Equally Wrong

by Will Wilkinson on August 24, 2006

Kevin Drum attempts to answer my question about income inequality. He fails. He tries out a few hypotheses about the mechanism underlying ineuality in income growth and … he is unceremoniously dissected by Russ Roberts, a real economist. After flicking over each of Drum’s ideas, Russ says:

The real problem with these theories of inequality is that they fail to see that the income distribution is an emergent phenomenon rather than under someone’s nefarious control.

That’s part of what I was rather longwindedly getting at in my last inequality post. The statist liberal pundits seem to be so weak on microfoundations that they end up offering simply baffling Underpants Gnome explanations. Russ quotes this nice bit from Warren Meyer of Coyote Blog:

What’s bizarre about all of these statements is it treats wealth, and in this case specifically income growth, like a phenomena that is independent of individuals and their actions.  They treat income growth like it is a natural spring bubbling up from the ground, and a few piggy people have staked out places by the well and take all the water before the rest of us can get any.

The mysterious world of numinous unmoored macro forces that are somehow rigged to benefit just the rich is a world of magic and wonder. Good thing we don’t live there.  

Viewing 10 Comments

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    he is unceremoniously dissected by Russ Roberts, a real economist. After flicking over each of Drum’s ideas, Russ says:
     The real problem with these theories of inequality is that they fail to see that the income distribution is an emergent phenomenon rather than under someone’s nefarious control.

    Krugman's the one who first made the claim that there is a connection between specific political parties and changes in income inequality, as I understand it. I wouldn't want to swear to it, but I think he's an economist, too. Perhaps that is not as well known as Roberts on the Red side of the fence, though.
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    Should have seen that one coming! Well, Krugman's sometimes an economist, sometimes a polemicist. I think he knows better.
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    No kidding it's an emergent phenomenon. Only the tin-foil hat brigade and a few squishy liberals think there's some conspiracy to produce inequality. The avian flu is an emergent phenomenon, too, but that doesn't mean we don't try to do something about it.

    Inequality is the single biggest problem in our society. We shouldn't try to increase GDP with no regard for how it is distributed.

    Say someone shows up at your door and offers you either (1) $500 free and your neighbors get nothing or (2) $1000 free and each of your neighbors gets $2000.
    There are writers in liberatarian circles who honestly believe human beings would pick option 2. Anyone with a shred of understanding of human nature knows that option 1 is preferred by most people. Yes, you get less in option 1, but that's not the point. In Option 1 you feel good, and in option 2 you feel you are being treated unfairly.

    MONEY DOESN'T BUY HAPPINESS. It's how much money you have compared to your peers that matters, not how much you have in absolute terms. The econometric calculation of utility is an academic exercise, but nobody with an understanding of human nature thinks it correspondeds closely to reality. Maybe people with Asperberger's Syndrome believe that. But they are wrong.
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    Wait a minute is income distribution an emergent phenomenon not under anyone’s control or is it dependent of individuals and their actions?
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    In reply to Dirk:

    1) I'm sure there are others who know far more than me about studies with the ultimatum game, but my understanding is that people have a limit to the ineqaulity they will accept, but most would gladly accect a $1000::$2000 split. I'd suggest also that most people really are like me and would pick option 2, but maybe I just need the money. Your more fundamental point is taken, that there is evidence for negetive externalities to inequal wealth.

    2) "Maybe people with Asperberger’s Syndrome believe that" seems rather ignorant, insensitive, mis-spelled and of no help to your argument in anycase. Let's move on and try to keep the level of the discussion a little higher.
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    Dirk,

    I think people accept inequality of income very well - as long as they perceive that higher incomes derive from talent and from effort. I wish the general public understood risk/reward a little better, as that would likewise help them understand the greater flows to entrepreneurs.
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    I don't understand. If MONEY DOESN'T BUY HAPPINESS, then why is inequality the biggest problem in our society?
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    Dirk said Inequality is the single biggest problem in our society.

    Really? The single biggest problem is income inequality? (Presuming, from context, that that's the form of inequality meant; if you really meant "inequality per se in no specific context", that's really weird.)

    How's that, now?

    (Plus I'm not at all sure that someone else making more money than me is making me unhappy. I certainly don't feel unhappy because Bill Gates is fantastically wealthy. But that might just be because I'm atypical.

    I, at any rate, would be happy with a bit more purchasing power to improve my lot, even if other people gained even more, thus reducing my relative wealth!)

    Retief: It's both. It's primarily a result of individuals and their actions (apart from the systemic factors and the occasional inheritance, etc.), but not in such a way that it's easily amenable to anyone's control. (Emergent phenomena, after all, emerge from something; in this case, individual actions. Just like the invisible hand of the market emerges from the actions of individual participants.)
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    "Say someone shows up at your door and offers you either (1) $500 free and your neighbors get nothing or (2) $1000 free and each of your neighbors gets $2000."

    Soo... since this is a debate about how much benefit poor people get from general increases, let's put a poor individual on the other side of your door. Say that person needs $1000 to feed their kids that year. Are you actually saying that mother or father will starve their kids just to stick it to the neighbors?

    I think this is your fundamental flaw. Perhaps wealthy middle class type people who have all their day to day needs taken care of can indulge in wasteful economic jealousy, but people who need money for food, homes and clothes do not. And that's who we're really talking about, right?

    What negatives is this equality causing? I don't see riots. I don't see Bill Gates being murdered. I don't see the poor rising up in mobs and burning down corporate headquarters. If "inequality" is an objective negative, surely it has some additional side effects we can point at.

    Frankly, I think poor people are smarter than you. I think they're going to take their $1000 and be better off, and happier, and also realize that their neighbors having money is ALSO a good for them, because those neighbors don't need to turn to less savory means of acquiring money, will take better care of their neighborhood, and just be plain happier now that they can also feed their kids (and buy a new TV too!). Sure, perhaps they'll feel a twinge that they couldn't get one too, but it's funny how having healthy, well-fed kids can overcome that.

    You assume that strict material jealousy, bereft of any objective analysis of one's circumstances, is the defining characteristic of American life. It's not just false, it's rather disgusting misanthropy.
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    Autor, Respect!
 

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