On Inequality

by Don Boudreaux on March 23, 2009

in Inequality

I applaud these two letters-to-the-editor appearing in today’s Wall Street Journal:

In regard to the appearance of French economists Thomas Piketty and Emmanuel Saez in President Barack Obama’s budget (“The Obama Rosetta Stone,” by Daniel Henninger, Wonder Land, March 12): In their use of statistics of the top 1% of income earners, Messrs. Piketty and Saez make the same false assumptions that the Internal Revenue Service does. In 1980 income disparity began to take off in the U.S. leaving the top 1% of income earners with a greater share of the income pie. Like the IRS, these French economists use “household” income as their measure.

But consider that 1980 was about the time when large percentages of college-educated women began to enter the workforce. Many of these professional women would go on to marry other professionals. This in effect created a doubling of “household” income for many families.

At the same time out-of-wedlock birth rates and divorce began to skyrocket creating large percentages of single-parent households. It should be no surprise that a two income household has a much higher income than a single-income household even if all workers make exactly the same income.

Surgeons will always make more than janitors, as anyone who has ever gone “under the knife” will agree with, and their income should not be distorted because they are married to a fellow surgeon.

My working wife and I often find ourselves in this 1% bracket, but if we were to divorce we would never come close. It’s ironic that the left decries the income disparity between men and women, but in the instance when women earn equal pay it is used to inflame class warfare.

Steve Walde
Easton, Conn.


President Obama’s new era of responsibility budget makes it clear that 5% of the population (the rich) must assume more financial responsibility for the other 95%. Fair enough, but is there some new responsibility that the other 95% also must assume? If not, that seems somewhat irresponsible.

Efforts to countermand the laws of nature to create a completely fair society mean forcing equality of outcomes, an end result that isn’t fair, healthy or sustainable. History tells us that this type of class warfare never has a happy ending.

R.D. Shipley
Stamford, Conn.

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{ 49 comments }

Daniel Kuehn March 23, 2009 at 4:49 pm

That is very interesting. The criticism of Thomas Piketty and Emmanuel Saez that I am used to hearing is that it's wrong to count household income because the size of the household has changed over time – so you change the denominator. I think that is a valid critique, but probably one that matters very little in most analyses.

I have not heard this one before. But I'm not entirely convinced. OK – let's say you have a two parent family with two kids to support that makes a lot because they are two surgeons. Then you have a single parent family with three kids to support (ie – so household size is held constant). Who cares if two professionals marry? There is still far more inequality between those two households than there would have been thirty years ago when only the husband would have been a surgeon, right? It seems like a MEANINGFUL increase in inequality. The resources per person in that household is much greater than the resources per person in the single parent household. It seems irrelevant that the two surgeons could get divorced. The facts on the ground are that those two households live in very different circumstances. I would make sure to label it "household income inequality", but I think it's a perfectly legitimate and important statistic.

I agree with the second letter writer much more fully – although maintain that there's nothing wrong with a progressive income tax. This has been the missing piece of the puzzle for Obama – the lower 95%.

Oil Shock March 23, 2009 at 6:17 pm

I agree with the second letter writer much more fully – although maintain that there's nothing wrong with a progressive income tax.

Is there something wrong ( even slight or modest ) with taxation?

gator80 March 23, 2009 at 6:23 pm

Daniel Kuehn,

It seems like a MEANINGFUL increase in inequality. The resources per person in that household is much greater than the resources per person in the single parent household.

Not to sound hard hearted, but so what? What action, if any, would you propose?

T L Holaday March 23, 2009 at 6:43 pm

@Oil Shock: Taxes are exactly the right way to pay for public goods. States (legitimate violence monopolists) are exactly the right entities to collect them. Using income as the tax object is wrong, but not as wrong as George Mason's preferred race-based tax where the descendents of African kidnap victims are taxed at 100%. Using consumption as the tax object is exactly right.

Rvturnage March 23, 2009 at 6:49 pm

Daniel Kuehn says: "The resources per person in that household is much greater than the resources per person in the single parent household. It seems irrelevant that the two surgeons could get divorced. The facts on the ground are that those two households live in very different circumstances."

