressing need to do anything about it (would we?). I think the whole rationale for redistribution has to admit that material income is very important, to everyone, and should be.

By saying "focus on happiness", you're essentially favouring a utilitarian society, which is really pretty much what materialism is all about too, except that the latter excludes non-tradable stuff from the pursuit of utility/happiness.

The rationale for redistribution (to provide a threshold level of income for any citizen, and to address "bad luck" inherent in the system) is far more about the ethics of fairness than about utility and economics IMO. (Plus, it is open to challenge that it--redistribution--is itself immoral)

I think this tells us how to solve many of our social, health and education problem
OK. How?
 
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The chart looks like one from the equality trust (uni of nottingham rings a bell) - the references or methods etc will be on their site.

The main publication is:

http://www.equalitytrust.org.uk/docs/inequality-and-health.pdf

ETA for international comparisons they use the 20:20 ratio, and for US comparisons the Gini coefficient. http://www.equalitytrust.org.uk/why/evidence/methods - also has info on the index of health and social problems.

So they basically took over a hundred different studies on social health, using various different measures, each with differing methodologies and quality, threw them in a blender, and came out with a result. That may or may not give any usefull results, but the one glaring problem I saw in skimming the paper was reference to life expectancy, which is NOT an apples to apples comparison between countries.
 
The standard unit of "income inequality" is the Gini index (post tax and transfers) which the OECD calculates and is reported here (data here). The OECD data does not look the same as your chart. What's the "index of health and social problems" and what's the source? (I wonder why the US is not on that chart)

The original link is here it includes a Gini index chart

http://www.bbc.co.uk/blogs/thereporters/markeaston/incomeinequality_oecd.jpg

http://www.bbc.co.uk/blogs/thereporters/markeaston/2010/01/is_inequality_iniquitous.html

The US is on both charts.

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So they basically took over a hundred different studies on social health, using various different measures, each with differing methodologies and quality, threw them in a blender, and came out with a result. That may or may not give any usefull results, but the one glaring problem I saw in skimming the paper was reference to life expectancy, which is NOT an apples to apples comparison between countries.

We have had some attempts to enforce "economic equality" on a society,like the Soviet Union, Communist China, and the Pol Pot regime in Cambodia.
They did not out work out too well.
You can argue that a society should guarantee a certain level of economic security to everyone, but equality..no way.
Bitter fact is people work harder and are more productive if they know they are going to benefit from it in an immediate way, not some pie in the sky utopia.
Why do I think the "Zeitgiest Project" is going be menionted in this thread.
 
Bitter fact is people work harder and are more productive if they know they are going to benefit from it in an immediate way, not some pie in the sky utopia.

Is this your opinion, or do you have some evidence that countries with bigger inequalies are more productive?

Rather than stimulating innovation and progress, great inequality wastes the talents of a large proportion of the population. The evidence shows that it reduces children’s educational performance as well as reducing social mobility. Economic studies of the relationship between the extent of inequality and economic growth rates have mixed results: most suggest that greater equality is beneficial to growth but a few suggest the opposite. As a check on how inequality might affect creativeness and innovation, we have now looked at the relationship between inequality and the number of patents granted per head of population. There is a weak but statistically significant tendency for more equal societies to gain more patents per head than less equal ones.

http://www.equalitytrust.org.uk/why/evidence/frequently-asked-questions#innovation
 
WHose is going to decide what level of "inequality" is accpetable and what is not?
 
Well if everyone aimed to reduce it to the current level of the most equal country in the dataset used (ie developed countries), I think that would be a good start.
 
If everyone is obsessed with material wealth, is that going to be less equal than if nobody cares about material wealth?

I think so, since the rich are often in a position to become much richer through their investments and ability to live off a fraction of their income. Moreover this will be passed on to their siblings which have not earned this immense and probably undeserved level of wealth. A monumental disincentive for a society if there ever was one. The poor in contrast are trapped spending everything they earn to just keep their head above water.

Higher taxation, and high welfare provision as we see in the Scandinavian countries tempers this effect without affecting overall wealth too much. However more importantly their index of 'problems' is low and presumably happiness or contentment higher.

I think this tells us how to solve many of our social, health and education problems

OK. How?

I thought the graph displayed this? by reducing inequality.

The relationship between life satisfaction and income is better illustrated with the following graph which implies beyond a certain level of income there is little to be gained.

http://www.theoildrum.com/uploads/12/nateFig1.jpg

Taken together, I think the implications are obvious, but it won't alter the way we behave one bit!

In a globalised economy with good communications, countries are not isolated, hence I would expect poorer but developed countries such as the ex Soviet bloc to be very unhappy due to their jealousy of richer ones irrespective of their within country equality.

