Saturday, February 23, 2013

Inequality update

Another day, another cover story on the alleged dangers of income inequality. Writing in Foreign Affairs, author Jerry Z. Muller warns of dire consequences if vast disparities in income are not remedied:
Despite what many on the right think, however, [inequality] is a problem for everybody, not just those who are doing poorly or those who are ideologically committed to egalitarianism -- because if left unaddressed, rising inequality and economic insecurity can erode social order and generate a populist backlash against the capitalist system at large.
This is an assertion that inequality worriers frequently trot out, but the evidence or argument spelling out exactly how or why this would take place is usually neglected. Despite the lengthy piece, Muller -- as is typical when such assertions are made -- never gets around to justifying or explaining this claim. Rather, the article mostly consists of an examination of the factors driving inequality as well as some possible measures to counter this supposed problem.

That's unfortunate, because the logic behind this notion isn't obvious, and it's difficult to think of offhand examples of capitalist/free market countries where widespread dissatisfaction with this system prompted a pronounced shift towards statism (in contrast, there is no shortage of countries which have opted for moves in the opposite direction). Polling data also seems to throw Muller's assertion into question:

(click to enlarge)

If one were to rank those countries surveyed by income inequality it would look like this (from least unequal to most unequal out of 136 countries; no data for Lebanon):

126. Germany
114. Pakistan
110. Czech Republic
106. Italy
104. Spain
100. France
98. Greece
90. UK
89. Poland
88. Egypt
76. India
74. Japan
60. Tunisia
61. Jordan
51. Russia
41. US
27. China
18. Mexico
16. Brazil

As can be seen, there is no obvious correlation between support for capitalism/free market economics and income inequality levels. Indeed, support for the free market is actually greatest in some of those countries -- the US, China and Brazil -- which are ranked in the upper echelons of inequality. That inequality undermines support for capitalism does appear to be supported by polling data.

This is not to say, however, that the piece is free of salient or interesting points. Muller points out that some of the factors contributing to inequality are those commonly regarded as outside the purview of government or public policy. One of these is the quality of parenting:
Hereditary endowments come in a variety of forms: genetics, prenatal and postnatal nurture, and the cultural orientations conveyed within the family. Money matters, too, of course, but is often less significant than these largely nonmonetary factors. (The prevalence of books in a household is a better predictor of higher test scores than family income.) Over time, to the extent that societies are organized along meritocratic lines, family endowments and market rewards will tend to converge. 
Educated parents tend to invest more time and energy in child care, even when both parents are engaged in the work force. And families strong in human capital are more likely to make fruitful use of the improved means of cultivation that contemporary capitalism offers (such as the potential for online enrichment) while resisting their potential snares (such as unrestricted viewing of television and playing of computer games).
Another factor is immigration and the differing performance of various ethnic groups:
Those western European nations (and especially northern European nations) with much higher levels of equality than the United States tend to have more ethnically homogeneous populations. As recent waves of immigration have made many advanced post­ industrial societies less ethnically homogeneous, they also seem to be increasingly stratifying along communal lines, with some immigrant groups exhibiting more favorable patterns than the preexisting population and other groups doing worse.  
In the United Kingdom, for example, the children of Chinese and Indian immigrants tend do better than the indigenous population, whereas those of Caribbean blacks and Pakistanis tend to do worse. In France, the descendants of Vietnamese tend to do better, and those of North African origin tend to do worse. In Israel, the children of Russian immigrants tend to do better, while those of immigrants from Ethiopia tend to do worse. In Canada, the children of Chinese and Indians tend to do better, while those of Caribbean and Latin American origin tend to do worse.  
Much of this divergence in achievement can be explained by the differing class and educational backgrounds of the immigrant groups in their countries of origin. But because the communities themselves act as carriers and incubators of human capital, the patterns can and do persist over time and place. 
In the case of the United States, immigration plays an even larger role in exacerbating inequality, for the country's economic dynamism, cultural openness, and geographic position tend to attract both some of world's best and brightest and some of its least educated. This raises the top and lowers the bottom of the economic ladder.
A couple of points:
  • That two of the most significant factors cited by Muller which promote inequality are parenting and ethnicity/culture is instructive. This suggests that much of the explanation for inequality lies not in systemic problems, but rather individuals and the choices they make. 
  • If inequality really is the first order, dire threat the left commonly claims it to be, leftists should also be leading the charge for restrictions to be placed on unskilled immigration, such as from Latin America. After all, fewer poor immigrants means fewer poor people which in turn means less inequality. Along similar lines, another logical initiative would be to encourage poor people to have fewer or no children (arguably this is already the case given leftist support for abortion and "free" birth control via health insurance, although neither is explicitly or exclusively aimed at the poor). 
Income inequality by itself is not a problem. Some people making more money than others is not a threat to society. Rather, at worst, such inequality may be a symptom or reflection of problems which exist, such the lack of meritocracy and barriers to opportunity. But as long as the focus remains on inequality itself -- with the resulting implication that simply taking money from some people and transferring it to others would resolve the problem (useful if one is pushing a big government agenda) -- the needed conversation about how to improve opportunity and remove barriers will remain but a muffled noise in the background.

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