Why Inequality Doesn't Matter
Why Inequality Doesn't Matter
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From the corridors of power in Washington to protest encampments on Wall Street, economic inequality is once again at the forefront of American public debate. The combination of rising fortunes at the upper end of the income distribution and stagnation lower down has led to calls from the left for actions to redress the imbalance and punish what Theodore Roosevelt called "malefactors of great wealth." If the immediate circumstances are new, however, battles over the significance and implications of inequality are not, and in this context we feel it useful to resurrect a skeptical perspective on the subject from a previous era. Irving Kristol's 1980 essay "Some Personal Reflections on Economic Well-Being and Income Distribution," originally prepared for the National Bureau of Economic Research and published in Reflections of a Neoconservative, is thus reprinted below. In his long career as a writer, editor, and public intellectual, Irving Kristol (1920-2009) served as editor of Encounter, The Reporter, and The Public Interest.
It is my understanding, from surveying various studies of trends in income distribution in the United States over the past three decades, that economists have found very little significant change to have taken place. There does seem to have been a slight increase in the proportion of national income received by the very poor, a slight decrease in the proportion received by the very rich. What goes on in between is such a complex muddle that economic analysis can tease few unquestionable inferences from the data. Moreover, the very methodology of studying income distribution has, over these decades, become ever more controversial. Just what is to be included in the concept of "income" becomes less clear every time a new governmental "entitlement" program is launched (whether it involves food, housing, medicine, or whatever). And it has become ever more apparent that in order to take account of normal age differentials in earnings, of changing demographies, and of economic mobility (both up and down), the distribution of "lifetime earnings" would give us a far more valid report than any cross-sectional survey at a moment in time. The trouble is that economists have not come up with any accepted procedure for measuring any such distribution of lifetime earnings, and there are even some grounds for thinking they never will.
Does it matter? What, precisely, is the point of all of these studies and of the interminable controversies they generate?
When one raises this issue among economists, one discovers that they tend to feel that, in some way or other, income inequalities ought to have a significant relation to other larger issues such as the rate of economic growth, economic stability or instability, social and historical stability or instability, or even that sense of well-being we vaguely call "happiness" or "contentment." And yet it is astonishing how little by way of any such relationships economic and social research have come up with. Increases and decreases in income inequalities, as conventionally measured, appear to be indifferently compatible with social turbulence as with social stability, with economic decline as with economic growth, with political order as with political chaos, with an increase in individual and social pathologies (e.g., suicide, alcoholism, drug addiction, crime) as with a decrease. Inequality, one gets the impression, is an important issue for today's social scientists despite the fact that such importance escapes all empirical verification.
To complicate matters even further, any effort to relate income inequality even to strictly economic well-being is plagued by the fact that the concept of economic well-being is itself not so unambiguous as some economists believe. An improvement in economic well-being can be quite rigorously defined as an increase in (actual or potential) purchasing power over the material goods of this world (i.e., the goods that money can buy). But this brute statistical fact is always "processed" through people's minds, and it is the ideas and attitudes in these minds that ultimately determine the meaning we give to any brute statistical fact. Fortunately for the science of economics, those ideas and attitudes are not utterly disparate, incoherent, and inconstant. One can therefore say, with some confidence, that most people, most of the time, and most anywhere, wish to see their purchasing power increase and are pleased when that occurs. Having said that, however, one must also go on to say that particular circumstances can modify or even overwhelm any purely statistical measure of economic well-being. Both poverty and affluence can have ambiguities that escape the strictly economic perspective.
It is an observable fact that not all people who are statistically poor are everywhere equally miserable or have an equal sense of being "badly off." The past and the future always shape our sense of the present. So much, therefore, depends on the hopes one may have for one's children, the faith one may have in the ultimate benignity and "fairness" of Providence, on the assurance and solace one may derive from traditions. Poverty does not always dehumanize, and relative affluence can have its costs in human terms -- costs that are actually, if often dimly, felt. Anyone who has seen Fiddler on the Roof and contrasted the lives portrayed there with the lives of Jews in Long Island's Great Neck today, will appreciate the immense difficulties involved in disentangling economic well-being from other kinds of well-being.