So the government should force the single parent household to marry, then, to "even it out"? Or maybe force the married couple to divorce? The "facts on the ground" you mention are due to individual choices, not income inequality or "oppression" from the rich. It is not governments, nor employers, place to make up for decisions made by individuals. Remember, employers don't hire a household — they hire an individual. So to be even remotely accurate, income comparisons need to be as close to the individual level as possible. Even then, other variables, like ages of people in the workforce, need to be taken into account.

In your scenario, you've kept the household size constant, but you change the number of workers. that's like comparing the cost of a bag of a 1 lb bag of apples with the cost of a 5lb bag, even though the price per pound is the same, complaining because the 5lb bag costs more.

Look at using the difference in household income over the years as justification for income redistribution like this:

In 2000, Family A consists of a doctor, a stay at home mom and two kids. The family earns $50,000. In 2008 that family consists of the surgeon, who now earns $85,000, and the mother who is now a lawyer earning $50,000 and the two kids. The family income is now $135,000. Their income more than doubled, but only because the mother went to college and got a good job.

Family B, in 2000 consists of a store clerk, a stay at home mom and two kids. The family earns $25,000. In 2008 that family, the father (still the sole provider) is now regional manager for the store and now earns $80,000.

The Picketty and Saez data would show that Family A had a disproportionate increase in the share of income, and ignore the fact that the single worker in Family B actually had a higher rate of income growth than either of the earners in Family A. Then they use this idea that Family A's income increase was at the expense of Family B's amount as an excuse to "level the gap" (without ever telling why the "gap" wasn't "level" in the first place…because the number of people working in Family A doubled — the result of which is exactly what you'd expect: a large increase in total income)

Now, knowing all of this, should family A, who saw smaller increases in wealth per worker, be punished because Family B didn't increase their total income as much as family one did (and why would you expect them to, since Family A doubled the number of workers, while Family B chose not to)? And should Family B be rewarded with a portion of Family A's income even though Family B saw a higher rate of increase per worker than Family A?

Further, Picketty and Saez aren't even technically using households (from what I can tell), but tax units…which means that a household may have multiple "tax units" – for example, a married couple filing jointly with a working student would consist of 2 tax units. Whereas two non-married people living together and raising a working student would consist of 3 tax units. Both are "households" consisting of the same number of working individuals sharing expenses, but are counted completely differently by Picketty & Saez's data. How does that lead to an accurate comparison of income?

MnM March 23, 2009 at 7:37 pm

George Mason's preferred race-based tax where the descendents of African kidnap victims are taxed at 100%.

I almost hesitate to ask, but…what?

dg lesvic March 23, 2009 at 8:19 pm

You're all still missing the main point about inequality.

Taking from the rich to give to the poor cannot reduce but only increase it.

That said, nothing more need be said.

So, why say what needn't rather than needs to be said?

Cheers March 23, 2009 at 9:04 pm

DG,

I agree with what you're saying wholeheartedly.

But I think it's also important to address the validity of the argument itself.

Those that favor redistribution incorrectly define the measurement as relative. If my neighbor income increased by 4 grand more than me this year, I feel an income discrepancy. But if it's a result of my income increasing by 6000, and his by 10000, suddenly, I'm no longer arguing for less inequality, but I'm suddenly just trying to take someone else's money.

That's what the issue is. In the western world, ignoring taxation for a moment, we are richer than ever before. The poor and the rich have a better standard of living, better healthcare, no matter where you are, have more disposable income, and have better things to spend it on.

This can't be about "redistribution" "reducing inequality" or anything like that. Everyone is benefiting, down to the homeless person on the street. It's theft. Nothing more.

I don't disagree that what you're saying is true. But when we make that argument (as much as I appreciate the utilitarian perspective) we reaffirm their intent. At the end of the day, this is perpetuated by a bunch of people who are richer and richer every year, and it's still not enough.

dg lesvic March 23, 2009 at 9:24 pm

Cheers,

I'm sorry, but I don't know what you're talking about.

Are you saying that if we know that taking from the rich to give to the poor does not reduce but increases inequality, we should keep it a secret?

The Albatross March 23, 2009 at 10:24 pm

Data on U.S. household size going back to 1900 if anyone is interested. Between 1970 and 2000 the average household size went from 3.11 to 2.59 or the loss of half of person or a decrease of a fifth or so.

http://www.census.gov/statab/hist/HS-12.pdf
Average family size shows a similar drop.

http://www.usc.edu/schools/sppd/lusk/casden/research/data_folder/us_faincsize.pdf
Ahh, I remember the effect on equality I had when I moved out my surgeons’ parents home.

