Inequality

Yglesias writes:

I think the links between taxation, spending, and inequality are the most plausible explanation of the fact that the highest-taxed countries are the happiest. It can’t be that paying taxes makes Danes happy. But plausibly, living in a relatively egalitarian society makes people happy.

I wrote a paper about this! At the time, the studies showed no notable systematic relationship between income inequality and happiness. (I know Betsey Stevenson and Justin Wolfers are looking at the question again with the bigger, better Gallup survey, so maybe they’ll offer a somewhat differnet, more accurate picture.) Danes say they’re really happy and have the lowest inequality. But Americans are nearly as happy and have high inequality for an OECD country. Mexicans are a quite upbeat lot, but have really, really high income inequality. So there’s not much of a clear pattern in the data. The effect of inequality on happiness appears to be pretty strongly ideologically mediated. Unsurprisingly, high inequality tends to be disquieting to egalitarians. But it doesn’t so much bother meritocrats. Additionally, the causes of high inequality are various. Economic predation by political elites (lots of Latin America and Africa) is pretty likely to create a sense of victimization and injustice. But high levels of wealth creation in more or less fair institutions but with relatively little fiscal redistribution (the U.S.) doesn’t bother people as long as they think the system is more or less fair. So the national income inequality variable itself tends to have little or no independent effect. The effect it does have depends on other things people believe and care about and the specific causes of inequality in different places. Anyway, why would you expect nation-level income inequality to figure much into an individual’s assessment of life satisfaction? People don’t experience national Gini coefficients. They worry about their neighbor’s car.

Jason Kuznicki points us to this excellent video…

As Jason says:

Couldn’t have said it better. If you take taxpayers’ money, you should have to treat all taxpayers equally. If you’re privately funded, you should be free to do as you like. Want to discriminate? Fine. Just don’t take tax money to do it.

And… if you support discrimination laws that touch purely private interactions and that benefit yourself, then you can hardly complain when others want those same benefits for their groups, too.

Tim Carney’s piece on the power of the teachers’ unions and their massive push to drive a stake through the heart of Washington, DC’s modest and locally popular experiment in school vouchers should be sobering to anyone with a romantic view of democracy. 

Beltway bandits, defense contractors, influential industries—most of them pale in their influence efforts compared to the teachers unions, according to data from the Center for Responsive Politics.

Take defense contractors. Lockheed Martin, the top recipient of military contracts most years, spent more on politics than any other defense firm in the 2008 elections. They still spent less than the American Federation of Teachers, which shelled out $2.8 million in the last cycle—with nearly every AFT dime going to Democrats.

The top two teachers unions—AFT and the National Education Association—spent more combined, $5.27 million, than the top two defense contractors.

The top five lobbying firms, combined, didn’t equal the AFT and the NEA in federal contributions in the 2008 cycle. Both of the teachers unions gave more than any oil company, and the NEA and AFT combined gave more than the top four oil companies combined.

These contributions give the unions clout, and federal lobbying records show they use this clout. Again, on closer inspection, the teachers unions look an awful lot like those corporate special interests Democrats supposedly oppose.

The NEA employs four different lobbying firms in Washington, in addition to their in-house lobbying arm, which includes at least six lobbyists.  Over the past two years, the NEA spent $10.7 million on lobbying. Reviewing the filings of the NEA, the AFT, and their K Street hires reveals that lobbying to kill DC vouchers was a priority.

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Again, there are substantive arguments against D.C. school vouchers. But with this money trail, it appears that congressional Democrats’ push to kill vouchers is simply a case of the piper playing the tune that the AFT has called.

If you believe, as I do, that the returns to further government spending on education, given its present structure, is zero or negative, and that the best hope for increasing the quality of education for the least well-off, and for increasing economic and social mobility generally, is to legalize competitive markets in education, then you will tend to believe, as I do, that this attempt to destroy voucher programs before than can show themselves effective is nothing less than a powerful political interest group screwing over poor people by bending the democratic process to their advantage. The sad thing, from my perspective, is that strong Democratic partisans (and especially members of the teachers’ unions) are likely to violently reject any such argument out of hand on the basis of their deep conviction that the Democratic Party cares about the poor, and so would certainly not allow itself to become captured by groups with interests diametrically opposed to interests of the poor. As time goes on, I think the relevant social science is going to brutalize the standard Democratic position, and the clash between the Democratic Party’s most powerful client and the poor will become increasingly stark. But for now, the unions will probably succeed in temporarily extinguishing the possibility of demonstrating a superior alternative to the status quo system of education.

Princeton sociologist Douglas Massey is one of my favorite scholars. The abstract from his new paper [gated] on “Globalization and Inequality: Explaining American Exceptionalism” will sound familiar to readers of other eminent Princetonians, such as Paul Krugman and Larry Bartels. I’m starting to think of it as “the Princeton Narrative” about inequality in the U.S. 

Globalization creates pressure for greater inequality throughout the world, but these pressures are expressed more fully in the United States than in other developed nations. Although the distribution of US income before taxes is no more unequal than other nations, after taxes it is considerably less egalitarian. This occurs because of specific institutional arrangements that fail to redistribute income effectively and allow the pressures of globalization to be fully realized. These arrangements represent a shift from the past and were deliberately enacted over the past two decades with divergent consequences for those at the top and bottom of the socioeconomic hierarchy. The realignment of the US political economy can ultimately be traced to America’s legacy of racism. Once leaders in the Democratic party sought to include African Americans in the benefits of Roosevelt’s New Deal, support for economic populism evaporated in the middle and working classes. The advantage of the wealthy is further enhanced by a political system in which those with money are better able to have their interests served legislatively than the poor or working classes.

I have not read the paper, just the abstract. So I will certainly do violence to the nuance in the argument. But here are a few thoughts loosely inspired by the summary.

First, I think there’s a good deal of truth in the Princeton Narrative. Second, racism aside, American exceptionalism has a good deal to do with our exceptional18th Century Constitution, the political culture that created it, and the political culture it subsquently reinforced. See Glaeser and Alesina and Persson and Tabellini.

Third, let’s say explicitly what is implicit here: the New Deal was democratically feasible because it catered to Southern racism. Which is to say that many of the policies of the “Great Compression” were predicated on the explicit exclusion of blacks from many programs, which is part of the point of Brink’s Nostalgianomics paper. The New Deal may have been economically egalitarian in the aggregate, but may have also helped to perpetuate more viciously inegalitarian Southern racial apartheid. The New Deal involved a magic button-style tradeoff between two kinds of equality. It’s not clear to me that a liberal egalitarian, more concerned about equality of rights and social standing than about equality of material holdings, should have pushed that button.

Third, Barack Obama, points (a) and (b). Barack Obama point (a): wealthy voters now seem to be trending to the more redistributive party, and it seems that extremely wealthy voters may have very strongly preferred Barack Obama. Barack Obama point (b): Barack Obama is black, and his electoral success certainly signals a weakening in American racial animus. So, if the major impediments to higher rates of downward redistribution are that wealthy people don’t want to redistribute, and most white Americans don’t want to redistribute because black people will get their money and they don’t like black people, then the success of Barack Obama in general, and among the rich in particular, is great news for egalitarians in two separate ways.

