Varieties of Inequality

I can think of at least six kinds of inequality:

Clothes are seen hanging outside a bus which has been converted into a dwelling for Lu Changshan and his wife near newly-constructed residential buildings in Hefei, Anhui province in China on November 12, 2012 (Jianan Lu/Courtesy Reuters).
Hefei, Anhui province in China  (Photo by Jianan Lu.)
  1. Inequality of income: different people receive different wages, either for different jobs or for the same job, as profits from capital investments, or as government subsidies, transfer payments, or private charity.
  2. Inequality of consumption: different people consume different products (i.e. the generic widget) in differing amounts and of varying quality. Some people have cell phones, computers, and tablet computers; some have just a cell phone; some people own no electronics. Some people have two homes, some are homeless, etc.
  3. Inequality of liberty: some people are subjected to more threats and interference than others. Some people can break the law, for instance by using illegal drugs, without consequence, while others are imprisoned and subjected to the whims and demands of institutional forces and individuals with strength or authority.
  4. Inequality of security: some people live more precarious lives than others. Some people are systematically subject to more frequent risks of loss, or have less assistance or fewer resources to fall back on should things go badly.
  5. Inequality of status: some people get more respect than others. Some people are treated with disdain and denied the prerequisites of basic human dignity. Some people are ignored and invisible, while others get more attention than they want from paparazzi and news media.
  6. Inequality of capabilities: some people have more beings and doings than others. Rather than more widgets and gadgets, some people have better access to the things that make a life go well: work, play, love, health, safety, an opportunity to be heard and make a difference, etc.

Now, potentially all of these inequalities might be troublesome, but when I think about political economy, I tend to think that inequalities grow in importance (and injustice) as they move away from nominal measures like “income” and towards real measures like liberty, security, status, and ultimately capabilities. Of course, the varieties of inequality are interrelated, but not always in a clear way. For instance, some people have high incomes but low security, like military contractors, some fishermen, and oil rig roughnecks who can all make six figure salaries by taking on inordinate risk of death or crippling injury. A wealthy person suffering from crippling depression might be consumption-rich but capability-poor. And we’ve probably all met or worked with angry low-level bureaucrats whose low status is combined with high liberty and security, which allows them to act capriciously and lazily without consequences.

In the famous aphorism of the “rising tide which lifts all boats,” John F. Kennedy suggested that it was possible that as the US progresses, the rich, middle-class, and poor states might all be better off in absolute terms even if they maintained their respective places. Subsequent use of the aphorism has generally added “even if they do not improve equally.” In the “rising tide” case championed by Kennedy, “relative” inequality would increase as the gap between rich and poor increased, while “absolute” inequality (i.e. poverty) decreased, as the poor became wealthier. But this suggests a seventh kind of inequality:

7. Inequality of growth: when a company or a country grows, some people get a larger share of the growth than others, either as a share of income, consumption, status, liberty, capabilities, or security.

Americans currently confront a situation domestically where the rich have made disproportionate gains in income and consumption compared to other classes, while the very poor experience severe losses in every category due to absurdly high rates of incarceration, lost life expectancy, increaased labor contingency, loss of meaningful participation in the political process, and many other factors. Yet while this inequality grows domestically, other inequalities are shrinking: Africa is growing again, and the the number of children who die each day from easily-treated poverty-related diseases has shrunk to half what it was a decade earlier. Some of the same factors that increased relative domestic inequality have reduced absolute global poverty. So this suggests that there are (at least) three different ways to measure inequality:

  1. The scope of the inequality: there is a difference between local inequalities and global inequalities, and on some measures and inequalities (for instance, status) the local matters more than the global, while sometimes it’s the domination or colonization of one place or group  by another that creates the problematic element in inequality.
  2. Inequality over time: for most of the world, each generation has been able to boast improved lives over the generation before. But there are times and places when this is not the case, and it may well not be the case in the future.
  3. Relative Inequality v. Absolute Poverty: Another important issue is that inequalities can be measured in relative or absolute terms: the “relative” measure is based on the difference between the most-advantaged and least-advantaged, or in some metrics between the extremes and the median. The “absolute” measure focuses on the actual levels of income, consumption, security, liberty, etc. which can rise independently or orthogonally to the difference between the best and worst.