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Well if everyone aimed to reduce it to the current level of the most equal country in the dataset used (ie developed countries), I think that would be a good start.

You know, of course, this is tantamount to giving the Government total control of the Economy.
Do you really want that?
 
Milton Friedman dispels this nonsense here:


Some of his reasoning is a bit facile, but for people to understand how the % of people that are "happy with life" or whatever can be low in advanced societies, take a look at Gregg Easterbrook's "The Progress Paradox."
 
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Ok, I got confused about what studies were being referred to where, so I took some time to go through them all. The study linked in the OP doesn't actually address whether income inequality is related to "social health". It does make the claim that there are countries that are more economically successful with lower income inequality than the UK has. That doesn't really support the title of the thread "Inequality isn't related to economic success". If janitors are paid the same as doctors, who are paid the same as someone who works part time as a wedding photographer, who is paid the same as someone who works 50 hours a week as a garbage collector, who is paid the same as someone who works as a film critic, it should be glaringly obvious that all sorts of nasty effects would happen - for example, you wouldn't have any janitors because they would all want to be film critics.

The second point quoted in the OP "Wide inequalities erode the bonds of common citizenship and recognition of human dignity across economic divides" is not supported by any data or even a reference. It is simply an assertion. The rest of the statement:
A number of analysts have pointed to the ways in which large inequalities in the kinds of economic outcome we look at are associated with societies having lower levels of happiness or well-being in other respects, and to the social problems and economic costs resulting from these

Is supported only by reference to Layard (2005), which amongst other things, says that increasing wealth beyond a minimum doesn't make people happier. It doesn't address income inequality at all. I don't think the study linked in the OP supports the assertions of the poster.

As to the correlation between income inequality and "social health", after looking more closely at the components that the University of Nottingham uses to measure social health, I have low faith that the results tell us anything useful.

There are components that are not really comparable measurements between countries, such as life expectancy and infant mortality. Different countries measure those differently. For example, in the US, any infant that has taken a single breath after being removed from the mother is counted as a live birth for purposes of the infant mortality statistics regardless of birth weight or length of gestation, whereas for many other countries that is not true. The same sort of methodology differences make comparisons of life expentency between different countries problematic.

There are other components added in to the social health index that don't seem to be measures of social health. Obesity doesn't seem to me to be a valid measure of social health. Obesity's impact on health should already be included in life expectancy measures, assuming a good apples to apples life expectancy measurement is used. Homicide rate is included, and that seems to be a very valid inclusion, but then they choose as a component imprisonment. Not crime rates, but imprisonment rates. They then further mess things up by measuring imprisonment rates differently between the US and the rest of the of the world. For international data they use "Log of prisoners per 100,000", yet for US data it is "Prisoners per 100,000". They also include mental health as a component, which is problematic due to differing rates of diagnoses - part of which is simply fashion. I'm going to take a wild guess that there is a low rate of ADHD diagnoses in Cote d'Ivoire relative to the US. To make matters even worse, again, the mental health category is measured differently between the US and the rest of the world. I'm not sure how the teenage birth rate is indicative of the health of a society. I can see unwed teenage births as possibly being something to include as a measure.

Why is homicide rate included but not violent crime? Why is obesity included? Why is imprisonment rate included but not crime rates? Why mental health rates? I notice that there is no category that in any way refers to freedom, nor to civil rights, which would seem to be a glaring omission to me. The idea that happiness and well-being are intertwined with freedom is over 2,000 years old. Which ironically points us back to Layard (2005) referenced in the NEP report, because one of the seven factors that most impact happiness was personal freedom accodring to Layard (2005).

http://www.infed.org/biblio/happiness_and_education.htm
Richard Layard (2005) argued that seven factors are central to happiness. Furthermore, he used research such as the US General Social Survey to establish (for the US at least) five in some sort of order of importance. Two further factors were seen as central, but could not be ranked due to lack of survey evidence.

1.Family relationships.
...
2.Financial situation.
...
3.Work.
...
4.Community and friends.
...
5.Health.
...

Also key:

Personal freedom. Happiness also depends upon the quality of the political, economic, legal and social systems in which we operate. There is some evidence that people living in stable and peaceful societies in which they have a voice and an ability to follow their interests (where it does not harm others), and in which institutions are accountable will be happier. (Lane 2000; Layard 2005: 69-70).

If someone wants to determine whether the relationship between income inequality and social health, I think the first thing they need to do is to clearly define social health. They then need to apply a consistent measurement for all subcategories, across all countries, taking care to control for cultural differences between countries (like historical rates of tobacco usage when considering life expectancy, etc).
 