Fourth, it is a mistake to assume that equality of democratic voice improves the prospects of the poor and working classes unless the poor and working classes support policies that actually promote their interests. This is a pretty simple point many people have a hard time getting their heads around. But it’s pretty clear that populist socialist revolutions around the world have not been very kind to poor and working-class people, because populist socialism doesn’t tend to work very well. The now-vast public ignorance literature (subscribe to Critical Review!) would seem to suggest that the best case scenario for the poor and working classes is to have a relatively weak voice in a coalition with relatively strong-voiced highly-educated elites sincerely conerned with poverty alleviation and economic mobility. This presents another magic button for egalitarians. Suppose there is a button that simultaneously equalizes the democratic voice of the poor and working classes and reduces their expected lifetime income by 50%. Would you push it? Egalitarian liberals are going to continue to sound confused unless they can make up their minds about this.

Brink Lindsey replies to Matt Yglesias’s criticism of his paper:

I think Matt misunderstands both my argument and what Krugman has been doing. I quite agree that Krugman doesn’t want a full-scale reinstatement of the corporatist, cartelistic policies of yesteryear. I say as much in the paper. What Krugman does want, however, is to portray the economic policies of the early postwar decades as an inspiration for progressives today — an example of how activist, interventionist government can simultaneously promote growth and reduce inequality. To quote Krugman’s Conscience of a Liberal: “During the thirties and forties, liberals managed to achieve a remarkable reduction in income inequality, with almost entirely positive effects on the economy as a whole. The men and women behind that achievement offer today’s liberals an object lesson in the difference leadership can make.”

To get to that ideologically convenient punch line, Krugman is forced to systematically misrepresent the policies and culture of the early postwar decades. He has to leave out all the things he doesn’t like, all the things that virtually all his fellow economists and fellow progressives don’t like, about the supposedly good old days — for example, the widespread cartelization efforts of the thirties, farm supports, price and entry controls on large sectors of the economy, restrictions on retail competition, high trade barriers, racist immigration laws, and the sexist confinement of working women to a pink collar ghetto. All of these contributed to the compression of incomes, yet they don’t serve Krugman’s ideological purposes. So he ignores them. That’s nostalgia-mongering, plain and simple: the selective recall of the past to make it seem better than it really was.

I think Brink is exactly right, and that earlier periods of American history simply aren’t usefully comparable to the present. The so-called Great Compression was singular and, as Brink notes, it was driven in no small part by policies and social  norms that decent, well-informed people should now consider completely off the table. When it comes to policy to address inequality, the relevant comparison is to other contemporary liberal democracies. I think the evidence is strong that a high level of spending on welfare and social insurance is consistent with high levels of growth, as long as the economy is not hampered by excessive regulation, restrictions on trade, and large amounts of unproductive public spending. American progressives would make a lot more sense if they concentrated almost exclusively on reconfiguring the composition of curent levels of American spending–for example, moving money from defense to social insurance–rather than arguing for additional tax-financed spending. When progressives push for, say, more heavily regulated labor markets and trade barriers, it shows that they’re looking back to an era that wasn’t as good as they think, while failing to grasp what makes contemporary high-growth, eqalitarian social insurance states work relatively well.

In his interesting post responding to Brink’s new Nostalgianomics paper, Matt Yglesias writes:

I think that in a lot of ways the most interesting recent research on inequality turns out to be about skill-biased technological change after all. Specifically, Claudia Goldin and Lawrence Katz argue in The Race Between Education and Technology that we shouldn’t look at SBTC as something that just comes along and causes inequality. Rather, it causes inequality when society fails to respond to SBTC by expanding the quantity of educated citizens. Seen in this light, the SBTC component of growing inequality is, indeed, a policy failure.

The issue isn’t “quantity of educated citizens,” it is the “quantity of citizens with economically remunerative skills,” which just isn’t the same thing. The pre-schooling distribution of ability to acquire economically-valued skills may put a pretty hard limit on the usefulness of pushing people to spend ever more time in college. (Here’s Cato Unbound’s debate on whether more college is worth it.) You can think of this in IQ terms, like Charles Murray, or in early childhood development terms, like James Heckman. But it remains that inequalities in skill-acquisition abilities may not be ameliorable by getting more kids to spend more time in college. Moreover, Goldin and Katz provide basically no evidence to the effect that education can or will keep up with SBTC given their preferred policies. If certain new technologies continuously and disporportionately increase the productivity of people over the 3rd standard deviation of skill, say, then wage gaps will stretch out no matter how many people you put through grad school. Please read Kling and Merrifield. 

That said, I think there’s a huge amount of wasted potential out there, and bad policy is to blame. I think inequalities in the quality of primary education are very important, and that policies that would improve the quality of primary instruction promise both large gains in equality and overall economic performance. The problem is, to provide an aggravating Yglesias-style diagnosis, is that the Democratic Party has the public education cartel as one its major clients. So if increasing economic mobility and reducing inequality requires fundamentally reforming the structure of the primary education delivery in the U.S. so that it can deliver higher-quality instruction to a broader range of people, then too effin’ bad!

Cato has released a great new paper by my friend and colleague Brink Lindsey on “Paul Krugman’s Nostalgianomics:  Economic Policies, Social Norms, and Income Inequality.” Here’s the executive summary:

What accounts for the rise in income inequality since the 1970s? According to most economists, the answer lies in structural changes in the economy–in particular, technological changes that have raised the demand for highly skilled workers and thereby boosted their pay. Opposing this prevailing view, however, is Princeton economist and New York Times columnist Paul Krugman, winner of the 2008 Nobel Prize in economics. According to Krugman and a group of like-minded scholars, structural explanations of inequality are inadequate. They argue instead that changes in economic policies and social norms have played a major role in the widening of the income distribution.

Krugman and company have a point. For the quarter century or so after World War II, incomes were much more compressed than they are today. Since then, American society has experienced major changes in both political economy and cultural values. And both economic logic and empirical evidence provide reasons for concluding that those changes have helped to restrain low-end income growth while accelerating growth at the top of the income scale.

However, Krugman and his colleagues offer a highly selective and misleading account of the relevant changes. Looking back at the early postwar decades, they cherry-pick the historical record in a way that allows them to portray that time as an enlightened period of well-designed economic policies and healthy social norms. Such a rosy-colored view of the past fails as objective historical analysis. Instead, it amounts to ideologically motivated nostalgia. Once those bygone policies and norms are seen in their totality, it should be clear that nostalgia for them is misplaced. The political economy of the early postwar decades, while it generated impressive results under the peculiar conditions of the time, is totally unsuited to serve as a model for 21st-century policymakers. And as to the social attitudes and values that undergirded that political economy, it is frankly astonishing that self-described progressives could find them attractive.

As reader’s of Brink’s The Age of Abundance know, he’s a terrific writer, and “Nostalgianomics” is a great read.