SheetWise March 23, 2009 at 11:06 pm

This is just another area of government that's been screwed up. Marriage used to be between a couples community and their church … then the State got involved, and started granted privileges. All as a result of progressive tax codes.

I was making very good money back in the '70's. The first year I went to my accountant I learned that I was paying half my income in taxes. He told me about several tax avoidance strategies, but also advised me to marry my girlfriend and buy a house. I did, and it sure cut my taxes initially, but the girlfriend got the house — so my thinking is it was just a wash. Wealth redistribution policy?

I've always wondered why gay people favor the Democrats. The right of getting married and forming a "household" are highly overrated.

Marriage should still be between a couples community and their church. Anybody who wants to get married should. The State really has no business in what defines a household. That's just freedom to associate.

The fact that a low earning person and a high earning person live together doesn't make the low earner rich any more that it makes the rich earner poor. But the G-Men sure seem to be corralling us up that way.

Jacob Oost March 24, 2009 at 12:04 am

There are people from *Connecticut* that feel that way?! Wow, I thought the whole state was a bunch of limo libs. Guess I was wrong.

Cheers March 24, 2009 at 2:05 am

DG,

I don't think it should be a secret. Not by any means… Any redistribution has net cost to all parties, and I agree wholeheartedly. But the reason why redistribution is a politically and socially acceptable thing to consider is because it's been framed around the argument of the "rich getting richer and poor getting poorer". That's not happening. Everyone is getting richer.

I strongly believe that in order to really affect any change, we need to make it easy to choose freedom and small government over this ridiculous shambles that is shaping up. So I think that pointing out the negatives of redistribution is important, but is only half of the battle. I think it's also crucial to demonstrate the positives. The weapon that's being used by the government prior to the recession was (and still is) the painting of a utopia where no-one gets sick because of universal healthcare, everyone has a job and we drive wind-powered cars. That's not real. But the utopia we're living in right now is pretty incredible, and we're missing it because the guy next door just bought a beamer on a 5 year lease.

Sam Grove March 24, 2009 at 2:37 am

although maintain that there's nothing wrong with a progressive income tax.

OK, OTH, I oppose taxation on productive activity. I'd prefer Martin's consumption tax.

What I really think would be ideal is to get our government out of the empire business, the subsidy and redistribution business, and leave us pretty much alone to deal with each other without having extortion as part of our social and economic relationships.

dg lesvic March 24, 2009 at 4:10 am

Cheers,

I still don't know what you're talking about.

You said:

"So I think that pointing out the negatives of redistribution is important, but is only half of the battle. I think it's also crucial to demonstrate the positives."

What are the "positives" of redistribution?

While I actually believe that redistribution is ultimately the whole battle, for the sake of discussion, I'll concede that, as you said, it is only half the battle.

The problem is that, even when you people fight that half of the battle, you still miss the point, that taking from the rich to give to the poor does not reduce but increases income inequality.

Michael Smith March 24, 2009 at 7:05 am

Nothing on earth justifies the notion that those who are successful — those who are sufficiently rational, productive, energetic, creative and ambitious enough to achieve a high income — are financially responsible for the irrational, non-productive, lazy and slothful. The goal of those pushing this noxious notion is to obliterate a single distinction — the distinction between the earned and the unearned.

In the 19th century, America fought a great and horrific civil war to eliminate the belief that some individuals — the white plantation owners — had a right to exist at the expense of other individuals — the blacks brought from Africa. Today’s belief that the incompetent have a right to exist at the expense of the men of ability is no less evil.

America was founded on the ideal of equal rights for all — with all men having the inalienable right to the pursuit of their own happiness, by means of their own honest effort — with none having the ability to claim special rights for themselves that are denied to others. The Obama administration is destroying the last remnants of that ideal, in favor of equal economic outcomes, independent of whether or not they are earned and deserved.

Goodbye, America. You deserved a better fate.

save_the _rustbelt March 24, 2009 at 8:10 am

Apparently for the past decade or so many of the 1%'ers have been involved in FIRE – finance, insurance, real estate.

It appears they did a very good job of redistributing pension and retirement investments into their own pockets before creating a several trillion dollar crash.

Not all redistribution goes from top to bottom.