Similarly, on the street where I lived until recently there was a Chinese family, recent immigrants, who ran a basement laundry. The parents and their five children shared the two tiny rooms at the back of the tiny store, and I shudder to think what this family did to our official poverty statistics. Still, those parents expressed great confidence that their children would "get ahead" -- and, in fact, all five ended up as college graduates. Ought not one to incorporate that prospect in any estimate of the family's economic well-being? In contrast, on that same street there were several welfare families whose incomes, in cash and kind and services, may well have been larger than that of our Chinese family, but who were in various stages of a dependency-induced corruption, with little family stability and with the children involved in drugs and delinquency. Would an increase in their welfare receipts really have improved their economic well-being? If it had merely accelerated their demoralization, how would that relate to economic well-being?
Or, at the other extreme, take the case of a statistically affluent suburban child who has every advantage, as we say, but who comes to experience those advantages as bars in a "gilded cage," to use Max Weber's prescient phrase. He perceives the improbability of his surpassing his successful father in either economic or professional terms. He finds family and community life empty of meaning, and school a distracting bore. So he "drops out" of the world he was born into and becomes a "bohemian," a pseudobohemian, or a drifter, living -- perhaps placidly, perhaps miserably -- off handouts and odd jobs. What meaning are we to ascribe to the statistics of his economic well-being, before and after? When affluence can demoralize as vigorously as poverty, can we take the statistics on economic well-being with the solemnity that economists are naturally inclined to do?
And, of course, this matter becomes infinitely more complicated if we try somehow to incorporate the idea of economic equality into the idea of economic well-being, as so many economists think proper. Here, ordinary people seem to have an intuitive respect for existential complexities that economists often seem to lack. The intensity with which economists work out their Gini coefficients, and the subtlety with which they measure income trends in the quintiles or deciles of the population, is matched -- so far as I can see -- by the utter lack of interest of the average American in their findings. To some extent, perhaps, this is because those findings are never definitive -- every piece of research seems to give rise to an exercise in counterresearch, and the arguments soon unravel into microdisputations. But mainly, I think, it is because the average person is far less interested in economic inequality -- or is interested in it in quite a different way -- than is the average social scientist.
Why? One reason, I would say, is that the social scientist links the issue of inequality to the issue of poverty more rigorously than does the average person. It is certainly true that as a society becomes more affluent, the "poverty line," as popularly perceived, will also move upward. Today, for example, no one would dispute the fact that the absence of private, indoor toilet facilities -- an absence our grandparents would have found not at all shocking -- is a sure sign of poverty. On the other hand, the average person feels free to distinguish between needs and wants in ways that the average economist, qua economist, is prohibited from doing. People who have what are perceived to be minimally adequate food, shelter, and clothing may be seen as poor, but not as problematically poor, regardless of how far down they are in the income distribution. And if one looks at poverty in this way, then the percentage of the American people who qualify as poor is small -- well under 10 percent. A social scientist might retort that any such "absolute" definition of poverty is arbitrary, as compared with a definition in terms of relative income. But it is precisely this question to which economics can never hope to give an authoritative answer.
This popular perception of poverty is closely linked to a popular perception of opportunity -- specifically, the opportunity to move out of poverty. To the degree that poverty is not viewed as a necessarily permanent condition, it will be of less concern. And the average American is strongly of the opinion that, leaving the physically handicapped (in which one would include the elderly) aside, there really is no reason for anyone in the lowest quintile of the income distribution to interpret his condition as permanent, since opportunities for "bettering one's condition" will and do exist. It may be recalled that Adam Smith had earlier suggested that the modus operandi of a market economy is such that economic mobility -- and the eventual distribution of income as well -- would of a certainty be less unequal than in any other kind of society. The reason for this is that the talents requisite for success in such an economy are so mundane, and the role of sheer luck is so great, that economic mobility should be greater, and eventual economic inequalities less significant, than in noncapitalist orders. Americans on the whole tend to accept this thesis as a fact of life. Social scientists, in contrast, think it important either to prove or disprove this thesis by research.