Megan McArdle writes:

[R]ecessions can make many, or even most people materially better off, because wages are sticky downward and prices are much less so.  Most of what recessions do is deepen the gap between the haves and the have-nots.  Those who have a job may experience declining costs and actually improve their purchasing power.  But the number of the unemployed rises, the length of the time required to find a new job stretches out, and the net decrease in their welfare far outstrips the moderate increase in the purchasing power of most consumers. 

I agree with the gist of Megan’s message here. But about that gap between the haves and the have-nots… My sense is that income inequality as measured by, say, the gap between the median of the bottom decile and the median of the top decile, has fallen sharply due to super-huge finance-related losses at the top. I’m pretty sure this big tumble at the pinnacle swamps the small gains in real wages for those with steady jobs. So the gap between the haves and the have nots may have narrowed overall, despite rapidly climbing unemployment. But who cares?! Maybe now some egalitarians will grasp the irrelevance of Gini-style measures. The fact that inequality tends to decline during recessions isn’t some kind of silver lining of recessions. In recessions, lots of people suddenly become have-nots, and that’s a serious problem whether or not the have-a-lots are more than proportionally slammed. Once the economy, and income inequality, starts to pick up again, the real problem will the same as ever: the opportunity and welfare of the have-nots, not some silly, meaningless ratio.

Nancy Rosenblum’s apology for partisanship put me in mind of some thoughts on the perils of strong party identification in the section on inequality and democracy in my forthcoming Cato paper. 

[T]he danger of “capture” in democratic politics is not primarily a matter of systemic conflicts of economic interest between those occupying different strata of the income distribution. Rather, the problem is that political power in democracies flows to those able to put together winning electoral coalitions, and this ability necessarily involves maintaining the loyalties of special interests whose demands may not be in the public interest. 

[...]

[W]e’re unlikely to make real progress in improving the quality of public policy if otherwise sophisticated minds continue to be surprised by the fact that the party promising security may leave us less secure, or that the party promising to lift up the poor may leave them stranded. Strong partisan identification is dangerous because it can pressure even the best and brightest into accepting that the policies best for the electoral success of their favorite party — a fragile and contingent consortium of often conflicting interests — will somehow turn out best for the country. 

[...]

It is not enough for the privileged and the powerful to wish with their whole hearts to make ours a society in which all people have a real chance to make the most of their liberties and lives. Our democracy has to deliver the policies that can actually make this happen. But just as special interests can capture democratic coalitions, our coalitional minds can be captured by democratic politics. What the poor need is not party faith, but good faith in the effort to find policies that really deliver. 

That “our coalitional minds can be captured by democratic politics” is my main concern about partisanship. Party ID can become a powerful social signal of moral rectitude. But electoral dynamics provide strong reasons to believe that each major party must rule out of bounds some policies that would be best for the poor. Perversely, the more strongly a particular party ID signals care for the poor, the more protected will be large factions within the party whose interests oppose the poor. This is how our coalitional minds reason: Because the success of the party is so important to the welfare of poor, and these factions are so important to the successes of the party, their interests are ipso facto important to the welfare of the poor. And so their actual antagonism to policies in the interests of the poor becomes most invisible to those most eager to communicate their solidarity with the poor through party identification. Our need to signal care can produce viciously careless results.

In this week’s Free Will, I chat with Lew Daly of Demos about his book with Gar Alperovitz, Unjust Deserts: How the Rich Are Taking Our Common Inheritance and Why We Should Take It Back. I found the book, especially the first part, stimulating if unconvincing. Daly and Alperovitz adopt a Douglass North-style neo-institutionalism and emphasize the broadly social nature of scientific discovery, invention, and economic growth. I’m completely on board with all this. They begin by noting that good institutions and technological advance are the foundation of growth, which is also true enough. They go out of their way to emphasize that successful economic activity depends on an enabling climate of norms, property rights, and decent government. Yup.

But it doesn’t take them long to fallaciously infer that your dog owns your house. The main thrust of Daly and Alperovitz’s argument is that the cumulative nature of the scientific advance and entreprenuerial discovery that leads to productivity gains implies that, as time goes on, individuals add a diminishing fraction of the overall value of the goods and services they help produce. D&A then push hard on a very simple and I think largely discredited notion of desert as the basis for just distribution. Since I didn’t come up with the theory of computation, did not build this computer or the Internet, since I cannot singlehandedly prop up the entire context of wealth-enabling institutions in which I am embedded, and since taxpayers paid for the education that enabled me to read and write, I deserve next to nothing of the economic value of this blog (if it has any). Daly and Alperovitz’s view comes down to the idea that, since we’re constantly enjoying and building on the positive spillovers of prior economic activity and earlier generations of wise governnance, society deserves almost everything produced. As you’ll see in the diavlog with Lew, I had some problems with this argument.

In particular, their story seems to imply that networks of scientists and innovators now long dead deserve a large portion of the wealth that we now create, since they are causally responsible for its foundation. But if that’s true, then it’s likely true that today’s innovators are also undercompensated, since they will be able to internalize only a tiny fraction of the value they pass on to future generations. So which is it? Larry and Sergei are too rich or not rich enough? Moreover, if successful American entrepreneurs don’t deserve much of their profits, then neither do contemporary American citizens who have done even less than the entrepeneurs to create economic value. Sure, I couldn’t make a fortune selling widget polish if no one ever invented the widget, or if the institutions in which widgets could be invented never developed. But there is nothing in the argument that implies that current tax consumers deserve my profits more. Even if we buy that I don’t deserve my income, D&A don’t seem to bother showing that society does. At least, I couldn’t find the argument that shows why, if I don’t deserve X, then a big set of people who also do not deserve X have a legitimate claim to it. This confusion is compounded by their lazy identification of society with the membership of the nation state. 

Their real worry is inequality. They want higher taxes on the wealthy and more government spending. And they seem to think popular but confused intuitions about desert and distribution stand in the way of their egalitarian policy objectives. That may be true. But it’s hard to see how offering an even less intuitve but nevertheless false account of desert and distribution is supposed to help them.

“I just don’t believe this,” is as close as Hedgemaster General Tyler Cowen ever gets to “this is total bullshit.” Well, that’s his response to Jamie Napier and John Jost’s argument [pdf] that conservatives report higher levels of happiness than do liberals largely because of their failure to be pained by high levels of economic inequality. Well, I just don’t believe it either, and neither does the University of Virginia’s Jonathan Haidt, who took apart Napier and Jost’s argument at an AEI panel on happiness last spring. Here’s the video. Jump ahead to about the 35:00 minute mark to catch Haidt’s ten-minute takedown.  

The thrust of Haidt’s critique is that Jost and Napier attribute conservatives’ edge in happiness to their ability to” rationalize away inequality.” So how do they measure that? By looking at responses to a single item in World Values Survey thought to track attitudes toward meritocracy.  The respondant is asked to identify where he or she stands on a ten point scale that runs from ”Hard work generally doesn’t bring success–it’s more a matter of luck” to “In the long run, hard work usually brings a better life.” Conservatism is of course strongly correlated with an answer toward the “hard work pays” end of the scale. But, as Haidt puts it in his talk:

This isn’t some weird belief that shows that you’re explaining away inequality. This is the basic ideological fact — or rather, the basic ideological difference.  It’s not legitimate to take a core aspect of conservative belief and say that it’s not really what it seems, but is really an unconscious mechanism to deal with something uncomfortable.

