Start Here: What Is Wrong with Income Inequality?

Inequity is the problem; income inequality is the metric.

“Some will not look on suffering because it creates responsibility.”

~Fulton Sheen, Those Mysterious Priests

What Is Wrong with Income Inequality?

I love watching people do things they are exceptionally good at.  And I know I am not alone because…sports. 

It’s not just sports, though.  Name an act or a task; there is probably somebody great at it, and I would probably enjoy watching them.  Watchmakers, woodworkers, magicians, and even politicians delivering genuine motivation.

There is a YouTube video called “Most Satisfying Videos Of Workers Doing Their Job Perfectly”. Videos like these have millions of views each.  A guy spinning pizza dough boomerangs the gooey disc across his street and catches it when it returns.  There are brick layers with high-end domino skills.  Street painters who don’t use stencils.  The helicopter pilot who uses his aircraft as an (accurate) flying leaf blower.

There are entertainers of all kinds.  The famous ones in the movies and on stage; and the street buskers.  There is a busker around here – the Zip Code Guy – who not only knows the town for every U.S. zip code, he also knows some detail about the town – a restaurant or tourist attraction, for example. 

Most of us appreciate successful entrepreneurs, too.  Assuming they make their money honestly, we appreciate their creativity, their sales skills, and their opportunistic insight.  I don’t even mind that some luck was involved.  Sure, we may question how they spend their wealth after they earn it, but we tend to respect the earnings.  In other words, income inequality can be as respectable as any other inequality.  So what’s wrong with it, then?

Nothing is wrong with income inequality per se.  The problem is that income inequality in the U.S. is a better indication of inequity than of innate ability or character.  (This is mathematically true, and I will show it in a later post.) 

In a way, inequity and income inequality are opposites.  Income inequality, when it is due to a difference in skills, is very American because it is very human.   Inequity – unfairness – on the other hand, is un-American.  Or at least, un-how-we-Americans-like-to-think-of-ourselves.    

What Is Wrong with Inequity.

Back to sports for a moment.  Imagine a running race.  If it is long enough, runners will become dispersed because they have different skills, different levels of motivation, and different training regimens.  But what if someone got to start a hundred yards in front of everybody else because his parents ran good races a generation ago?  Hmmm.  It is certainly possible that the lucky runner inherited his parents’ genetics and would have done well anyway.  But then, why not make him prove it? 

Suppose further that there are other, less overt, intergenerational advantages:  What if a racer’s pre-race training quality also depended on her parents’ performances when they ran races years ago?  What if, in addition to training quality, this racer also got better nutrition and was sheltered from high stress?  By the way, the parents’ performance could have been a result of their own parents’ race results.  Maybe today’s parents (in this race metaphor, I mean) have only average skills.  Maybe today’s racer’s performance is more about advantages accumulated over generations than actual running skills.

What if, to pilfer a phrase, starting lines and other advantages were determined not by the content of one’s character but by the color of one’s skin?  Or some other circumstance unrelated to character?

What if, while still running, people ahead in the race (ahead for whatever reason – maybe skills, maybe not) had some outside help that scooped up gravel in front of them, smoothing the track, making it easier to run fast?  Maybe “the help” heaves the gravel behind the lead runners but in front of racers trying to catch up, making it even harder for them to do so.  (It may seem like this metaphor is getting out of hand, but it is not.  Consider tax loopholes, for example – more on this in later posts.)

I suppose, in this metaphorical running race, if these were the rules we had all agreed to, and we all understood them equally well, maybe it would be an OK sport.  Maybe.  But what if ESPN talked about the sport as if everybody had the same starting line, the same access to training and nutrition, and the same surface to run on?  In other words, what if we told ourselves it is a fair race even though it isn’t?  Sooner or later, most of us would see through the delusion. Then what?

Income Inequality Predicts Inequity

This newsletter is not about running races, obviously.  I am writing about the economic health of our nation, the United States of America.  Like many people, I find inequity offensive.  That said, I am a realist – I know there will always be some inequity.  Unfortunately, those getting the short stick far outnumber the privileged.  If enough people get sufficiently offended, we may soon find ourselves with socio-economic problems even bigger than the ones we already have.  Putting a finer point on the issue, Stanford historian Walter Scheidel writes in The Great Leveler, so far in known history, inequity has only been rectified by war, revolution, collapse, and plague.

One practical problem with discussions of inequity is that there are many types of it, and they tend to pile on.  So, which do we use to paint a macroeconomic picture?  Also, if we want to put our own national performance in perspective (I do this in yet another later post), we need metrics commonly collected by many countries.  A third practical problem with inequity metrics is they tend to be updated only occasionally, which makes analysis difficult.

Income inequality – a metric common across countries and updated reasonably often – is highly correlated with inequity.  In a fair world it would not be, but it is.  Actually, because wealth is passed down through generations, wealth inequality is better than income inequality as a proxy for inequity.  But wealth is not tracked or reported as precisely as income. 

Wealth leads to higher income, and income accumulates to create wealth, so income inequality and wealth inequality grow together.  Therefore, income inequality is a good proxy for wealth inequality. And since wealth inequality is a good proxy for inequity, income inequality is also a good proxy for inequity.

Does that sound like a tenuous connection?  In fact, the connections are strong and I will prove it in the next few posts.  Three powerful measures of inequity – literacy, life expectancy, and infant mortality – are linked to income.  These metrics are due more to circumstances of birth than to character or ability. And the circumstances are not just a matter of uncontrollable luck; they are a matter of policy.

But that is good news, because it means if we really want to fix inequity, we can. And one of the main thrusts of this newsletter is that, rationally, even selfishly, we should all want to fix inequity.

Next up:  The U.S. literacy data might surprise you.  And it is linked to income in a vicious cycle.