I carefully say "social scientists" because sociologists are perhaps even more prominent in this endeavor than economists. It is they who have created a sizable library of ever more technical literature on the question of "social mobility," of which income mobility is the major component. It is an open question whether this literature provides more enlightenment than obfuscation. We do know, without benefit of research, that if economic growth tends to create new and better-paying jobs and occupations and professions (as it does), then the statistics will obviously reveal considerable upward social and economic mobility (as they do). But what sociologists appear to be worried most about is whether everyone benefits equally from these changes, and they do seem to be especially concerned as to whether those who are already in the top decile manage to hang in there. The statistical procedures of sociologists are such that one begins with a rigorously egalitarian definition of social mobility, one in which the children of upper-class parents are downwardly mobile, while their places are taken by the upwardly mobile -- a world turned upside-down indeed! -- and then measure the actuality in the light of this "ideal." The fact that there has never been such a society, or that the very idea of such a society is inherently absurd, somehow is lost sight of.
It is sociologists, too, who have popularized the concept of "relative deprivation," which is supposed to explain why people's views of their own economic well-being are inextricably intertwined with the idea of equality. Now, there certainly is such a thing as a sense of relative deprivation, but it turns out to have only a limited connection with the larger idea of equality and to be more intimately related to the idea of justice or fairness ("to each his due"). Thus, there have been innumerable strikes in the United States over pay differentials among workers ("equal pay for equal work!"), yet I do not recall a case of there being a strike over the chief executive officer's very high salary. If sociologists tacitly assume -- as practically all seem to do -- that a more egalitarian society is (and will be perceived to be) a more just society, that is an assumption which derives from ideology, not from history or contemporary experience.
And much the same is true, I would say, for the way in which -- and the intensity with which -- economists study income inequalities. One begins blandly with the premise that absolute equality is the ideal state and then one measures degrees of departure from this ideal. Yes, I know, there is nothing "normative" about such a statistical procedure -- it is merely a mathematical convenience that zero inequality is taken as the base for all measurements. But is it not odd that it is impossible to point to a study that breathes satisfaction (as distinct from Schadenfreude) at discovering an increase in economic inequality? This whole literature is as profoundly suffused with ideology as it is liberally bespattered with statistics.
What, really, is the point of this keen interest among economists and sociologists in the issue of inequality? There is precious little evidence to the effect that it responds to a widespread popular concern and much evidence to the contrary. Indeed, one gets the distinct impression that much of the research is directed toward "raising the consciousness" of the public about the issue -- and that the rest of the research is directed toward rebutting such "consciousness raising" efforts. It is hard to believe that even the most casual reader can fail to perceive the essentially ideological nature of this disputation.
My own view -- admittedly a bit extreme -- is that when you need an economist or a sociologist to bring you intelligence about inequalities of income or social class, that is in itself proof that neither issue is of serious concern to the citizenry. There are simply no "mysteries" to be elucidated about income inequality and social class, since there is no reason to think that common opinion, based on observation and experience and gossip, is likely to be self-deceiving about a matter of such interest to everyone. The very notion that such self-deception is probable derives from the Marxist idea -- an ideological conception of the role of ideology -- that bourgeois society is constantly at work instilling "false consciousness" into the populace.
At this point a social scientist might object that opinion poll data do reveal that people misconstrue the social and economic reality they inhabit -- that, for instance, households with incomes of $100,000 a year blandly report themselves to be "middle class." To this objection, there are two rejoinders.