It would be legitimate were that the best explanation. But Napier and Jost’s story is really hard to credit, both for reasons Tyler mentions and for deeper methodological reasons. For one, it’s not clear what the “meritocracy” question has to do with inequality. If one wants to see a meritocratic bent as a common cause of conservative leanings and higher happiness, here’s a less tendentious explanation. (1) Those with a greater sense of the efficacy of their behavior — with a greater sense of being in control — will tend to (a) think hard work brings a better life, (b) be happier, (c) see policies that seem to penalize hard work as unjust. (2) People likely to see high taxes as an unjust penalty on hard work tend to identify as “conservative.”

So here you’ve got a way of getting from a meritocratic attitude both to happiness and conservatism without bringing in anything to do with inequality. This is conjecture, of course, but I think it suggests that Napier and Jost’s conclusion has all the benefit of theft over honest toil. How did they get from a question apparently about whether work pays to the ability to reconcile one’s sense of justice with abstract macroeconomic variables? The fact that they evidently find it intuitive, rather than bizarre, that the state affairs captured by a nation-level Gini coefficient would have “negative hedonic effects” pretty much gives away the game. It makes exactly as much sense as thinking that certain people must have found some way to harden their consciences against the otherwise intolerable pain of high levels of government spending as a percentage of GDP. Huh? 

Anyway, doesn’t the WVS meritocracy question seems ill-formed to you? What’s the point of opposing “success” and “a better life.” If one interprets “success” in terms of social comparison and “a better life” in terms of self-comparison over time, then there’s no problem in agreeing strongly with both ends of the alleged opposition.

I strongly agree that success, understood as a significant upward move on a valued status dimension, is largely a matter of luck. But I also strongly agree that hard work (in a society with decent institutions) usually brings a better life. It’s possible to work hard and achieve a better life without ever winning anything you’d count as success. So I haven’t a clue how I’d answer this question. Do I believe in meritocracy or not?Maybe my agreement with both statements would sort of average out and push me toward the middle?Or maybe I decide that it’s pointlessly self-defeating to see fortune as overriding agency, even if deep-down I suspect it does (I probably won’t write the Great American Novel, but I definitely won’t if I admit that to myself), and so I’ll just go ahead and agree whole hog with the “work pays” side. Maybe optimistic self-deception, which is good for self-reported happiness, predicts pro-agency answers on the meritocracy question. What does that have to do with inequality?  

Look at it from another angle. Suppose you do know how you’d answer it. You incline heavily toward the “meritocratic” end of the (bunk) spectrum due to your firm faith in the power of hard work and your sense that it is pointlessly demoralizing to think success a hostage to fate. It remains possible to understand that (a) people start in radically different positions due to fortune, (b) hard work doesn’t usually improve each person’s life equally (indeed, people starting with disadvantages may have to work very hard to move up only a little), and therefore (c) inequality can rise even if every hardworking person manages to thereby bring him or herself a better life. In this case, your “meritocratic” belief hasn’t done anything to help you “rationalize away” inequality. You can strongly believe that effort usually pays without thinking that differences in pay reflect differences in effort. In fact, you ought to believe this.    

My guess is that Napier and Jost are not very interested in psychology and so have simply assumed that a preference for explaining lives in terms of agency rather than fortune is pretty much the same thing as thinking people deserve whatever they get.

I have no idea how I missed Ed Glaeser’s blog post on “small-government egalitarianism,” which he also dubs “libertarian progressivism.” By “egalitarianism” I don’t think Glaeser intends a view strictly oriented toward the equalization of economic holdings so much as he intends something like “prioritarianism,” as some political philosophers would call it: the view that the welfare of the least advantaged should be given a certain priority in policymaking. If we’re putting the poor first, we’ll want to note that big government generally redounds especially to the benefit of the rich and connected. As Glaeser puts it:

Libertarian progressivism distrusts big increases in government spending because that spending is likely to favor the privileged. Was the Interstate Highway System such a boon for the urban poor? Has rebuilding New Orleans done much for the displaced and disadvantaged of that city? Small-government egalitarianism suggests that direct transfers of federal money to the less fortunate offer a surer path toward a fairer America.

This is prefectly consonant with the idea I think liberals ought to favor: the growth-maximizing welfare state. Arrange our basic economic institutions to maximize productivity, and then directly transfer resources to those who fall below what we (through due democratic consideration) judge the threshold of sufficiency. You don’t need a big government for that. Glaeser is right that something like this is the missing position in contemporary American politics. But he points out it wasn’t always this way, And it doesn’t have to be now. 

Current American political discourse labels people as either anti-government or pro-equality, but wanting to help the poor should not require the abandonment of sensible skepticism about expanding the size of the state. Many of my favorite causes, like fighting land use regulations that make it hard to build affordable housing, aid the poor by reducing the size of government. In the wake of Hurricane Katrina, I also argued that it would be far better to give generous checks to the poor hurt by the storm than to spend billions rebuilding the city, because those rebuilding efforts would inevitably help connected contractors more than ordinary people.  

Glaeser goes on to express skepticism about the both the effectiveness as stimulus and the distributive effects of big infrastructure spending, and argues for a means-tested cut in the payroll tax — not far from what I argued on Marketplace last week. 

I declare Glaeser a liberaltarian in good standing! Anyway, read the whole, stimulating post.

So, enough with vacation pictures! Here are some riffs extending a few lines of argument in my forthcoming Cato paper on inequality… 

The pattern of wages and incomes at the level of the nation state is morally arbitrary. A fortiori, as Hayek notes, desert-based conceptions of national pattern are doubly hopeless. Wages are determined by demand in the labor maket, which is not really national and not at all under individual control. The best an individual can do to “deserve” a wage level in a certain neighborhod is to try to respond to labor market signals and acquire skill that pays. But the idea of justifying the differences between two individual’s wages is a classic category mistake. Maybe widget polishers earn more than dingus tighteners because there is a glut of dingus tighteners. That inequality is morally meaningless — completely irrelevant. Sooner or later, some dingus tighteners will learn to polish widgets and the gap will narrow. Now, if the widget polishers guild is creating barriers to entry, as cartels are wont to do, the wage gap would reflect an injustice. The injustice isn’t the gap, though; it’s the violation of economic liberty rights. Likewise, if all the widget polishing jobs are on the other side of a line that you are not allowed to cross, the inequality will reflect a prior violation of liberty. But assuming a (rare and precious) free market in labor, when it comes to wage gaps, deserve ain’t got nothing to do with it.

Do I deserve my salary? Of course I do. I’ve got an agreement with the Cato Institute. I give them certain services, they give me a certain salary. If I’ve done my job, I’ve got it coming to me. Do Cato Research Fellows deserve to make more than dingus tighteners? Again, the question is just a category mistake. Dingus tighteners deserve what their employers promise them. You can ask “What justifies the gap in pay between Research Fellows and dingus tigheners?” But what kind of question is this? Doesn’t it amount to:  ”What justifies the fact that employers of Research Fellows offer more than employers of dingus tighteners”? Or: “What justifies the fact that Research Fellows have labor market alternatives that pay better than the labor market alternatives of dingus tighteners”? Or: “What justifies the fact that certain skills are in shorter supply relative to demand”?

