The equality problem

A nasty problem stalks those who think about public policy, especially here in Britain, and in the US.  It goes under the general name of “inequality” and is mainly about the growing disparity between the very rich and everybody else.  There is a lot of anger (think of the Occupy protests) and shaking of heads, little convincing analysis and and even less in the way of convincing policy ideas.  It’s worth everybody taking a few steps back and asking themselves what is going on.

Of course the debate about the justice of inequality is as old as political philosophy. But two new factors have changed the whole nature of the debate.  The first is that the people in the middle of the wealth distribution are getting left behind.  Depending on the stats and country the median family’s wealth is hardly growing at all, or stagnating, even as the economy as a whole grows (well, until 2007 anyway).  So long as the median family is doing nicely the political heat can be contained – people can ask whether the problem really matters.  But these stats make it appear that the country is being run for the benefit of a tiny elite – which makes it politically much more awkward.

The second new fact is that mobility between different levels of wealth appears to be declining.  If you start life wealthy, you are increasingly likely to stay that way, and if not, you are less likely to break the barrier into a wealthier world.  The traditional divide between those who are concerned about equality of opportunity and those who worry about equality of outcome is becoming a lot less significant.  Both lots are angry.

There remains much to debate about how bad for us all this growing inequality really is.  But you don’t have to be an equality extremist (like, or so I’m told, the authors of the popular book, the Spirit Level, which I’m afraid I haven’t read) to be worried about all this.  The political consent upon which our democratic society is founded is being undermined – and indeed the extreme polarisation of US politics is perhaps one aspect of this.

Why is this happening?  For all the quantities of research poured in to economics and the social sciences, there is rather little that is known.  Economists don’t like thinking about the distribution of wealth as opposed to those comfortable aggregates that conceal so much.  Mathematically it is an entirely different type of problem to the ones they are used to dealing with.  I have seen one valiant attempt to grapple with the maths, under concept of “wealth condensation“, which did a good job of modelling the sort of power distributions so characteristic of wealth patterns, but this was not by an economist.  Professional economists preserve their elite status through the gratuitous use of advanced mathematics; no doubt they feel very uncomfortable in dealing with problems that require sorts of maths they aren’t good at, or even no maths at all (e.g. through the use mass agent computer modelling).  What we get is some rather airy stuff about the impact of technological change and immigration, with the former usually being fingered as the more important baneful influence.

One fact is quite well understood, though, which is the winner takes all effect of mass communications.  Thus entertainment stars tend to win big or not at all – and similar can be said of sports stars.  The mass market seems to concentrate its attention on a small world elite, ignoring anybody that hasn’t quite made it.  This, of course, will increase inequality.  But it is a retail phenomenon which ill explains why bankers and big corporate execs do so well.

Because we so ill understand it, it is unsurprising that our solutions seem so inadequate.  In Monday’s FT the prominent American economist and policy person Larry Summers (paywall), after moaning about the problem, was pretty lame about what to do next.  He suggested looking at three things: challenging the privileged status of the well off (especially the effects of the massive lobbying power of big corporations), a bit of tax reform (which is as much about not making things worse by rolling back estate taxes, etc) and state intervention to even things up, especially through education funding.  All worthy, but it is difficult to think that it would have anything more than a marginal effect.  The anti-capitalists aren’t any more convincing, of course.  It’s the baby and bathwater problem.

Politically there seem to be two distinct poles of argument.  The right wing idea is that it is the excesses of the state that is holding back the middle, and if we taxed and regulated more lightly an entrepreneurial boom would help the middle catch up with the top.  I have to admit I haven’t seen this line of argument clearly articulated anywhere, but some such logic must lie behind the popularity of the American Tea Party, whose appeal goes well beyond the elite.  On the left people seem to think the answer is in a bigger state, which intervenes to help the less well off, cracks down on excessive wealth, and drags pay up by creating masses of comfortable public sector jobs.  A bit like Sweden before its economy collapsed in the 1980s.  Neither course looks very encouraging to a liberal.

So what to think?  I am not really any further forward than Mr Summers.  But it would help if we better understood why so many in our society are being left behind.  I shall return to the topic

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