8 ms·

I've never understood using income inequality as a measure of the health of a society. As Milton Friedman said, the only place where people are equal is in a pr

I've never understood using income inequality as a measure of the health of a society. As Milton Friedman said, the only place where people are equal is in a prison and in the grave. Milton Friedman on greed and income inequality: https://youtu.be/RWsx1X8PV_A https://youtu.be/RWsx1X8PV_A

blr246 9y ago
There is no such thing as a measure of the health of a society. Inequality is one of many indicators that can help you predict the social stability and quality of life achievable in a particular society. Inequality is important because of the studied link between peace and prosperity. Individual participants of a civilization give their social system power by buying into a social contract that their (mostly) nonviolent participation secures them the necessities of life. When we have natural disasters, we sometimes see the rupture of the social contract. Now, imagine that there's a continuum of levels of nonviolent participation depending on individual cost-benefit analyses occurring all of the time around you. When inequality shifts so dramatically over just a generation or two, there's reason to be concerned that people's buy-in on the social contract might shift, too.
geoka9 9y ago
Context matters. If we're talking about a first world country, income inequality is a meaningful metric.
- awptimus 9y ago
  Because...
  - pharrlax 9y ago
    Because we generally recognize that feudalism is bad, and therefore society becoming more feudalismesque is also bad?
    - bmmayer1 9y ago
      How is society becoming more feudal? I've heard this from so many people and the evidence doesn't seem to support it. For example, ~64% of Americans own a home. What % of feudal peasants owned a shovel, let alone a home?
      - phs318u 9y ago
        Really? 64% of Americans own a home debt free?
        bmmayer1 9y ago
        Never said that. But does the widespread ability of most Americans to finance a house, a car, and in general a better standard of living, without having to be rich, powerful, in the right caste or social strata not far trump feudal sharecropping/indentured servitude, one-step-removed-from-slavery conditions for a vast portion of the populace? The claim was that society is becoming more feudal. I would like to see some evidence that is the case.
  - geoka9 9y ago
    ... with low inequality there are more middle class members of the society.
    - nine_k 9y ago
      Not necessarily, as historical Communist societies show. It just could be more of the lower class, nearly zero middle class, and, unavoidably, some comrades that are much more equal than the rest of the population. Reducing inequality down to the point of literal equality was shown to lower the quality of life.
  - arethuza 9y ago
    Well, one possible reason is that we may have an inbuilt sense of "fairness" - capachin monkeys have been demonstrated in experiments to get angry if they get unfairly rewarded. So might not people feel angry in the same circumstances? A valid criticism of socialism for running societies (rather than institutions) is that it doesn't align well with "human nature" - but it might also be the case where the "winner takes all" aspects of capitalism also have similar problems. http://news.nationalgeographic.com/news/2003/09/0917_030917_monkeyfairness.html http://news.nationalgeographic.com/news/2003/09/0917_030917_...
    - bmmayer1 9y ago
      It's key that monkeys, like humans, object to unfairness--not 'inequality.' Turns out that relative contribution matters a lot to how monkeys/people judge rewards.[1] [1]https://www.nature.com/articles/s41562-017-0082 https://www.nature.com/articles/s41562-017-0082
      - arethuza 9y ago
        But inequality arguably leads to unfairness though - is it "fair" that someone who is successful can get better chances for their kids through better environment, schooling and connections? I'd argue that inequality pretty much always leads to unfairness. Edit: And I say that as someone who pays for their kids to be privately educated at a prestigious private school because it is obvious that doing so gives them an unfair advantage.
        bmmayer1 9y ago
        I think the point is that fairness leads to inequality.
        arethuza 9y ago
        And extreme economic inequality leads to people using their money to control politics and the media to stack the system in their favour. It's not simply the inequality that is the problem its what the rich choose to do with their money that is causing problems.
  - oblio 9y ago