Do these questions make any sense? There are explanations to offer, but there is no room for questions of justification. To whom is this question supposed to be addressed anyway? Society? Whatever society is, it’s some kind of international network of cooperation, so, again, it’s super confused to attempt to address an already meaningless question to something, the nation state, which is not the kind of unit to which this kind of question of justification can sensibly be posed.

There are an indefinite number of sets of people bound by relations we might think are interesting. What’s the point of picking out one of those sets of people and then asking whether the pattern of incomes or wages among them tracks desert, or anything else? What would make you think this kind of tracking is even possible? What would make you think this is desirable?

If nationalist political theorists were to adopt a different vocabulary, they could start making sense, but then it would be clear that they’re not really doing moral philosophy in quite the way they thought they were. You begin to realize you’re doing something like the modern version of theorizing about the obligations of kings to the lesser nobility. It may seem extremely important at the time, but it lacks the universality of an authentically moral question. Anyway, my contention is that nation states really are just a special kind of club. This isn’t even a metaphor. It’s exact. Nation states are clubs. Citizenships are club memberships. Visas are club guest passes. Immigration debates are always at bottom about clubbability. It’s really not all that different to be told “Welcome home” by the U.S. immigration officer and to be kicked out by the Myanmar immigration officer. The point is that some people are members and some people aren’t, that some non-members are welcome as guests and some people aren’t. 

So back to inequality and distribution. As a matter of fact, many Mexicans and Canadians are in society with one another. Let’s say there is a pretty big difference in pay between Mexican and Canadian dingus tighteners. Part of the explanation for this, let’s suppose, is just like the difference between widget polishers and dingus tightener when the widget polishers guild uses the political system to restrict entry. Despite high demand, Canada keeps most Mexican dingus tighteners out, in effect subsidizing the wages of dingus tighteners who are members or guests of the Canadian club (not the whiskey.) So here is your intelligible question of economic and social justice. What justifies the barriers to entry that privelege some members of society at the expense of others. To draw the bounds of society at the border is a completely specious move to ignore the most basic question of justice by defining it away.

When I make this point, I get the sense that some nationalist egalitarian liberals think I’m trying to cleverly avoid confronting the allegedly baleful inequalities in the national pattern of economic holdings. But that’s not what I’m doing. I’m sincerely arguing that nationalist liberal egalitarianism is morally unserious arbitrary nonsense.

Ezra Klein writes:

But since we justify income inequality by understanding success as an outcome of virtue, there’s a tendency to ascribe achievement to diligent effort rather than the market’s amoral decisions to attach high value to certain spheres of labor and low value to others. The important variable for success, however, does not seem to be hard work but profession. If you’re in a high-value profession, hard work can do you a lot of good. If you’re not, it may not do you much good at all. And though anyone can work hard, we’re mostly able to admit that not everyone has the specific constellation of opportunities that lets you go to law school, or spend your time goofing off in amateur political punditry. Occupation is rather more useful for understanding why someone’s hard work pays off than is their relative level of toil, but since occupation is more clearly contingent on circumstance, and high-value occupations have more obvious barriers to entry, they also raise questions of justice in outcome, and thus have fairly uncomfortable answers for those atop the pyramid. So hard work it is.

If “success” equals “high income,” then Ezra’s right. Now, I deny that income inequality, per se, requires justification. There’s no good reason to treat equality in money as some kind of moral baseline, deviations from which must be accounted for. If you understand that prices convey information about supply and demand, and that a wage is a price, then you understand that differences in wages for different kinds of labor convey information about the supply of different kinds of labor relative to demand. Wage inequalities are how people can know what’s a “high-value profession” and what isn’t. It guides our choices about the kinds of skills to seek. We need that guidance because effort isn’t enough. You can work as hard as you like in a low-wage job, and you’ll still be in a low-wage job. If Ezra and I have any disagreement here, it’s probably in our sense of what does and does not “raise questions of justice in outcome.” But even here I think we may agree. As I said, the mere fact of inequality raises no question at all about justice. But if the extent of inequality is in part a function of barriers to entry, then injustice is likely. Still, the injustice is not the differences in outcome, but in the morally unjustified infringements of liberty that help explain them.

Gladwell makes a big deal out of being in the right place at the right time. The fact that he talks almost exclusively about Americans obscures just how crucial this point is. Simply being born an American or a Canadian or a Swede is a much bigger deal than having had a computer lab when nobody else had one, or having been a youth hockey player born in January. If you were born where there were computers at all in the 1980s, or where there are youth hockey leagues, then you’re already an outlier of sorts.

Ezra’s right to draw our attention to unjust barriers. Far and away, the greatest of all such barriers are restrictions on immigration. Wages also convey information about more than supply and demand; they convey unseful information about labor productivity. Skill level is hugely important to productivity and therefore wages, but two workers with identical skill levels may get paid very different wages because skills do not translate into the same level of productvity everywhere. Institutional structure and technology helps determine productivity and therefore wages. If you are barred from entering a political jurisdiction where technology and institutions will best complement your skills, you will earn less than someone with the same skills, who tries exactly as hard, but who lucked into the jurisdiction. Immigration law is often explicitly intended as opportunity hoarding, and the inequalities it creates reflect this injustice. 

Within countries, many professions have succeeded in creating barriers that brake growth in the supply of skill, ensuring unfairly high wages. That’s unjust. That’s also relatively trivial compared to the more fundamental failure of public education to deliver enough to millions of studens. Wage differences tell us which skills are most-highly valued in the labor market. But the ability to make the most of these signals, to acquire these economically-valued skills, depends on a foundation of basic, multipurpose skills that too few are given a chance to develop. If you grow up in inner-city America, the outrageous barriers thrown up by the medical cartel do not loom large among the injustices to which you are subject.

Success will always be contingent. Opportunities cannot be evenly spread. And lucky people should be encouraged to make the most of their luck. But the difference in opportunity between a typical American and a typical Mexican is more than a matter of luck. We can build a wall or create a common labor market. The difference in opportunity between a typical poor American and a typical middle-class American is more than a matter of luck. We can prop up our failed system of education or fundamentally reconfigure it. Justice forbids one and demands the other.

Tyler Cowen’s post on Malcolm Gladwell’s Outliers is fascinating. 

The main point, in economic language, is that human talent is heterogeneous and that the talent of a particular person must mesh with the capital structure of his or her time if major success is to result.

[...]

It is too easy to find contingency in the world and Gladwell doesn’t begin to look for a theory of which contingencies are interesting or not.

[...]

Gladwell descends into the swamp of contingency but he is unwilling to really live in it and take it seriously or, alternatively, to find a way out. 