Is this your opinion, or do you have some evidence that countries with bigger inequalies are more productive?

While I doubt the relationship is linear, it doesn't take a genius to figure out that a country with complete income equality will become an economic cesspool. When everyone from doctors to janitors to septic tank cleaners to the unemployed all get "The Salary", you'll have a society that has an excess of people seeking jobs as political commentators, book reviewers, and video game testers but a deficit of trash collectors, nurses, doctors, and dishwashers.

How many people are going to want to change the bedpan of the 80 year bedridden man in the psych ward rather than stay at home watching Real Housewives of New Jersey when they are going to get "The Salary" either way?
 
Well if everyone aimed to reduce it to the current level of the most equal country in the dataset used (ie developed countries), I think that would be a good start.

You know, of course, this is tantamount to giving the Government total control of the Economy.
Do you really want that?

Why do people like to polarise the options into either


a) let the unfettered free market rule

b) have a complete control economy


the article isn't claiming that either situation is optimum, but implies that less inequality such as we observe under lets say Scandinavian models is beneficial than the one we see in unbridled capitalism with a significant underclass deprived of equal legal representation, political influence, education and health. We only live in a theoretical free society not a real one!

Dare I suggest that there are some on here who are desperate to disprove the 'dangerous' hypothesis of socialism since they have benefited materially due to large inequalities and don't want a fair tax and benefit system. Hence the need for straw man arguments.

If janitors are paid the same as doctors, who are paid the same as someone who works part time as a wedding photographer, who is paid the same as someone who works 50 hours a week as a garbage collector, who is paid the same as someone who works as a film critic, it should be glaringly obvious that all sorts of nasty effects would happen - for example, you wouldn't have any janitors because they would all want to be film critics.

you will have to explain this to me, wouldn't this reduce the desire for a janitor to be a film critic?
 
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While I doubt the relationship is linear, it doesn't take a genius to figure out that a country with complete income equality will become an economic cesspool. When everyone from doctors to janitors to septic tank cleaners to the unemployed all get "The Salary", you'll have a society that has an excess of people seeking jobs as political commentators, book reviewers, and video game testers but a deficit of trash collectors, nurses, doctors, and dishwashers.

It also doesn't take a genius to figure out that a country with no government regulations whatsoever will become an economic cesspool -- we've done that experiment in Somalia. Nevertheless, there are a large number of people that think that productivity generally goes up with less regulation. You can't generalize from a single data point, and especially not from a self-proclaimed extremist outlier.

How many people are going to want to change the bedpan of the 80 year bedridden man in the psych ward rather than stay at home watching Real Housewives of New Jersey when they are going to get "The Salary" either way?

You might be surprised. Most people want jobs that they like and appreciate the idea that they are actually doing something useful and good for the world. Sitting around watching Real Housewives is not an especially pleasant way to spend your life. Conversely, most doctors and nurses aren't in it for the money (the money isn't actually that good compared to what you can get in the business world when you factor in the arduous training). I have a close friend who is leaving her position as a housewife and going instead to nursing school precisely because she's bored with the Food Network and Maury. (And, no, salary isn't a major issue; her husband is doing extremely well as a software engineer.)
 
you will have to explain this to me, wouldn't this reduce the desire for a janitor to be a film critic?

Being a janitor is itself an unpleasant job; it's hard (physical) work involving unpleasant circumstances (when someone has a sudden attack of projectile vomiting all over the floor, who cleans it up?). By contrast, film critics are generally perceived as just sitting around watching movies all day, something that most people do for fun.

Similarly, I'd rather have my current job as a college professor (indoor work with no heavy lifting) than some of the jobs that I worked when I was in school scrabbling for money, jobs that involved power tools, heavy lifting, and standing around in the rain up to my ankles in mud.

Of course, the reality of being a film critic is somewhat different; in fact, most film critics dislike their jobs because they can't sit back and enjoy the films, and because they don't get any choices about what films they watch (and end up having to sit through and watch lots and lots of drek).
 
I think a lot of people believe it is common sense that in order to motivate people to want to "do well" in life there should be big disparities between the top and the bottom. Make life so uncomfortable at the bottom that people will be desperate to get out of it, and make the top look so good that they will be motivated to reach for it. It might sound like it will work, but in practice i think it has the opposite effect. Imagine you are in about last position in a race. Will you work harder and run faster if the leaders are very far ahead, or if they are almost within reach? If the wide gaps really do motivate people to move on upwards, why is there less social mobility in countries with larger disparities?
 
"why is there less social mobility in countries with larger disparities?"

Evidence, please?
 

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