Tuesday, August 16, 2011

More adventures in inequality

Guest-blogging for Glenn Greenwald over at Salon, Yves Smith advances a novel argument about income inequality: it's bad for rich people too.
First, numerous studies have ascertained that more money does not make people happier beyond a threshold level that is not all that high. Once people have enough to pay for a reasonable level of expenses and build up a safety buffer, more money does not produce more happiness. 
But even more important is that high levels of income inequality exert a toll on all, particularly on health. Would you trade a shorter lifespan for a much higher level of wealth? Most people would say no, yet that is precisely the effect that the redesigning of economic arrangements to serve the needs at the very top is producing. Highly unequal societies are unhealthy for their members, even members of the highest strata. Not only do these societies score worse on all sorts of indicators of social well-being, but they exert a toll even on the rich. Not only do the plutocrats have less fun, but a number of studies have found that income inequality lowers the life expectancy even of the rich.
As evidence, Smith quotes a column from the Financial Times authored by someone named Michael Prowse:
Those who would deny a link between health and inequality must first grapple with the following paradox. There is a strong relationship between income and health within countries. In any nation you will find that people on high incomes tend to live longer and have fewer chronic illnesses than people on low incomes. 
Yet, if you look for differences between countries, the relationship between income and health largely disintegrates. Rich Americans, for instance, are healthier on average than poor Americans, as measured by life expectancy. But, although the US is a much richer country than, say, Greece, Americans on average have a lower life expectancy than Greeks. More income, it seems, gives you a health advantage with respect to your fellow citizens, but not with respect to people living in other countries…
So Smith is trying to make the case that income inequality is bad for rich people, but then highlights a column noting that they live longer than poor people. How exactly is that supposed to be supporting evidence for the thesis? As for Americans having an average lower life expectancy than Greece (well, not all Americans -- HI, MN, CT, ND, MA, CA, VT, NY, NH, and UT all have life expectancies greater than or equal to Greece), what is the point? Why is that revelatory? Would being poorer result in the rich living as long as the Greeks? If not, why worry about being rich? And if we want to focus on life expectancy, what should we make of the fact that US lifespans have grown (about 9 years just since 1960) even as income inequality has widened

It almost seems as though Smith is simply content to conflate income inequality and life expectancy without actually proving anything, and let the reader infer that there is a causal relationship. 

Prowse continues:
Once a floor standard of living is attained, people tend to be healthier when three conditions hold: they are valued and respected by others; they feel ‘in control’ in their work and home lives; and they enjoy a dense network of social contacts. Economically unequal societies tend to do poorly in all three respects: they tend to be characterised by big status differences, by big differences in people’s sense of control and by low levels of civic participation… 
Unequal societies, in other words, will remain unhealthy societies – and also unhappy societies – no matter how wealthy they become. Their advocates – those who see no reason whatever to curb ever-widening income differentials – have a lot of explaining to do.
First off, a correlation between the various factors cited by the author and income inequality does not mean that there is causation.  I'll let Lisa Simpson explain this basic logical fallacy:

Second, let me offer a theory of how these conditions may in fact be related to one another: A poor person feels a loss of control because their attempts to work their way up the economic ladder are stifled by onerous government regulations. Meanwhile, this person notices that people with the right connections to the government are rewarded and prosper. The meritocracy is exposed as a sham, and a result the person's civic participation declines after believing it all to be a rigged game. Income inequality worsens as the small fraction with connections prosper and the rest stagnate.

Is the problem in this example income inequality? No, the problem is out of control government, with income inequality simply the result, not a driver, of societal ills. But I doubt this is the narrative the article is trying to advance.

Back to Smith:
It's easy to see how "big status differences" alone have an impact. The wider income differentials are, the less people mix across income lines, and the more opportunties there are for stratification within income groups. Thus a decline in income can easily put one in the position of suddenly not being able to participate fully or at all in one's former social cohort (what do you give up, the country club membership? the kids' private schools? the charities on which you give enough to be on special committees?). And lose enough of these activities that have a steep cost of entry but are part of your social life, and you lose a lot of your supposed friends. Making new friends over the age of 35 is not easy.
This is doubtless true. When one is accustomed to a certain standard of living and participating in certain activities among a circle of friends, losing access to those activities can harm one's social life. But what is the solution? Force everyone to dwell on the bottom rung of the ladder so that, should one lose their job or suffer some other financial misfortune, there is nowhere lower to fall to? Furthermore, if this is really such a problem one could choose a social circle in which everyone sends their children to public school and chooses activities that aren't dependent on a substantial income, minimizing the fallout should a financial setback occur. 