Cheers March 24, 2009 at 8:21 am

Sorry, grammatical error. Should have been the "positives of the existing elements of the free market" or similar statement.

Ultimately, you're right. All that really matters is that we need to show people that they are worse off when redistribution occurs.

But as Michael Smith says, the argument has become "we need to redistribute because there is inequality". If we only answer that with "redistribution doesn't solve inequality", then we are implicitly saying "yes, there is inequality and we have to redistribute, but this isn't the right way to do it"

I'm probably nitpicking, and it's not that I don't think it should be said, but I'm reticent to discuss this in a way that justifies their argument even by assumption.

It's like a pro-lifer saying "do you think abortions are the right way to kill babies". Without redefining the question, you're admitting that you believe that that fetus' are babies and there is a right way to kill babies.

It's probably nitpicking as far as most people are concerned, but there's my 0.02

Randy March 24, 2009 at 11:04 am

Cheers,

I agree. Which is not to say that I think there is no value in demonstrating that redistribution accomplished by using the political class as an intermediary doesn't work as intended. Nor am I opposed to voluntary means of redistribution, which seem to work quite well (e.g., The Red Cross, Salvation Army, etc.).

The problem is forcible redistribution. Because it is morally wrong, and because it doesn't work.

Randy March 24, 2009 at 11:06 am

P.S. to Rustbelt,

You're absolutely correct that not all of the redistribution goes from top to bottom. In fact, very little of it does, and even the little that does goes only to the politically connected.

dg lesvic March 24, 2009 at 11:08 am

Cheers,

I still don't know what you're talking about, and, now, even who you're talking about, Michael Smith or myself.

You said:

"I'm reticent to discuss this in a way that justifies their argument even by assumption."

Did that refer to my way of discussing this or his?

A simple yes or no, please, without dragging in all the ambiguity:

Do you, OVERALL, approve or disapprove of my way of discussing this?

Methinks March 24, 2009 at 11:19 am

Michael Smith and Paul, I couldn't agree with the two of you more.

The United States is toast. It's time to look elsewhere.

Cheers March 24, 2009 at 11:22 am

Ok,

Yes, I approve DG

I tend to get too ambiguous.

John March 24, 2009 at 11:26 am

Randy,
While it is true that income redistribution doesn't work, that's not what matters.
What matters is how it FEELS.
These are people who are incapable of being happy for someone, rather what makes them happy is seeing others in pain.
If my neighbor gets a new car I'm happy for them, and if they were to fall off the roof I'd be rushing over to help.
However those who favor income redistribution see their neighbor's new car and react with anger, and they feel pleasure when the neighbor falls off their roof.
After all they deserve it for getting a new car.

It's a pointless task to attempt to reason with people who are driven by emotion.

dg lesvic March 24, 2009 at 11:27 am

Michael Smith,

Your contributions here have been absolutely brilliant and outstanding.

But I think that in this most vital matter, you miss the point, and make things worse.

If a policy doesn't work, the morality of it isn't an issue. So, by making an issue of it, you imply that it does work, that plunder pays, and freedom doesn't.

So your moral, political, and social argument against redistribution is actually an economic argument for it; whereas the economic argument against it, that it doesn't pay, doesn't make the poor richer but poorer, doesn't reduce but increases inequality, wipes out every other economic as well as moral, political, and social argument in favor of it, and is, in effect, all arguments against it, and the strongest possible, all wrapped up in one.

Why not use it?

Why keep it a secret?

Randy March 24, 2009 at 11:35 am

I think what we need is a strike. If I remember right, strikes had a major impact in the fall of the communist governments. I figure (very rough estimate) that if the entire productive class took a few days off it would cost the average worker a hundred dollars or so per day, but it would cost the political class somewhere around $10 billion per day. You could put me down for a couple of weeks worth. That should be enough to get their attention.

Morgan March 24, 2009 at 11:41 am

Ask someone who likes redistributive government policies this question: What problem is addressed by redistributive policies?

You'll get a range of answers, among them (in my own words):

"We're making things fair by correcting the tendency of the market to overreward the few and underreward the many."

"We're fixing inequality, which is a problem in itself."

"We're making sure that everyone has enough to sustain a minimally acceptable standard of living."

"We're punishing the greedy rich people."

These are all different justifications, and need to be addressed in different ways.

dg lesvic March 24, 2009 at 11:50 am

John,

You wrote:

"It's a pointless task to attempt to reason with people who are driven by emotion."