In reality the complementarity concept is easier to work with and also more fruitful for thinking about policy implications or for that matter the implications for management or talent training.  Success is fragile but foster competing cultures based on clusters of talent motivated by rivalry and emulation.  Don’t filter out the eccentrics or the risk takers.  That’s about where David Hume ended up but Gladwell never gets anywhere close.

I agree with Tyler, especially that Hume is teh awesome, but I’d like to emphasize the contingency of complementarity. Tomorrow’s capital structure may be too different from today’s to attempt to cultivate in young people the talents that will mesh with it. Who knows what those will be? As the pace of innovation continues to accelerate, this will be an ever bigger issue. For example, nobody I knew had heard of the Internet when I was in high school. But I spent a huge amount of my time in college talking to people on the Internet. Without it, I’d probably be a high school art teacher today. With it, I’m doing everything I’m doing instead. All my best opportunities came from meeting people in online discussion groups and having a blog. That’s weird!

Jim Manzi has graciously replied to my inequality post below. Let me just reply to this one bit now, and I’ll take up his worries about the threat of the angry mob later.

I think the reason this indicates that inequality poses “more of a political problem for Republican coalition-building than it does for the Democrats” is, to [simplify] greatly, that if inequality of condition causes a preference for Democratic policies, then as inequality increases, you will get more Democrats. If it’s a marker for other causes of Democratic voting, then it’s a marker for things that make more Democrats. The idea of a coalition of aristocrats and the proletariat against the petite bourgeoisie and yeoman farmers is not a new one.

I’ve see no evidence that inequality tends to produce more Democratic voters. Does Jim have some?

It’s funny, because Jim is arguing the opposite of what I’m calling in my paper the Inequality Road to Serfdom (IRS) argument, which just about every left-leaning thinker seems to accept. According to IRS, the wealthy convert their economic resources into political resources deployed to protect their advantages.  Past a certain threshold of inequality, the gap in political resources is so vast that the wealthy–by means of insidious think tanks and the Republican Party–basically capture the democratic process and effectively disenfranchise the rest of the population, leaving us with a de facto oligarchy hiding inside a meaningless husk of democratic forms. Serfdom! Which is just to say, the worry on the left has been that as you get more inequality, you get more Republicans. This is superficially plausible to your Paul Krugmans in part because the era of rising inequality, beginning in the early 1970s, corresponds with a resurgence of Republican political power, first with Reagan, then big Republican congressional majorities in the 1990s, and then unified Republican government under Bush. I’d be interested to hear more from Jim about why Krugman et al have been getting it exactly backwards.

There does seem to be a mild increase in support recently for redistribution, but it doesn’t look like a steady, long-term trend. Income inequality has increased a lot over the last thirty years but over that time support for redistribution has zig zagged all over the place. If I recall the paper I’m thinking of from Lane Kenworthy, the rise in inequality seems to correlate well with fairly firm gains in demand for education reform–pointing to the typical American focus on opportunity–but that doesn’t obviously help the Democratic Party, insofar as it is widely identified an agent of the change-hating teacher’s unions.

I think Democratic gains in the last election have almost nothing to do with inequality. Most of the gains are just part of the political business cycle, and so indicate nothing much other than that the candidate from the incumbent party doesn’t do well when saddled with an unpopular war and a recession. I think the more likely permanent gains, among the young and rich, for example, have a lot to do with the general (I think salutary) social liberalization of American moral culture. The GOP is intolerably socially conservative for an increasing share of Americans. I predict that a significant decrease in inequality, whether from recession or redistribution, would do almost nothing to stop this flight toward the Democrats.

Of inequality, Yglesias writes:

Normally talk about the growth in inequality begins and ends with a discussion of whether or not it’s a problem and should we try to “spread the wealth around” or just not worry. But completely aside from whether or not it’s substantively a problem, it’s a political problem for conservatives. That top ten percent is, in an important way, the base of the conservative coalition — providing loyal votes, campaign and institutional funding, etc. And as the economic circumstances of the top ten percent become more and more different from the economic circumstances of the rest of the country, it becomes harder and harder to articulate a policy agenda that speaks to the concerns of both the top ten and also the broad middle.

Did Matt not look at the exit polls? Did he not notice that Obama dominated in fundraising among really, really rich people? Here’s a bet for Matt. Take the group that voted for Obama and the group that voted for McCain. Calculate the Gini coefficient for each of those two groups. I’ll bet $1000 dollars that income inequality is higher in the Obama-voting group. If Matt doesn’t want to take this bet, then he needs to explain why divergence in material circumstances poses more of a political problem for Republican coalition-building than it does for the Democrats–the more economically unequal coalition. If rich Democrats, who are now roughly as numerous as rich Republicans, tend to favor progressively redistributive policies, which they do, then in what sense does material divergence pose an in-principle problem for successful cross-income-class coalition politics? If rich Republicans are just greedy, self-dealing, anti-downward-redistribution thugs, then that poses a problem when it comes to teaming up with the “broad middle,” if the broad middle demands transfers. But that has nothing to do with differences in economic circumstance.

Here’s something people haven’t been talking about. How much has the recent runup in income inequality reversed due to the financial collapse and general economic slowdown? If it turns out to be a lot, will Democrats (and Republican inequality hawks like Jim Manzi) accept that the grounds for redistribution have weakened? If, like Paul Krugman, you thought rising inequality threatened our democracy, will you credit Alan Greenspan, Chris Cox, and Phil Gramm (or whomever you found convenient to blame) for saving it? For your consideration….

The first part of Rawls’ Second Principle of Justice says, in Joshua Cohen’s words, “people who are are equally talented and motivated are to have equal chances to attain desirable positions, so far as this is consistent with maintaining equal basic liberties…”

This has always thrown me for a loop.

First, what little I know of economic sociology tells me that access to economic opportunities is deeply network-relative.

Take two college grads of similar intelligence and discipline, Anne and Betty. Anne’s best friend has a brother who just started a small technology company. He figures Anne would be a phenomenal project manager, and it turns out to be true. The company has a huge IPO and Anne ends up a rich executive in what turns out to be a glamorous firm. Betty doesn’t happen to know anyone whose brother runs a promising start-up. Does she have anything approaching an chance equal to Anne’s to get something like Anne’s highly desirable position? Obviously not. But how could she.

Second, desirable positions aren’t just boxes out there waiting to be filled. They are created, sometimes by the people who occupy them. And they may depend on contingencies of technology.

Let’s say it’s 1988. Robert gets into Yale as a legacy, goes on to Harvard Law, also like Dad, gets a clerkship on a district court, and gets a gig at a plush firm whose partners Dad sails with on weekends. Today he’s a partner and a bit of a big deal in Massachusetts Democratic Party politics, having years ago been a summer associate in DC with, and now an informal advisor to, the Governor.

Sudeep gets an academic scholarship to a local state school in Northern California. His immigrant parents want him to go pre-med, but he’s fascinated with computers and studies computer science instead. While in school, he designs some useful software for tracking inventories, and later starts a small business selling this software to stores. His business grows and grows until he sells it for $100 million in 1998. Since then he’s become a successful tech venture capitalist in Silicon Valley and philanthropist, worth half a billion. Politics mostly seems like a nuisance to him, and he stays out of it.

