Is Inequality a Problem?

Advocates for economic equality face the inconvenient political fact that, as a metric, inequality serves as a poor proxy for actual need or injustice. Americans, for example, generally support some version of the welfare state not because they want to bring down the rich, but rather out of concern for the needs of poorer folk who face hunger, homelessness, and truncated life prospects. Americans do not generally object to the relative inequalities that result, say, when someone becomes rich by inventing a new consumer good that the rest of us want to buy. Americans don’t even object to inequality that results from luck. While John Rawls may have fretted about inequalities from winners and losers in “life’s lottery,” simply consider that 45 U.S. states made policy decisions to hold actual lotteries (as do almost all Western nations) through which lucky winners get rich despite not meriting their new wealth relative to any of the other players. Americans don’t resent lucky winners, they envy them.

In his new book, The Return of Inequality, sociologist Mike Savage wants to change the West’s agnostic toleration of inequality into manifest opposition. The problem with inequality—and Savage is explicit about this—is not the challenges faced by poorer people. Rather, for Savage, the mere fact that some people are much richer than the rest of us is itself an offense—an offense that requires rich people be knocked off their pedestals. He argues for the need to “turn the telescope” away from poverty and to focus on wealth itself “as a social problem.”

Poverty or Inequality?

Savage is explicit that his goal in concentrating on the top—the wealthy—rather than the bottom is to make abstract inequality the political and policy focus rather than poverty.

The relativizing move [from measures of poverty to measures of relative inequality] is crucial, because it moves the focus away from poverty as a simple brute fact and situates it in a broader framework of inequality whereby its meaning and significance is associated with wider social values and expectations.

Savage seems to think that a concern for the poor rather than for inequality in the abstract results merely from how policy issues are framed.

In previous centuries, underlying concerns to address inequality were redirected toward those at the bottom—those whose state of poverty marked them out as lacking sufficient resources to live an adequate life. There is great moral nobility in this concern to alleviate the situations of those in various states of destitution. Nonetheless, this approach leaves out one key aspect of inequality: those in poverty are not contrasted with the fortunes of the privileged, such as top earners. Rather, it is the concern with overcoming scarcity that has defined dominant social science paradigms during the twentieth century.

Savage seems oblivious to the possibility that most people just don’t think there’s as much “moral nobility” in taking from the rich simply because they’re rich as there is in taking care of the poor simply because they’re poor. Savage wonders why the mass public is not “bothered” by abstract inequality: “How do we make sense of this paradox that political protest against inequality appears to be muted at the very time when inequality has been trumpeted by elites as an entrenched social problem.”

Note the irony in Savage’s report that it is economic and social elites who “trumpet” inequality as a social problem rather than those in the lower parts of income and wealth distributions. Savage suggests this puzzling phenomenon—that affluent elites are more disturbed by economic inequality than are less affluent masses—results from a “lack of faith in the prospect of progressive social change” among those elites. But that still doesn’t explain the asymmetrically greater concern among elites than among the broad public. I would flip Savage’s explanation: It is precisely because the broad public lacks faith “in the prospect of progressive social change” that they do not broadly support redistributive measures unhinged from concrete social problems like hunger and homelessness and aimed only at decreasing abstract economic inequality.

Rather, it is America’s economic and social elites who have faith in the possibility of the success of a massive governmental initiative to redistribute wealth in the U.S. and other developed nations. The broad public is perhaps more circumspect, if not realistic, about the probable consequences of purposefully redistributive policies, at least on their lives if not the lives of socioeconomic elites.

Be that as it may, if the popular and scholarly focus were on the wealth of the top one percent rather than the penury of the bottom ten percent, Savage contends, then economic inequality would receive the same care and attention that poverty now receives around the globe.

The alternative explanation that Savage misses, however, is that perhaps publics are actually more concerned mainly with people having enough to eat, and having a roof over their heads, and access to schooling and health care than they are with the rich getting the pick of the best “baubles and trinkets” (as Adam Smith put it).

He even expresses concern that recent successes at poverty reduction will result in his concerns with abstract inequality remaining unaddressed:

[W]hat do we make of the fact that inequality has risen to the top of the agenda at the same time that economic growth in many parts of the world has reduced poverty to its lowest level in recorded history? Is there a danger that inequality seems like distant and irrelevant bleating to the many people around the world whose economic and social situations have actually been improving, sometimes substantially? Is it simply the latest manifestation of a liberal elite bubble mentality . . .?

Savage here is referring to the fact that in recent decades “extreme poverty” throughout the world has seen a stunning decrease, with over one billion people moving out of that category. Even Oxfam describes the achievement as a “staggering success” and “the fastest reduction in poverty in human history.”

To be sure, the COVID pandemic and policy responses to it have almost certainly delayed, if not reversed, this progress, at least in the short run. There is no reason, however, to think that progress will not resume when the pandemic passes.

Globalization and Inequality

While noting this impressive global achievement in passing, Savage focuses most of the remainder of the book predominantly on inequality in Western countries. Savage, like Piketty in his Capitalism and Ideology, ignores the interconnected story between the reduction of extreme poverty in lesser developed countries and the rise of inequality in Western countries.