So what are you doing here, other than telling the rest of us that we should just give up?

I think you're the one just driven by emotion.

John March 24, 2009 at 11:58 am

I've never understood that line about punishing greedy rich people.
Punishing them for having the audacity to create jobs and employ people in the production of goods and service that people want?
So it would be better to confiscate their wealth before they have a chance to expand their business and open a new location?
And the government would do a much more effective job of distributing that wealth?

Or is it simple playground envy?

Daniel Kuehn March 24, 2009 at 12:12 pm

gator80, Oil Shock, and the rest.

I was just making a comment on how we measure inequality. And I think the measurement that the author of the first letter criticizes is fine. It does capture real, meaningful inequality – and in that sense it seems like an important statistic to me.

What to do about it? That's for the democratic process to decide. Like I said in response to the second letter writer, I would like to see some balancing of the burden, but I think a progressive income tax and the EITC is still appropriate to deal with some inequality. Improving public education is another way – a lot of the earning gap is attributable to skill premiums.

And of course, a lot of the inequality we just have to live with. It's like Bernoulli's law – you don't get lift if a system is in equilibrium. Inequality is the engine of the economy.

Methinks March 24, 2009 at 12:22 pm

Randy,

The Soviet Union was brought down by the fact that labour wasn't productive enough for a strike to make any difference. What Gorby said was pithy and true: "The workers pretend to work and we pretend to pay them."

Lack of incentives has that effect. The day has come in this country when winners and losers are decided not by skill, hard work and fate but by Barney Frank.

Daniel Kuehn March 24, 2009 at 12:23 pm

Paul -
re: income distribution vs. income production

First, I think people generally use "distribution" in the sense of a statistical distribution. There is a frequency with which we observe income across the population.

Second – even in the sense of distribution-as-handing-out, of course that's a real possibility to talk about! If it wasn't a real possibility – what would everybody on this blog be worried about?

dg lesvic March 24, 2009 at 12:27 pm

Dnaiel Kuehn,

You wrote:

"I think a progressive income tax…is still appropriate to deal with some inequality."

Even if it increases it?

Randy March 24, 2009 at 12:35 pm

Daniel,

I do not conflate inequality with injustice. Show me injustice and we can talk about ways to stop it. Show me inequality and I say, "Yeah, there it is, so what?"

Daniel Kuehn March 24, 2009 at 12:36 pm

Wow Rvturnage! Just read your response. No, you're reading way too much into this. I'm not saying the government should force people to marry, or that the rich are oppressing them, or any of that at all! Not sure where you got that.

I do understand your complaints about tax units vs. families – that makes sense, but I think that's just a data constraint – not some deviousness on the part of researchers. However, I do think household size matters much more than number of wage earners. What we're getting at (I think) is inequality in how much resources human being have to depend on. Resources are generally shared within households, regardless of how many workers there are in that household. A household with a single mother and three kids has to survive on the one income just as surely as a household with two working parents and two kids has to survive on the two working parents' incomes. So if we want a reasonable number on the inequality between those two families, I'd take total earnings in each and divide it by four. Right? because really if we're concerned about available resources, it doesn't matter who earns it – it matters who is using it.

But obviously, sometimes we are also concerned about wage differentials – in which case you would just look at the inequality between individual earners.

All I'm saying is that both of these measures of inequality seems meaningful and important to me. I don't see what the first letter-writer's issue was.

Daniel Kuehn March 24, 2009 at 12:42 pm

dg lesvic –
I don't follow your argument at all. Really, there is no argument to follow. You've asserted in five out of your six posts that a progressive income tax increases inequality, but you have never explained it.

I'm not sure exactly what you mean by that – do you mean that there are going to be productivity losses associated with it? I'm not sure what you're trying to say. Progressive income taxes COMBINED with an EITC actually helps to bring people into the labor market (more complicated than that – there are phase out issues, but that's the point of it).

Anyway – might be worth explaining more. I have never been convinced by an argument against an at least modestly progressive income tax – so I guess my response is "yes, even if it increases it"

Daniel Kuehn March 24, 2009 at 12:45 pm

RE: dg lesvic and other discussants of the progressive income tax

I've always taken this perspective, borrowed from Edgeworth:

"the marginal disutility incurred by each taxpayer should be the same"

Rather than the rates should be the same.