If associated hardships from being forced to give up the country club membership is one of the more pressing dangers of income inequality, this is a pretty minor problem indeed.

Smith then concludes:
And the costs of living in more unequal societies extend beyond health, although that impact is particularly dramatic. If you look at broader indicators of social well being, you see the same finding: greater income inequality is associated with worse outcomes. From a presentation by Kate Pickett, Senior lecturer at the University of York and author of The Spirit Level, at the INET conference in 2010: 
(click to enlarge)

You might argue: Why do these results matter to rich people, who can live in gated compounds? If you've visited some rich areas in Latin America, particularly when times generally are bad, marksmen on the roofs of houses are a norm. Living in fear of your physical safety is not a pretty existence. 
Japan, which made a conscious decision to impose the costs of its post bubble hangover on all members of society to preserve stability, has gotten through its lost two decades with remarkable grace. The US seems to be implementing the polar opposite playbook, and there are good reasons to think the outcome of this experiment will be ugly indeed.
First off, The Spirit Level has already been repeatedly savaged for its sloppy work, and the chart wielded here has already been exposed as incredibly deceptive (see the first link). But let's assume the chart is accurate -- so what? Again, let me present a possible explanation. 

The neighborhood I live in features very high levels of income inequality, with expensive condos literally across the street from public housing. It also, as the chart indicates, features high levels of obesity, drug and alcohol addiction, teenage births and a high amount of crime. I also suspect social mobility is quite low. But does anyone in their right mind believe that any of these problems are being driven by income inequality? That people are out doing drugs, getting pregnant or committing crime because of the presence of rich people? Or is it possible that causation runs the other way, with such behavior patterns resulting in low income levels which in turn result in a disparity with the more prosperous neighbors who engage in more productive behavior? 

This is simply another example of conflating income inequality with socially undesirable outcomes and hoping the reader infers a causal relationship exists where none does (or at least not in the way the author would like you to think). 

The penultimate and final paragraphs, meanwhile, with references to a possible "ugly" outcome and snipers on the roofs, are laughably absurd. From a practical standpoint, the growing inequality in the US has actually corresponded with a decline in violent crime. The implied message in mentioning the snipers, meanwhile, seems to be that if the rich do not surrender their gains voluntarily that hordes of poor people will march on their estates to take it by force. 

The fact is, income inequality is a problem only in the fevered imaginations of the left (although income inequality may be a symptom of other problems, such as poor schools and barriers to participating in the market). That they struggle so mightily to explain why it is an issue deserving of our attention -- weaving together incoherent narratives and bizarre leaps of logic (eg. inequality causes teenage pregnancy) is a pretty big clue that's it a non-problem. So then why does the left keep riding this hobby horse? Two reasons spring to mind:

1. It helps make the case for higher taxes. Discussions of income inequality are rarely accompanied by a discussion of how to raise up or help the poor. Rather it's used a justification for increasing taxes on the rich and cutting them down to size. Taxing the rich is a left-wing two-fer: it raises revenue to support bigger government while simultaneously punishing the rich (if one believes capitalism to be an immoral system, the rich are logically the most biggest sinners of them all, making their riches off the misery of others).

2. It discredits capitalism. Leftists have largely given up denying that capitalism is the best means of increasing wealth -- the evidence to the contrary is simply too overwhelming. Since this line of attack is no longer feasible, the argument has turned to critiquing the distribution of these wealth gains as an indictment of capitalism and the need for government intervention to right these wrongs.

Remember, the left must constantly identify new alleged problems for the government to correct. If there are no problems to be solved then these busybodies are placed out of business.

Related: Previous blogging about income inequality here, here, here and here.

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