Did Sudeep ever have any realistic chance of becoming a partner at Robert’s firm, or an insider in state politics? No. But he’s also orders of magnitude wealthier than Robert, and his venture capital decisions help determine the path of future technology, which, let us say, will affect standards of living more than the Governor of Massachusetts ever will. Did Robert–an equally talented and motivated guy–have an equal chance at Sudeep’s powerful position? What would that even mean? Sudeep’s position didn’t even exist when Robert was clerking on the Fifth Circuit.

But, hey! There’s a future in which Robert runs successfully for State AG, becomes number two at DOJ, and finally gets appointed a judge on the Federal Court of Appeals. There is no future in which Sudeep has anywhere near this capacity to affect the laws of the land, no matter how much money he might choose to spend on political advocacy. So what would it mean for policy to have equalized access to political power between Robert and Sudeep? Given the technological contingency and social network aspects of opportunity, I don’t even know how to approach the question.

Maybe this is how you approach it, and I do wonder why we don’t see more proposals like the following from those egalitarians who do tend to see the desirable positions as more or less fixed… How about a quota system for firms that limits hiring from high-status schools and mandates a certain number from low-status schools, so that it’s better to be the best kid from the University of North Dakota than the median kid at Princeton? Radical high school-quality affirmative action quotas for college admissions. No Supreme Court justice can have more than one clerk from a top-ten law school. It is illegal ever to hire someone who is a relative, or a friend, or a friend of a friend. Randomized assignments to a vast network of national boarding schools. Combat self-reinforcing prestige by picking an athletic conference at random and then mandating that all Federal Reserve governors for the next ten years be professors at schools from that conference. (So Harvard and MIT econ depopulates as everyone rushes to Creighton and Indiana State. Etc.) Examples of this sort can be multiplied. So would these strategies be “consistent with maintaining equal basic liberties”? Are they necessary for maintaining equal basic liberties, but egalitarians are simply missing the real issue by going on and on about income redistribution?

That there be no systemic, structral discrimination that keep whole classes of talented, motivated people from attaining desirable positions strikes me as obviously desirable, and pretty feasible, too. We’ve made huge strides in just the past several decades. But that’s a point about everybody having a good chance of making the most of their talent and motivation, not an equal chance. Indeed, that’s a long way from the idea that people of similar talent and motivation ought to have something like an equal chance at a given position or office. That seems pretty obviously impossible, and I don’t see the point of it anyway. All I know is that I want a entrepeneurial, innovative, high-growth system in part because that’s the kind that increases the chances of landing a desirable position because new ones are always being invented and that diminishes the relative importance and power of many entrenched and exclusive networks. Elite networks can achieve only limited succeed in opportunity hoarding if new networks, new opportunities, and new hierarchies of prestige and status keep springing up.

Charles Murray argues that idea that everyone should get a four-year college degree is the bunk.

Here’s this month’s sales pitch:

Universal college education is often held up by politicians and pundits as a heady ideal of social progress. Economists insistently point out the “wage premium” for college graduates and infer that a main route to greater social and economic equality is an increase in college enrollment. Barack Obama, probably America’s next president, has put forth a plan for meaty tax credits  “for Americans who need a hand with tuition and fees,” because, as he says, “I do not accept an America where you can’t achieve your potential because you can’t afford it.” But does this really make sense? Do you really need a four-year college degree to “achieve your potential”? Is more college for more people really such a guaranteed ticket to greater opportunity and equality?

In this month’s Cato Unbound, the American Enterprise Institute’s Charles Murray, who knows something about ruffling feathers, argues that the BA degree isn’t all its cracked up to be, and urges us to adopt a system that stops pushing everyone to get a BA, whether they really need one or not, and starts offering a wide array of certification exams that signal competence without requiring years of college and thousands in debt. Lined up to reply are economist Pedro Carneiro of the University College, London, an expert in “human capital”; economist Bryan Caplan of George Mason University, who suspects that value of higher education is more about signaling than the cultivation of skill; and education policy expert Kevin Carey of Education Sector.

Carneiro is a frequent co-author of Nobelist James Heckman. His retort to Murray will be available in the morn. The idea that increasing rates of college enrollment is a key to reducing wage inequality is extremely widespread among labor and education economists. If Murray’s right, it would seem that lot of fancy economists aren’t.

Here’s the working paper [pdf] by Enrico Moretti at Berkeley:

Abstract. A large literature has documented a significant increase in the return to college over the past 30 years. This increase is typically measured using nominal wages. I show that from 1980 to 2000, college graduates have increasingly concentrated in metropolitan areas that are characterized by a high cost of housing. This implies that college graduates are increasingly exposed to a high cost of living and that the relative increase in their real wage may be smaller than the relative increase in their nominal wage. To measure the college premium in real terms, I deflate nominal wages using a new CPI that allows for changes in the cost of housing to vary across metropolitan areas and education groups. I find that half of the documented increase in the return to college between 1980 and 2000 disappears when I use real wages. This finding does not appear to be driven by differences in housing quality and is robust to a number of alternative specifications.

The implications of this finding for changes in well-being inequality depend on why college graduates sort into expensive cities. Using a simple general equilibrium model, I consider two alternative explanations. First, it is possible that the relative supply of college graduates increases in expensive cities because college graduates are increasingly attracted by amenities located in those cities. In this case, higher cost of housing reflects consumption of desirable local amenities, and there may still be a significant increase in well-being inequality even if the increase in real wage inequality is limited. Alternatively, it is possible that the relative demand of college graduates increases in expensive cities due to shifts in the relative productivity of skilled labor. In this case, the relative increase in skilled workers’ standard of living is offset by higher cost of living. The empirical evidence indicates that relative demand shifts are more important than relative supply shifts, suggesting that the increase in well-being inequality between 1980 and 2000 is smaller than the increase in nominal wage inequality.

It’s great that we’re seeing more of this kind of conceptually sound work on inequality.

[HT: Bob Subrick]

Tyler Cowen writes, “The economic fallout from these events [the crashes, the bailouts, the nationalizations] is dominating the headlines.  The intellectual and ideological fallout we are just beginning to contemplate.” Here’s what I’m beginning to contemplate.

If a high level of income inequality is a side-effect of voluntary exchange according to just rules, then what’s the problem? Market liberals tend to suspect there is no problem. What I’ll call “democratic liberals” think there’s a huge problem: the threat of economic inequality to democracy. Market liberals support democracy and democratic liberals support markets. The main disagreement, I am convinced, concerns views over the point of democratic institutions and their function in securing liberal values.

Some apparent democratic liberals are so fixated on the intrinsic value of deciding things collectively that any liberal commitments they may have turn out to be completely incidental. (Benjamin Barber is a good example. There’s a good bit of liberal rhetoric, but he is a Rousseauvian “forced to be free” democratic communitarian — a straightforwardly illiberal view in my book.)  I think of those people as “democracy fetishists” and I set them aside.