I think that sentiment/position, combined with the understanding that money has a diminishing marginal utility, is what drives the economic argument for a progressive income tax. Although I will put out the disclaimer that I haven't thought that through in detail.

Goodie – now I get to sit back and see what Austrians think of Edgeworth. I'm not sure how he is received in that community.

Daniel Kuehn March 24, 2009 at 12:49 pm

Randy –
I don't think I've responded to you before… is this just a response to what I'm saying?

Well – for one thing I'm not sure "injustice" is the right word – that's not why I'm advocating what I am advocating.

A child's chances in life are largely determined by that child's parents' income. A parents' income is completely exogenous to that child. Why should the child have significantly poorer chances because of decisions that their parent made? It's not an "injustice" per se – but it is an externality that is probably worth addressing to some extent. It's certainly not outlandish to consider addressing it to some extent, at least.

So that's one argument.

But like I said – inequality is very important for the smooth operation of the economy. We need inequality. I'm just saying that we might not need ALL the inequality that's out there :)

Gamut March 24, 2009 at 12:57 pm

Methinks:

Not too long ago I used to wonder about where my country was headed on this crazy policy outcomes train. I did look with some envy at the diversity that is the United States and the relative freedom with which transactions can occur between willing individuals. Not to say that the differences no longer exist, but I think the gap is narrowing fast, and recent events lead me to suspect that the final outcome over the next decade, barring any local lunacy, will be somewhat different that it has been to date.

To deal with this local political friction, and make myself less 'fodder for the cannons', I've learned to live in a realm of informal business relationships over flexible media that spans the globe. In a way, although the produce of my labour is taxed, the relationships formed allow most of the actors to live and earn in spheres not recorded by statistics. In a way, I've moved out while staying exactly where I am. The psychological payoff is worth the increased inherent difficulty of such arrangements, and I suspect more and more statistics will be skewed by our kind. Now if we only could remove ourselves from the need to use local currency.

MnM March 24, 2009 at 1:12 pm

I do understand your complaints about tax units vs. families – that makes sense, but I think that's just a data constraint – not some deviousness on the part of researchers.

I agree they aren't, necessarily, devious. However, I also agree with the writer of the first letter. It's sloppy research. The make-up of their stat is different at the beginning of the time series than it is at the end. Comparing apples and oranges like this will give you a result that's worth about as much as a politician's word.

What we're getting at (I think) is inequality in how much resources human being have to depend on.

It isn't. They're using it as justification to tax high income earners at a higher rate than they are currently. See the article linked to in the first letter.

——

From the linked article (page 5 of the President's Budget):

"While middle-class families have been playing by the rules, living up to their responsibilities as neighbors and citizens, those at the commanding heights of our economy have not."

I'm not certain how they ascertained this from the chart they cited. It's an obvious non sequitur.

And then there's this:

"Prudent investments in education, clean energy, health care and infrastructure were sacrificed for huge tax cuts for the wealthy and well-connected."

First, government doesn't make investments. Second, the writer equivocates tax expenditures and tax cuts. Tax cuts aren't "paid for". They're a reduction in governments income. I should think this obvious.

"There's nothing wrong with making money, but there is something wrong when we allow the playing field to be tilted so far in the favor of so few"

In other words, "there's nothing wrong with making money, but there is something wrong with making more money than someone else."

——

Back to Daniel's post.

because really if we're concerned about available resources, it doesn't matter who earns it – it matters who is using it.

We aren't taxing the "users". We're taxing the earners.

I don't see what the first letter-writer's issue was.

His issue is with the apples/oranges problem I pointed out above. Their statistical measures aren't being held constant so their results don't mean very much. I doubt is was anything nefarious on their part; it was just sloppy research.

(Sorry for the herculean post, there was a lot I wanted to say.)

Daniel Kuehn March 24, 2009 at 1:21 pm

MnM –
I think you're taking this whole discussion (or at least my comments) too far afield. I don't care what those two researchers DO with the statistic. I'm saying the statistic in and of itself is reasonable for answering certain questions, and that yes – some caveats exist with the statistic. I have read this article before – it's actually been making it's rounds quite well. Someone else showed it to me when they were making a case against progressive income taxes. I've never even read the initial research that that WSJ linked article is citing. But it doesn't matter – I'm simply saying average resources available to people based on household-level earnings is a very interesting and worthwhile thing to track! That's all!