    It's in the article. In the 60's the CEO-worker pay ratio was 20:1. Now it's 354:1. Do you think that this kind of disproportion doesn't affect the way the whole system works? I expect the voice of a CEO to be heard more than that of a ordinary worker, and at 20:1 maybe I can sort of keep up. But at 354:1, how will I ever keep up? That's stopping the CEOs of the world from banding up in a gang that distorts how democracy works up to a point where I don't matter at all?
  - ryanbrunner 9y ago
    It all depends on what you want to optimize for. But for me, and I suspect a lot of people, the happiness of society seems like a decent starting point (let's assume for the moment that most Americans / 1st world citizens are at the point where base survival is not in question) The current rate of inequality is massively inefficient if you're trying to optimize happiness. The bottom 2 quintiles of Americans control so little wealth that keeping food on the table is their primary concern. Meanwhile, an extremely small and shrinking proportion of the population control an outsized amount of wealth, to the point where it's not reasonably usable in an efficient way by those people. It's like saying that the proper way to divide 100 loaves of bread between 100 people is to give 1 person 95 loaves and every other person a slice of bread. No one is starving, but you're making 1 person very happy at the expense of 99 others.
    - bmmayer1 9y ago
      The bread analogy doesn't make any sense. Inequality is a relative metric, not an absolute one. If I only need one loaf of bread to survive, who cares if my neighbor has 100 or 1000?
      - ryanbrunner 9y ago
        That depends on whether one loaf (my example was slice, which is maybe a bit more evocative) is the bare minimum to survive or enough to be fully satiated. At that level, it (and wealth inequality) can be viewed as an absolute metric. I absolutely care if my neighbour has 100 loaves if I'm emaciated and unable to think about anything but hunger, even if I'm eating enough to survive. My argument is, for the bottom 40% of Americans, it is at that level. The fact that the top 20% holds a vastly disproportionate share of the wealth isn't bad because the 40% are losing a dick-measuring contest, it's bad because the lack of wealth of the 40% has a real effect on their happiness.
        bmmayer1 9y ago
        If the true intention of 'inequality' arguments is to highlight the plight of the emaciated and hungry, then it certainly doesn't come across. I don't know where you're getting the 40% number, but 40% of Americans are not 'unable to think about anything but hunger.' 14.5% of Americans are below the poverty line (that's about the same % of people on SNAP). 5% of Americans are considered 'extremely food insecure.' I understand how '85% of Americans are doing just fine' isn't great political rhetoric, but don't you think it's disingenuous to pretend that 'inequality' arguments which mostly highlight what % of wealth the wealthy have compared to everyone else is really about the poor, and not what it's really about, which is soaking the rich and middle class for higher taxes? I mean, after all, that's why phrases like 'the 1%' exist in the first place, to create some sort of camaraderie of outrage amongst the 'proletariat' to pursue a particular economic policy, right? In any event, if people who truly cared about the poor advocated for solutions to poverty, instead of focusing on 'inequality', they might find their arguments fall on less deaf ears.
DarkKomunalec 9y ago
That is a strawman - total equality (prison, grave) is not being advocated, merely reducing the current extreme inequality. And inequality is a good measure because the benefit of an extra N dollars is greater, the less money one already has. So, all else being equal, smaller inequality leads to greater average quality of life. Inequality is also a measure of for whose benefit a society is working - the benefit of the ones accruing the most wealth. So the more concentrated that wealth, the more the rest of society is being ignored in favour of the richest few. A common counterargument is saying that as long as the wealth of the lower classes also rises, then why worry about inequality. But it has been stagnant for several decades in the US, the poor have to work long hours, all while more and more wealth flows to the top. So it becomes clear that merely improving the economy won't help, as the benefits are captured by those already rich.
- blowski 9y ago
  I agree with you. Equality of wealth is symbolic. When one person has 10 Ferraris in their garage while someone just a few miles away can't afford to feed their children, it's unfair and unsustainable. You don't need to advocate absolute equality to see how that situation could be improved.
- sambe 9y ago