Non-fetishistic democratic liberals see a certain ideal democratic system as either instrumental to or constitutive of a society guided by authentically liberal values. In either case, sound democratic institutions are necessary to the security of our basic liberties. Democratic equality, according to which each citizen has an equal voice in determining the rules under which they must live, helps ensure that no group is able to dominate, oppress, and exploit other citizens. “One man, one vote” is a fundamental principle of democratic equality, but it’s usually seen as insufficient. Adult citizens may be on equal footing when it comes to votes, but we are very far from equal in “political resources” — all the means at our disposal for shaping the ultimate product of the democratic political process. Campaign finance rules are generally meant to secure relative democratic equality by limiting the inequality in certain political resources. One of the chief arguments for public financing of primary education is that citizens require some development of their intellectual capacities and a certain fund of knowledge in order to be able to effectively defend their interests in concert with others my means of the democratic process.

And then there is the idea that simply limiting economic inequality through redistribution will limit inequality in political resources, and thereby limit the ability of the rich to rig our institutions to their advantage. Paul Krugman, an archetypical democratic liberal (and one who understands markets very well, thank you), thinks this is already happening. For Krugman, it is so urgent to combat economic inequality because the liberties of most are threatened if the super-wealthy few are able to capture the institutions meant to secure the liberties of all.

But I don’t get it. First, there is often an assumption of class interest that is clearly false. The self-interested voter hypothesis does not do well generally. And the wealthy are very far from unified in their politics. As Gelman et al point out, the poor tend to vote pretty much alike (Demmocrat) but the rich are quite divided. Judging from their book, the best way to cut it I think is this: rich people who go to church are Republicans. Rich people who don’t are Democrats.  But isn’t this a distraction?

It seems to me that money is a relatively insignificant source of inequality in political resources. I’ve shared a house with two different guys who have clerked for the Chief Justice of the Supreme Court. Those guys probably had more influence in determining the effective policy of the U.S. government, just as a matter of doing their day-to-day work, than it is ever possible to buy with campaign ads. A JD from Yale, Harvard, Chicago, etc. is a ticket to professional networks that exert immensely disproportionate influence on the political process. Or consider Tyler’s other former debate partner, Randall Krozsner, now on the Fed Board of Governors. Could the wealthiest man in the world hope to influence American economic policy more than Krozsner? Unlikely. Indeed, Ben Bernanke’s Fed is basically unilaterally controlling the American and world economies without asking any of us for input. But the point is not the Bernanke is the most powerful man in the world. The point is that MIT and Harvard economics Ph.D.s have political resources that money cannot buy. Neither Marty Feldstein nor Paul Krugman need be in government to matter more to economic policy than a billionaire could dream. I don’t mind this. I like the technocratic elitism of the U.S. economics and legal bureaucracies. But then it’s hard to get exercised simply because some people are really really rich.

It strikes me as comical that our economy is now more or less ruled by a benign technocracy almost entirely outside democratic control, but most democratic liberals choose to complain that some billionaires are getting bailouts. If the problem with economic inequality is the threat to democracy due to large inequalities in political resources, shouldn’t democratic liberals be freaking out over the fact of the Federal Reserve, or about the immensely disproportionate influence on public opinion and policy by New York Times columnists and ulta-elite academic economists? It seems to me that if you’re not completely fliping out over these things, you can’t be genuinely interested in democratic equality. So if you insist on flipping out  over income inequality anyway, it can’t be a certain ideal of democracy that’s animating you. You’re going to need a different story to tell.

Here’s my story. Roughly meritocratic inequalities in political resources are OK. We want the democratic process, which cannot be counted on to yield high-quality policy, to be constrained and guided by legitimate experts. But then if wealthy people are better-educated, and better-educated people are more likely to make quality decisions about policy, than a democratic system more responsive to the wealthy than to the poor is more likely to deliver quality  policy (i.e., policy that does what it is intended to do). And if wealthy, better-educated people are more likely to be committed to liberal values overall, and there’s evidence that this is the case, then money-based inequalities in political resources may deliver liberal goods more reliably than a system under strict and comprehensive democratic equality.

Please listen to Christian Broda, from this profile in the American :

We are underestimating the gains from trade…The current statistical interpretation ignores the fact that a poor household today can access goods that, in the 1960s, they could not—microwaves, DVDs—and, more importantly, that the prices of the staples that lower-income households consume have also gone down dramatically.

[...]

In the ’60s, all the talk was about trying to win the war against poverty… The bottom line with our study is that we may have won the war against poverty without even noticing it. Here we have Congress debating why the poor in America haven’t been able to grasp the great economic growth we’ve seen in the last 30 years. ‘It’s been only concentrated in the top 1 percent,’ they say. And, absolutely, that segment has grown a lot. But that doesn’t mean that the poor haven’t been able to access part of that progress.

Will anyone listen? Stagnant real wages and skyrocketing inequality have a kind of  truthiness irresistible to the papers and the partisan wonks. If that story, the premise of a few too many badly argued op-eds and books, turns out to be based on a series of mistakes, I fear there will be no rush to admit to them.

Commenting on Larry Bartels’ Unequal Democracy, Frank Pasquale writes:

We are frequently told that inequality–even the extreme growth in inequality witnessed over the past 30 years–is an inevitable concomitant of globalization, or is necessary for economic growth, or can’t be remedied by politics. Bartels’ work complements the growing consensus–led by people like David Cay Johnston, Jacob Hacker, Stephen Gosselin, Barbara Ehrenreich, among many others–that all these complacent contentions are not merely unsupported, but actually reverse the true causes and effects at work. Political change has accelerated US inequality–and only political change can address it.

I don’t know who Pasquale thinks he’s addressing. No one thinks we can’t use politics to redistribute our way to lower levels of income inequality. The question is: Why do this? What’s the problem to which this is the solution?

I feel like there is an unarticulated doing/allowing issue floating around in the background in this debate. Say the U.S. Congress cuts top tax rates. Is this politics causing higher inequality? Or is this evidence of relative indifference about allowing higher inequality? The left has the tendency to characterize every policy that might allow income inequality to rise as one intended specifically to have this result. This is a lot like the right’s characterizing, say, workplace safety regulation as a specific attempt to stymie the growth of small business. In each case, those opposed to a policy see its side-effects as more salient than the primary effects intended by those who favor it. Imputations of bad faith — “you’re really after the side-effect and your stated intention is garnish for malice” — are never far behind. Having read most of the recent left-leaning literature on the politics of rising inequality, it is disconcerting to see the argument from malicious bad faith as far and away the dominant narrative. It’s hard to find anyone who even tries to fairly understand the ideas behind the recent American right’s preference for policies that do in fact tend to allow greater income inequality. Am I wrong to find this pathetic?

Read Justin Wolfers first in a trilogy of posts on U.S. happiness inequality at Freakonomics.

Also check out Eduardo Porter’s account of Stevenson and Wolfer’s paper:

It seems odd that happiness would become more egalitarian over a period in which the share of the nation’s income sucked in by the richest 1 percent of Americans rose from 7 percent to 17 percent. In fact, the report does find a growing happiness gap between Americans with higher levels of education and those with less, which is roughly in line with the widening pay gap between the skilled and unskilled.