Inequality is growing in developed countries as a necessary, if transitional, concomitant to extreme poverty decreasing in less developed countries.

“Globalization” results in large measure from lower costs to labor and capital mobility between nations, and lower costs of international trade. Lowered costs to labor and capital mobility essentially mimic the consequences of lower trader barriers.

What is often missed analytically is that different national economies respond differently to this increased mobility. That is, the economic experience of Western and developed nations with globalization over the last two decades is not the same experience as lesser developed nations, even as those experiences are necessarily interconnected.

The Stolper-Samuelson theorem in economics accounts both for increased returns to capital in developed nations in response to globalization and concurrently increasing wages for labor in lesser developed nations. Briefly, the theorem holds that in different nations, decreasing costs to trade will disproportionately benefit the relatively abundant factor of production in a nation while hurting the relatively scarce factor. In developed nations, capital is the relatively abundant factor and labor is the relatively scarce factor. So capital owners will get richer, while wages will stagnate relatively, or even decrease. But in developing nations, labor is the relatively abundant factor and capital is the relatively scarce factor. As a result, wages will increase in developing nations at the same time they stagnate in developed countries. The upshot is that the staggering reduction of extreme poverty throughout the globe is the flip side of the same process that generated staggering returns to capital in developed nations.

At the same time, the explanation includes its own time horizon: there is a lower bound to cost reductions in labor and capital mobility. Once these work through the system, the changes will stabilize for both capital owners and labor.

In drawing on Piketty as he does in much of the first third of the book, Savage simply repeats the weaknesses of Piketty’s analysis: First, inequality is growing in developed countries as a necessary, if transitional, concomitant to extreme poverty decreasing in less developed countries. Piketty (and Savage) focus on inequality in the developed nations and, after passing mention, all but ignore the flip side of dramatically reduced extreme poverty in developing nations. Secondly, developed nations—including left-liberal parties in those developed nations—knowingly turned away from the more extreme redistributive policies of the 1950s and 1960s because their costs in lost economic growth and prosperity were greater than the policy gains. If one thinks the middle class hasn’t done too well since the 1970s and 1980s with the very modest “neoliberal” adjustment of those decades in the mixed economies of the West, the middle class would have done even worse without that adjustment.

Savage does not rely only on Piketty, however. In the second part of the book he draws heavily on Richard Wilkinson and Kate Pickett’s analysis in The Spirit Level: Why Greater Equality Makes Societies Stronger. Savage tells us that The Spirit Level answers the “‘so what?’ question—why inequality matters.” What Wilkinson and Pickett purport to demonstrate in their book is that inequality causes a welter of health and social problems.

It is a mark of the paucity of the evidence that inequality per se is something to worry about—as opposed to things like hunger and homelessness—that Savage relies on Wilkinson and Pickett’s flawed and tendentious book. There are careful reviews dismantling the book’s claim (here and here, among others).

To take just one example, consider Wilkinson and Pickett’s claim that inequality per se causes poorer health outcomes. Writing in Population and Development Review, Christian Bjørnskov reports scholarship showing that “once either average income, the number of physicians per 1,000 people, or average calorie intake per day is taken into account, the result that income inequality correlates with life expectancy at birth disappears.” Further, given the relatively small number of countries considered, outliers—particularly the U.S. (on the side of inequality) and Japan (on the side of equality)—by themselves result in many of the observed associations reported by Wilkinson and Pickett, associations that disappear once the single country is removed from the data set (or when the data set is expanded beyond a small set of nations).

In seeking to make a silk purse out of a sow’s ear, Savage refers to the “symphonic, social science visualization” in Wilkinson and Pickett’s book as offering a “vital vantage point” powerfully combining “the generalizing power of numerical arrays with the narrative sweep of the humanities.” What he refers to here is the singular reliance of Wilkinson and Pickett’s argument on graphical representation. To be sure, graphical representation can be very helpful in presenting abstract statistical findings. The graphs aren’t the problem. The problem is that the graphs are presented as arguments without associated statistical tests, such as confidence intervals (which give readers a sense of whether outcomes result from random chance), or robustness checks for the disproportionate impact of outlying countries on the computed trend lines.

There are many reasons to be morally concerned about the distribution of wealth and income in societies: rent-seeking, rentier states, the distorting privileges of state-backed cartels, even the continuing effects of political-economic transitions from communism to private property systems (in which the last communists became the privileged first capitalists), or even implications of earlier transitions from mercantile and feudalistic economic systems. Even more basic are the moral concerns that everyone has enough to eat, or live in habitable housing. Nevertheless, it is not abstract inequality that is the problem. It is the injustice of the state-provided privileges, and concern about access to basic necessities required for human flourishing. Savage thinks that it’s only a matter of how the argument is framed. But he doesn’t get it. People may envy the rich. But as long as minimal thresholds required for human dignity are broadly met in society, they do not resent the rich merely for being rich.