  It's not a strawman. This topic is now so fashionable as a news item (regardless of your view) that people will target any kind of inquality in western democracies as inherently wrong. What counts as extreme? Has much really changed in the last few years since this became something discussed daily? Why do such articles ignore payments in kind and fail to address subtleties to do with the different measures (personal income, household etc). I don't personally consider the existing situation extreme, and the fact that people underestimate it doesn't change my view.
  - DarkKomunalec 9y ago
    So because some people advocate total equality, it's not a strawman to respond to them, instead of to the article? Do you always address only the arguments of the least reasonable people in some arbitrarily defined group?
morsch 9y ago
Evidently Milton Friedman is not an expert on prisons.
aninhumer 9y ago
If we suppose that the goal of society is to produce the greatest utility, and that the utility wealth provides an individual is sub-linear (i.e. twice as much money makes you less than twice as happy), then inequality is inefficient resource allocation. However, we also suppose that some level of inequality can lead to greater productivity, and thus greater utility overall. The question is then what level produces the best outcome? Personally, I don't think the current levels of inequality are remotely optimal. We could drastically improve thousands of people's lives for amounts of money that some rich individuals wouldn't get out of bed for, so I'm not convinced that reallocating that wealth would be harmful overall.
akvadrako 9y ago
Just consider the practical consequences of inequality: https://en.wikipedia.org/wiki/Economic_inequality#Effects https://en.wikipedia.org/wiki/Economic_inequality#Effects There is a lot of information there along the general lines of inequality is bad, which shouldn't be surprising. If you spend $1m of raw resources on building a bigger house, there is no benefit to society; theoretically it might incentivise somebody, but it's probably just pure waste.
frgtpsswrdlame 9y ago
Income inequality is probably not the best measure. The thing I'd really like to see is a good study of income mobility across 3 or more generations. But inequality can act as a proxy for mobility. Check this: So now that we have organized our thinking, let us consider the empirical evidence. Most famously, it comes from the recent work of Miles Corak, building on previous studies by Gary Solon, Blunden, Gregg and Macmillan, Björklund and Jäntti and others. What these authors find is that there is a strong correlation between current and inter-generational inequality, or in other words, between inequality and low social mobility: the more unequal the society the less likely is the next generation to move upwards (or conversely, the less likely is the decline of the rich). So in terms of our simple diagram, Corak finds that societies are aligned along the diagonal: there are no outliers, whether the societies exhibiting the American dream or the guild-like ones. The implication of that finding which was dubbed by Alan Krueger the Great Gatsby curve is that there is no American exceptionalism. The comforting picture of high inequality which does not impede mobility between generations turns out to be false. US does not behave any differently than other societies with high inequality. High income inequality today reinforces income differences between the generations and makes social mobility more difficult to achieve. This is also the point of my recent paper with Roy van der Weide. We use US micro data from 1960 to 2010 to show that poor people in US states with higher initial inequality experienced lower income growth in subsequent periods). http://glineq.blogspot.com/2016/04/the-schumpeter-hotel-income-inequality.html http://glineq.blogspot.com/2016/04/the-schumpeter-hotel-inco...
dragonwriter 9y ago
> I've never understood using income inequality as a measure of the health of a society. Relative deprivation is empirically shown to be a significant source of disutility. Further, even if only absolute deprivation is held to be significant, aggregate statistics don't show you the degree to which that is present in a society without distributional measures. Either of these reasons, much less both together, make distributional measures important alongside aggregate measures. > As Milton Friedman said, the only place where people are equal is in a prison and in the grave. The “in a prison” part is obviously and flagrantly wrong, but even beyond that the observation is irrelevant to the discussion at hand. That some inequality will always exist in real societies does not mean degree of inequality is unimportant alongside other measures, just as the fact that some aggregate output will exist in real societies does not mean that the degree of aggregate output is unimportant.

