Continuing to discuss income inequality

Since Will Wilkinson published “Thinking Clearly about Economic Inequality” on July 14th, there’s been a lively discussion in the blogosphere about how to think about inequality and taxes.  One of Wilkinson’s primary arguments is that consumption inequality is much less than income inequality, so we’re exaggerating the issue when we focus on the latter.  (He also says that we should look at the global levels of inequality, where, between nations, inequality is decreasing.  At a broad level, I am sympathetic to that point; economic growth is not zero sum, however, so we shouldn’t accept more inequality here as the price for greater wealth elsewhere.)  Cato, where Wilkinson is a scholar, has continued to host a debate around the topic at Cato Unbound, and I want to call out two posts.  I’ve also put my two cents in earlier.

John Nye is a very smart and funny man.  I know this because I took a class with him at Washington University before he went to George Mason.  One of his favorite topics was positional goods, and he discusses them in support of Wilkinson.  A positional good is a good whose value primarily derives from its status and the supply of which can rarely be increased; examples are expensive real estate, the Ivy League, and original artwork.  Nye argues that our income now is focused almost exclusively on positional goods since our more basic needs have long since been met:

Whatever one’s views on material inequality, it will certainly be the case that more we succeed in promoting wider access through growth, the more we will be focused on acquiring and differentiating ourselves on margins that are hard to change or difficult to equalize.

Lane Kenworthy, a professor at the University of Arizona who runs the blog Consider the Evidence, is skeptical of the merits of the consumption versus income argument.  Among other good points, he points out that we lack good data on consumption for the top 1%, that being able to save (which high income lets you do) is itself a valuable good, and that consumption for the middle class and below was fueled by debt and not income (so the consumption equality was not as stable as supposed).  His main point – and it could as well be the mission statement for this blog – is that:

Imagine an America in which high-quality public services raise the consumption floor to a high level: most citizens can put their kids in high-quality child care followed by good public schooling and affordable access to a good college; they have access to good health care throughout life; they can get to or near work on clean and efficient public transportation or roads with limited congestion; they enjoy clean and safe neighborhoods, parks, roads, museums, libraries, and other public spaces; they have low-cost access to information, communication, and entertainment via reliable high-speed broadband; they have four weeks of paid vacation each year, an additional week or so of paid sickness leave, and a year of paid family leave to care for a child or other needy relative. Even if the degree of income inequality were no less than today and we still had CEOs, financiers, and entertainers raking in tens or hundreds of millions of dollars in a single year, that society would be markedly less unequal than our current one.

I am more sympathetic to Laneworthy’s argument.  To extend on it, it is too materialist an argument to say that the abundance of refrigerators, computers, and cars means that we don’t have to worry about inequality.  Income inequality for those at the bottom is unjust in other ways: it makes people less engaged in government, makes great education impossible to afford for many, gives much less peace of mind, and makes life feel like a battle instead of a journey.  Being poor or middle-class on such a steep gradient does not mean that you have the same opportunity to succeed as other people, a fact which goes against our country’s foundational myth.  Taking the view that people should be content with just basic material comforts regardless of anything else seems very close to a mechanistic, dehumanized view of society.