In the literature, the last kind of inequality is often just referred to as “relative v. absolute inequality” but what really ought to concern us is when folks at the bottom face profound and multiple disadvantages. So when I think in terms of absolutes, here, I think we generally share the Rawlsian maximin intuition that we should confront and work to raise whatever the lowest-level of experience is, the floor or “bottom” that has become known as the situation of the “least-advantaged group.”

Civil-rights-leaders-want-Obama-to-talk-more-about-racial-inequalityAs for temporal and spatial inequalities, these are difficult issues indeed. Certainly there are Chinese cities where the environmental degradation is so bad that previous eras of lower consumption were actually better off; much the same may be true of European and American cities during our industrial growth spurts. We can think of the the inequality of growth as a problem that is primarily measured in terms of differences over time, but we also have to confront the profound differences between the growth levels in the US, Europe, and Japan, and the growth levels in Africa, South America, and Asia. There is growing confidence that these differences must be laid at the feet of poor institutional designs (hampered by colonial meddling) and cannot simply be explained by some form of exploitative expropriation of the developing world by the developed world.

There are broad measurement and aggregation problems with the more important kinds of inequality: it’s much harder to figure out how capabilities increase and decrease over time and populations than it is to measure income and consumption, even though measuring those is a very hard problem all on its own. Still, some theme have emerged. While there are some theorists who would not be ready to agree to the hierarchy of inequalities I’ve listed above, many justifications for libertarianism and classical liberalism rest on the assumption that the policies they advocate are best-able to achieve the maximization of the most important capabilities, securities, and liberties that I mention. After the work of Martha Nussbaum and Amartya Sen, there may well be disagreements about measurements and priorities, but there really are fewer folks who doggedly hold to the view that consumption alone is the key to the good life and ought to be maximized. Strangely, even as more people pay lip service to pluralism, there is more and more agreement on matters of fundamental metaethical goals. I take that to be a good sign.

But various versions of the problem of inequality that circulate strike me as potentially mistaken. For instance, it’s true that, in terms of wealth and income, the very rich lost more in absolute terms than the very poor: individual investors lost billions of dollars. But they did not lose a corresponding amount of consumption, security, status, or capability. Those losses play an important role in suggesting that the very rich were as surprised as the middle-class and poor by the structural problems in the shadow banking system and mortgage-market, however: after all, you expect a fraud or a crook to have enriched himself, not immiserated himself. On the other hand, differential inequalities of growth and security suggest that a very rich investor might be willing to make a bet that will double or halve her income even if it will do the same thing the very poor for simply because of the way one calculates gains and losses when you are very rich. (This goes back to Charles Karelis’s work on the differential rationality of wealth and poverty.)

Season of Political Irrelevance Update

Weigel has predicated a lot on the conditional statement: “If you look at it right, then you’ll see serious policy.” But we don’t have any evidence for the antecedent, that the public or the media *will* “look at it right.” More to the point, I don’t agree that the waivers or tax loopholes are among the most important problems facing this or the next president. Effective tax rates are much too low on the rich, but the best solution isn’t better income tax laws, it’s a progressive consumption tax, which is not on the table.

The policy issues under discussion are partly unsubstantive because they’re subject to deep red meat divisions. They won’t be resolved; they’re designed to be perpetual. The stuff I want to talk about is stuff that a whole host of people from both sides could agree on, if they were allowed to spend the election talking about it. Elections are about drawing distinctions and offering a choice, but they’re also about parsing the electorate into roughly equal demographic slices. Policy is about taking the broad overlapping consensus and the best evidence and acting on that.

Over the next two years, there will be very little movement on the things we argue about during this election season. During the same time span, there will be a great deal of movement on the things we ignore this election season. That suggests irrelevance.