blr246 9y ago

There is no such thing as a measure of the health of a society. Inequality is one of many indicators that can help you predict the social stability and quality of life achievable in a particular society. Inequality is important because of the studied link between peace and prosperity. Individual participants of a civilization give their social system power by buying into a social contract that their (mostly) nonviolent participation secures them the necessities of life. When we have natural disasters, we sometimes see the rupture of the social contract. Now, imagine that there's a continuum of levels of nonviolent participation depending on individual cost-benefit analyses occurring all of the time around you. When inequality shifts so dramatically over just a generation or two, there's reason to be concerned that people's buy-in on the social contract might shift, too.

geoka9 9y ago

Context matters. If we're talking about a first world country, income inequality is a meaningful metric.

awptimus 9y ago
Because...
- pharrlax 9y ago
  Because we generally recognize that feudalism is bad, and therefore society becoming more feudalismesque is also bad?
  - bmmayer1 9y ago
    How is society becoming more feudal? I've heard this from so many people and the evidence doesn't seem to support it. For example, ~64% of Americans own a home. What % of feudal peasants owned a shovel, let alone a home?
    - phs318u 9y ago
      Really? 64% of Americans own a home debt free?
      - bmmayer1 9y ago
        Never said that. But does the widespread ability of most Americans to finance a house, a car, and in general a better standard of living, without having to be rich, powerful, in the right caste or social strata not far trump feudal sharecropping/indentured servitude, one-step-removed-from-slavery conditions for a vast portion of the populace? The claim was that society is becoming more feudal. I would like to see some evidence that is the case.
- geoka9 9y ago
  ... with low inequality there are more middle class members of the society.
  - nine_k 9y ago
    Not necessarily, as historical Communist societies show. It just could be more of the lower class, nearly zero middle class, and, unavoidably, some comrades that are much more equal than the rest of the population. Reducing inequality down to the point of literal equality was shown to lower the quality of life.
- arethuza 9y ago
  Well, one possible reason is that we may have an inbuilt sense of "fairness" - capachin monkeys have been demonstrated in experiments to get angry if they get unfairly rewarded. So might not people feel angry in the same circumstances? A valid criticism of socialism for running societies (rather than institutions) is that it doesn't align well with "human nature" - but it might also be the case where the "winner takes all" aspects of capitalism also have similar problems. http://news.nationalgeographic.com/news/2003/09/0917_030917_monkeyfairness.html http://news.nationalgeographic.com/news/2003/09/0917_030917_...
  - bmmayer1 9y ago
    It's key that monkeys, like humans, object to unfairness--not 'inequality.' Turns out that relative contribution matters a lot to how monkeys/people judge rewards.[1] [1]https://www.nature.com/articles/s41562-017-0082 https://www.nature.com/articles/s41562-017-0082
    - arethuza 9y ago
      But inequality arguably leads to unfairness though - is it "fair" that someone who is successful can get better chances for their kids through better environment, schooling and connections? I'd argue that inequality pretty much always leads to unfairness. Edit: And I say that as someone who pays for their kids to be privately educated at a prestigious private school because it is obvious that doing so gives them an unfair advantage.
      - bmmayer1 9y ago
        I think the point is that fairness leads to inequality.
        arethuza 9y ago
        And extreme economic inequality leads to people using their money to control politics and the media to stack the system in their favour. It's not simply the inequality that is the problem its what the rich choose to do with their money that is causing problems.
- oblio 9y ago
  It's in the article. In the 60's the CEO-worker pay ratio was 20:1. Now it's 354:1. Do you think that this kind of disproportion doesn't affect the way the whole system works? I expect the voice of a CEO to be heard more than that of a ordinary worker, and at 20:1 maybe I can sort of keep up. But at 354:1, how will I ever keep up? That's stopping the CEOs of the world from banding up in a gang that distorts how democracy works up to a point where I don't matter at all?
- ryanbrunner 9y ago
  It all depends on what you want to optimize for. But for me, and I suspect a lot of people, the happiness of society seems like a decent starting point (let's assume for the moment that most Americans / 1st world citizens are at the point where base survival is not in question) The current rate of inequality is massively inefficient if you're trying to optimize happiness. The bottom 2 quintiles of Americans control so little wealth that keeping food on the table is their primary concern. Meanwhile, an extremely small and shrinking proportion of the population control an outsized amount of wealth, to the point where it's not reasonably usable in an efficient way by those people. It's like saying that the proper way to divide 100 loaves of bread between 100 people is to give 1 person 95 loaves and every other person a slice of bread. No one is starving, but you're making 1 person very happy at the expense of 99 others.
  - bmmayer1 9y ago
    The bread analogy doesn't make any sense. Inequality is a relative metric, not an absolute one. If I only need one loaf of bread to survive, who cares if my neighbor has 100 or 1000?
    - ryanbrunner 9y ago
      That depends on whether one loaf (my example was slice, which is maybe a bit more evocative) is the bare minimum to survive or enough to be fully satiated. At that level, it (and wealth inequality) can be viewed as an absolute metric. I absolutely care if my neighbour has 100 loaves if I'm emaciated and unable to think about anything but hunger, even if I'm eating enough to survive. My argument is, for the bottom 40% of Americans, it is at that level. The fact that the top 20% holds a vastly disproportionate share of the wealth isn't bad because the 40% are losing a dick-measuring contest, it's bad because the lack of wealth of the 40% has a real effect on their happiness.
      - bmmayer1 9y ago
        If the true intention of 'inequality' arguments is to highlight the plight of the emaciated and hungry, then it certainly doesn't come across. I don't know where you're getting the 40% number, but 40% of Americans are not 'unable to think about anything but hunger.' 14.5% of Americans are below the poverty line (that's about the same % of people on SNAP). 5% of Americans are considered 'extremely food insecure.' I understand how '85% of Americans are doing just fine' isn't great political rhetoric, but don't you think it's disingenuous to pretend that 'inequality' arguments which mostly highlight what % of wealth the wealthy have compared to everyone else is really about the poor, and not what it's really about, which is soaking the rich and middle class for higher taxes? I mean, after all, that's why phrases like 'the 1%' exist in the first place, to create some sort of camaraderie of outrage amongst the 'proletariat' to pursue a particular economic policy, right? In any event, if people who truly cared about the poor advocated for solutions to poverty, instead of focusing on 'inequality', they might find their arguments fall on less deaf ears.