I still don't see what's so sloppy about it (aside from the tax units issue). "Household income" is what it is. If you took household income inequality and called it "earnings inequality" or "worker inequality" or something like that, then that would be sloppy.

I think the most useful statistic would be the inequality over time in the household income divided by household size – in other words, a per capita income figure calculated at the household level. I have no idea if that's what they produce or not. Neither the WSJ article or the letter writer notes whether or not they standardized by household size.

Randy March 24, 2009 at 1:24 pm

Daniel,

"We need inequality. I'm just saying that we might not need ALL the inequality that's out there…"

Some people have a problem with inequality. I do too in certain circumstances. For example, I try to be equal in the things I give to my children. But bringing equality to the nation or the world? Not even a little bit.

But I'll tell you what, make voluntary the programs by which you hope to bring about your desired level of equality, and you'll get no argument from me.

Daniel Kuehn March 24, 2009 at 1:35 pm

Then I guess I'll have to live with your argument, Randy.

Now you brought up injustice earlier. What if I change the way I frame my argument. Indulge me.

Let's say a kid is born to a dead-beat dad and a crack addict mother that can't hold a job. OK? Now – they're down at the bottom of the income distribution, but it's not an "injustice" because they made their own choices that put them there. But the child didn't – and the child is going to be negatively impacted by it. The child's chances are being hurt by the decision of the parents'. I'll go ahead and actually label that an "injustice". Would you challenge me on that?

If not – then how are we going to help kids in that situation? How are we going to address it? It's a clunky solution, but I think some kind of progressive income tax/welfare arrangement is one solution. Does it have costs insofar as we help the dead beat dad and drug addict mom? Of course it does. But this is the real world, and sometimes you have to endure costs.

So that's an oversimplification – but I'm troubled by your "not even a bit" response to any sort of inequality nationally or around the world. You can't conceive of any situations or arguments? I'm not talking about "from each according to his ability – to each according to his need". I'm making some pretty basic points, I think.

MnM March 24, 2009 at 1:41 pm

I think you're taking this whole discussion (or at least my comments) too far afield.

I don't see it that way. You didn't understand the objection of the writer of the first letter. Since that letter speaks directly to how those researchers used the statistics in this specific study, I haven't taken anything too far afield.

I still don't see what's so sloppy about it (aside from the tax units issue).

The sloppiness isn't so much with the stat itself, as it with how it's used. It's a bad proxy for their (the researches) intended study. I may measure other things well, but that doesn't speak to Don's post, the first letter, or the research done by the researches in the linked-to article.

Daniel Kuehn March 24, 2009 at 1:52 pm

Huh?

Well OK – I've never even read the intended study – just a WSJ summary of the intended study!

My first post was only questioning the objection to the statistic, which seemed relevant because the first letter was objecting to the statistic itself.

This is getting weird – I think we're arguing over nothing MnM.

Daniel Kuehn March 24, 2009 at 1:54 pm

I'm not sure it's a bad proxy for their study. It's a good measure of household inequality. I got the impression that their study had something to do with that – so I think it sounds pretty good for their purposes! Not perfect, but what data is?

Crusader March 24, 2009 at 1:58 pm

Daniel Kuehn – I agree we need to provide assistance to disadvantaged kids. What I oppose is unconditional welfare payments.

Daniel Kuehn March 24, 2009 at 2:04 pm

Crusader -

I don't think this country has ever once in it's history made unconditional welfare payments. Obviously how strongly conditional those payments have been varies over time.

I personally like lots of conditions on welfare too – and I prefer and EITC type program to welfare altogether.

Randy March 24, 2009 at 2:05 pm

Daniel,

"I'll go ahead and actually label [a child born to bad parents] an "injustice". Would you challenge me on that?"

Yes. Someday the world is going to melt, or freeze, or get blown up in a cosmic collision. Its not injustice, its just a fact. Dogs don't have thumbs. Humans can't fly. The Sahara is dry. Its not injustice, its just a fact.

"You can't conceive of any situations or arguments?"

Not that concern me. I didn't create the nation or the world. I don't own them. They're not mine. I'm not responsible for them. Their problems are not my problems. The belief that they are is a religious construct. Now, to force me to comply with a religious construct, that is an injustice.

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