First, if a $100,000-a-year household thinks itself to be middle class, then it is middle class. And the same is true for a $10,000-a-year household. What on earth gives social scientists the authority to dismiss such "subjective" conceptions of class and to impose a presumably more "objective" one? Here again we are dealing with a Marxist derivative that has been unthinkingly adopted by modern social science. Class may (or may not) find phenomenological expression, but at root it is a mode of self-definition. There are aristocrats in England who are as poor as church mice but are definitely "upper class." And there are immigrants to the United States who are also as poor as church mice but are definitely "middle class" from the moment they set foot here. The very thought that there is someone ("up there?") who knows better than we do what class we are in is as breathtaking in its intellectual presumption as it is sterile for all serious purposes of social research.
Second, when poll data reveal vast, apparent misconceptions about other people -- about how rich or poor they are, or how powerful or weak they are -- such data ought not to be taken too seriously. No economic, social, or political system could function for a moment if people actually had wildly unrealistic notions of their economic, social, and political reality. The interesting question here for social research is why people express such opinions and beliefs to pollsters, not why they have them.
My own explanation for the keen interest of social scientists in the nonobvious issue of equality is that this is but one manifestation of how nineteenth-century ideologies -- and most especially the socialist ideologies -- have so decisively shaped modern social science. Thus, it is my understanding that the National Bureau of Economic Research was itself originally founded, back in the 1920s, to take a serious look at the issue of economic inequality -- an issue then posed by socialist, quasi-socialist, or "progressive" critics who maintained that, under capitalism, the rich were getting richer while the poor were getting poorer. It was they who defined the issue -- and it is they who have been defining it ever since. It is fascinating to note the way in which research does not dispose of this issue. One might have thought, as the evidence accumulated to the effect that nothing very novel or exciting has happened to the distribution of income in recent decades -- and there is even evidence to suggest that nothing very exciting has happened in the past century -- that social scientists would simply lose interest in the question. They have not. Instead the studies become ever more sophisticated, ever more incomprehensible to the noninitiated, ever more "scholastic" in the pejorative sense of that term -- and they still don't bring us tidings of significance. The impulse behind such studies can hardly be designated as routinely "scientific."
It can, however, be quite easily recognized as "ideological." The prominence of the issue of equality, I should say, reflects the degree to which egalitarian, quasi-socialist conceptions of justice have permeated our culture, including the thinking of many social scientists who do not regard themselves as in any way socialist but who, as a matter of course, use the ideal of a socialist society -- classless and egalitarian -- as a proper criterion for the judging of capitalist reality. Of all the social sciences, economics has been the least influenced by this ideological impulse, in part because the discipline of economics is truly more rigorous than the other social sciences; in part because a respect for market processes is indigenous to the methodology of this discipline. But economists are human, and it could not remain unaffected. One has only to recall the ingenuity and persistence with which distinguished professors of economics elaborated quite fanciful justifications for the progressive income tax -- for which there is no economic, as distinct from moral or political justification, since it involves an interpersonal comparison of utilities which is beyond the scope of economics.
It is understandably irksome to many economists that the science of economics, strictly considered, should not offer answers to many important questions that appear to be economic in nature but in fact belong to moral and political theory. Indeed, we have witnessed recently a vigorous dissenting movement by advocates of something called "political economy" -- sometimes "normative economics," sometimes simply "radical political economy" -- who argue in favor of a candid union of economics with ideology. These are for the most part younger economists who are discontented with the limits of their social-scientific discipline and who wish to import into economics all of those intellectual and moral considerations that used to constitute the body of political philosophy when that discipline still flourished. (One such consideration is equality, as an ideal or nonideal for a good society.) One may sympathize with the moral and intellectual passions behind this movement while realizing they are destructive of the integrity of economics as a scientific discipline.
What it comes down to, in the end, is the need for economists to recognize their severe limitations qua economists. Economics has many useful and important things to tell us, but it really has nothing to say about the larger features of a good society, or about the status of equality or inequalities in such a society, and it only has something to say about "economic well-being" on a fairly narrow -- though not unimportant -- definition. Those economic statistics we are being deluged with do tell us something valid about the real world; but they often tell us less of the truth about the real world than economists are -- by virtue of their déformation professionelle -- inclined to think.
--Irving Kristol, 1980