Sunday, May 04, 2014

Inequality, Poverty, Etc.

This is an interesting article, the thesis of which is that "inequality", in and of itself, isn't the problem that those on the left make it out to be:
Is there a genuine "issue of inequality"? I say no. There are (or at least may be) genuine issues of poverty, market and regulatory failure in the financial sector, or how best to raise taxes to fund public services. Very often discussions of "inequality" are either disguised discussions of one of these things or else inequality is seen a symptom of problems elsewhere (e.g. bonuses in the banking sector seen as a symptom of poor regulatory risk management oversight).

But once we strip out these other potential issues all that is left of the "inequality" discussion is this: is it bad if some folk are rich? And in truth, almost no-one claims that it is...

(A)lmost all inequality in developed economies does not arise by the wealth of almost anyone else declining. (That does happen in less socially and politically developed societies, in which wealth arises from political control of resources or access to corruption.) In modern developed economies inequality arises when someone – a Gates or Zuckerberg or Cowell or Ronaldo or Rowling or just an ordinary businessman or professional – finds some way (some skill or invention or investment) that adds considerable value, and that value is not then shared equally...

Many of those preaching the evils of inequality will at this point start to deny that this is actually how high inequality arises. They might claim that remuneration of executives or in the financial sector do not come from added value but, rather, from market failure. I would probably disagree, but at least they would then be talking about something interesting – the alleged market failure – rather than something of no intrinsic policy concern (the fact that some folk are rich).

Others will start telling you of the terrible social problems associated with inequality – the depression, violence, low life expectancy and so on. Well, insofar as these arise from poverty, we can debate how much to alleviate poverty. But then poverty is the issue, not inequality.

"Ah," say the evils-of-inequality purists, "but you miss the point that some of these social problems are psychologically connected to the fact that there are very rich people, not simply the result of the poverty itself." If that is the case offered, then my response is that you are either talking of aspiration or of envy. Aspiration – being discontent in your current circumstances and hoping to improve your lot and that of those you love – is a driver of progress. Obviously some will fail in their aspiration, and may suffer psychological consequences. But are we really saying it would be better if no-one aspired at all, than for some to aspire and not succeed? Others may not simply aspire, but may instead envy the success of those that have done better or who were luckier to begin with. It's hardly controversial that envy exists or that it may have negative consequences – that is, after all, presumably why it's one of the Seven Deadly Sins?

If someone said: "Women with beautiful eyes should cover them up to avoid inciting lust in others" we would say that's silly or oppressive. It's the luster's problem, not the person lusted after. Yet in the case of envy, somehow we're supposed to believe it's the envied person that's the bad one, not the envier? No. Envy may be harmful, but to the very limited extent it's a policy concern the correct response is to teach people not to envy.
Go read the whole thing, it's pretty good.


maxutils said...

It was a good read ... although, the first analogy involving the 'no scarcity of fish' made me cringe ... it's a premise which violates the first law of economics. I don't think incomes need to be equal, or anywhere near it. The incentive to become rich obviously spurs innovation, and helps raise all ships. However ... the argument about market failure is correct. We have industries all over which are not truly competitive, we don't honor unionization, and when those non-competitive businesses fail, taxpayers bring them wheelbarrows full of money. We're also completely dishonest in our tax code; the theory is, the rich pay more. They do -- but not proportionately. Most of our taxes our regressive. If we had one tax, that was clean, and transparent.. . we could fix this. No more arguing about capital gains tax ...once you paid your tax on the income, you get to do what you want with the benefits. No more sales tax, which must be a pain for business owners. Government will never do it, though, because then we would see what we're paying...

allen (in Michigan) said...

There's a first law of economics? Who knew?

I will, however, agree the analogy sucks and worse, there isn't any need for it. Free markets generate wealth for all participants since there's no other reason for their existence and where there's compulsion there's no free market.

That's why it was necessary to create rhetorically what doesn't, and can't, exist in the real world, that mythical "market failure".

Since the only source of wealth is free market exchanges it follows that where those exchanges are curtailed or encumbered wealth formation is retarded. Wealth formation doesn't cease because those with considerations of value to exchange will continue to try to find each other and when they do wealth will be formed in the subsequent exchange but it'll be an unnecessarily difficult and inefficient process as a result of the artificial encumbrances. That's why Communism fell. Dedicated to the elimination of the free market Communist policies are really only good at preventing the formation of wealth which is why the few, remaining Communist countries are economic backwaters, why the Soviet Union fell and why Communist China is trying to find a balance between a Communist dictatorship and the free market.

One of those encumbrances are legalized, and legally advantaged, unions.

Historically unions and their antecedents - guilds - have sought legal protection from the free market. Where unions, and I assume guilds, didn't have that legal protection they fell back on physical violence to enforce their control over their customers. Naturally, society punishes the use of violence for gain since legitimate violence is the monopoly of the state.

For unions that meant getting their heads cracked by guys whose job it was to crack heads against which the union's amateur head-crackers didn't really stand much of a chance. So unions, like guilds before them, were forced to pursue political solutions which legitimized and sublimated union violence.

Those political solutions encumber the free market in labor to the advantage of unions.

However, since there's no advantage without an equal and opposite disadvantage - why am I suddenly thinking of Sir Isaac Newton? - everyone who isn't in that labor union pays more for the products those union workers produce then they ought to. Directly contrary to a free market exchange, union workers are better off because their captive customers are worse off. That's also why unions simply don't exist where the customer has any recourse to the products the unionized workers produce. Hence the union love of tariffs, immigration barriers and all other market limiting devices.

With regard to the "inequality" issue that is, pardon me Darren, a crock of shit.

Bill Gates getting rich didn't come as a result of an equal increase in poverty by some large number of people. The "inequality" issue's an attempt to enlist greed in service of a political party the implied promise being that the government will take from those who have much to give to those who have less after raking off plenty in the process. In the end we'll all be poorer although those who flog the issue hope the public's not looking far enough into the future to see that inevitability.

Anonymous said...

Regarding the "Wall Street bonuses", most people do not realize that the "bonuses" represent most of the total compensation - and the higher the position in the company, the larger the "bonus" percentage is. I know some of those people and they are in negative cash flow for 10 months of the year; the end of year "bonus" (based on both company and individual performance) really is the salary.

maxutils said...

allen ... I believe just about everyone knows the first law of economics: "There is no such thing as a free lunch." Everything is scarce, including time, and everything has a cost. Free market economics works great ... if it's free. But that involves a whole bunch of assumptions that aren't really true, a lot of times. Most important? Many buyers and many sellers. In the labor market, that isn't true. In a lot of industries, there are many fewer employers (Wal-Mart) than sellers. If I could peddle my retail labor to any of 100 firms doing exactly the same thing, then, the free market might work. However, that's not how it works, because Wal-Mart is big enough that they can pay minimum wage, not provide health care and rely on taxpayers to pay supplementary benefits. That is market failure. Other problems? In a free market, buyers must pay for all the benefits they enjoy, and sellers must incur all the costs they impose. That doesn't always happen. How much would you volunteer to pay for a road that goes by your house, if you knew that your neighbors would also want it? I'd bid zero. Everyone else would, too, if they were smart. That is market failure ... and not a myth.