DarkKomunalec 9y ago

That is a strawman - total equality (prison, grave) is not being advocated, merely reducing the current extreme inequality. And inequality is a good measure because the benefit of an extra N dollars is greater, the less money one already has. So, all else being equal, smaller inequality leads to greater average quality of life. Inequality is also a measure of for whose benefit a society is working - the benefit of the ones accruing the most wealth. So the more concentrated that wealth, the more the rest of society is being ignored in favour of the richest few. A common counterargument is saying that as long as the wealth of the lower classes also rises, then why worry about inequality. But it has been stagnant for several decades in the US, the poor have to work long hours, all while more and more wealth flows to the top. So it becomes clear that merely improving the economy won't help, as the benefits are captured by those already rich.

blowski 9y ago
I agree with you. Equality of wealth is symbolic. When one person has 10 Ferraris in their garage while someone just a few miles away can't afford to feed their children, it's unfair and unsustainable. You don't need to advocate absolute equality to see how that situation could be improved.
sambe 9y ago
It's not a strawman. This topic is now so fashionable as a news item (regardless of your view) that people will target any kind of inquality in western democracies as inherently wrong. What counts as extreme? Has much really changed in the last few years since this became something discussed daily? Why do such articles ignore payments in kind and fail to address subtleties to do with the different measures (personal income, household etc). I don't personally consider the existing situation extreme, and the fact that people underestimate it doesn't change my view.
- DarkKomunalec 9y ago
  So because some people advocate total equality, it's not a strawman to respond to them, instead of to the article? Do you always address only the arguments of the least reasonable people in some arbitrarily defined group?

morsch 9y ago

Evidently Milton Friedman is not an expert on prisons.

aninhumer 9y ago

If we suppose that the goal of society is to produce the greatest utility, and that the utility wealth provides an individual is sub-linear (i.e. twice as much money makes you less than twice as happy), then inequality is inefficient resource allocation. However, we also suppose that some level of inequality can lead to greater productivity, and thus greater utility overall. The question is then what level produces the best outcome? Personally, I don't think the current levels of inequality are remotely optimal. We could drastically improve thousands of people's lives for amounts of money that some rich individuals wouldn't get out of bed for, so I'm not convinced that reallocating that wealth would be harmful overall.

akvadrako 9y ago

Just consider the practical consequences of inequality: https://en.wikipedia.org/wiki/Economic_inequality#Effects https://en.wikipedia.org/wiki/Economic_inequality#Effects There is a lot of information there along the general lines of inequality is bad, which shouldn't be surprising. If you spend $1m of raw resources on building a bigger house, there is no benefit to society; theoretically it might incentivise somebody, but it's probably just pure waste.

frgtpsswrdlame 9y ago

Income inequality is probably not the best measure. The thing I'd really like to see is a good study of income mobility across 3 or more generations. But inequality can act as a proxy for mobility. Check this: So now that we have organized our thinking, let us consider the empirical evidence. Most famously, it comes from the recent work of Miles Corak, building on previous studies by Gary Solon, Blunden, Gregg and Macmillan, Björklund and Jäntti and others. What these authors find is that there is a strong correlation between current and inter-generational inequality, or in other words, between inequality and low social mobility: the more unequal the society the less likely is the next generation to move upwards (or conversely, the less likely is the decline of the rich). So in terms of our simple diagram, Corak finds that societies are aligned along the diagonal: there are no outliers, whether the societies exhibiting the American dream or the guild-like ones. The implication of that finding which was dubbed by Alan Krueger the Great Gatsby curve is that there is no American exceptionalism. The comforting picture of high inequality which does not impede mobility between generations turns out to be false. US does not behave any differently than other societies with high inequality. High income inequality today reinforces income differences between the generations and makes social mobility more difficult to achieve. This is also the point of my recent paper with Roy van der Weide. We use US micro data from 1960 to 2010 to show that poor people in US states with higher initial inequality experienced lower income growth in subsequent periods). http://glineq.blogspot.com/2016/04/the-schumpeter-hotel-income-inequality.html http://glineq.blogspot.com/2016/04/the-schumpeter-hotel-inco...

dragonwriter 9y ago

> I've never understood using income inequality as a measure of the health of a society. Relative deprivation is empirically shown to be a significant source of disutility. Further, even if only absolute deprivation is held to be significant, aggregate statistics don't show you the degree to which that is present in a society without distributional measures. Either of these reasons, much less both together, make distributional measures important alongside aggregate measures. > As Milton Friedman said, the only place where people are equal is in a prison and in the grave. The “in a prison” part is obviously and flagrantly wrong, but even beyond that the observation is irrelevant to the discussion at hand. That some inequality will always exist in real societies does not mean degree of inequality is unimportant alongside other measures, just as the fact that some aggregate output will exist in real societies does not mean that the degree of aggregate output is unimportant.