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Helping the Poor versus Reducing Inequality

There is so much talk these days about the importance of reducing income or wealth inequality. But to me, reducing such inequality is at best something of secondary importance. The primary value is helping the poor.

Unfortunately, many people do not even perceive a difference between these values. I regularly see people asked about helping the poor and they respond by talking about income inequality. So it might be useful to review some old truths. While I don’t regard the points in this post as terribly original, sometimes it makes sense to repeat old truths, especially when these truths are ignored by so many.

Helping the poor is an important value. People who have low income often do not have access to much of what is valuable in life. Income inequality is far less important. To me, the question is how much income a person has rather than the degree of inequality of the distribution.

To see this point, imagine we have two distributions. In distribution 1, the poor have more money than they do in distribution 2. But distribution 1 is less equal because the middle class and the rich have significantly more money in distribution 1 than in 2. It seems clear to me that distribution 1 is superior from the perspective of the poor (as well as the other income groups).

Interestingly, favoring distribution 1 is in accord with Rawls’s difference principle. Since the worst off are better off under distribution 1, one should favor it. The harder questions are whether one should favor a distribution under which the poor are slightly worse off, but that leaves the middle class and the rich much better off. The answers here are not clear, although the value of helping the poor would favor the former distribution.

What are the arguments for reducing inequality? The two most important are the dislike of inequality and equal political power. Under the first, people dislike that others have more money than they do and so a consequentialist (like me) might favor less inequality. But I don’t believe that people in the US (at least) display that kind of dislike or envy. People might resent their colleague who has a bigger office or a neighbor who has a nicer house down the street. But they don’t tend to dislike the Bill Gateses of the world. In fact, they tend to have favorable opinions of the superrich as celebrities.

Another argument is that income inequality leads to inequality in political power. This is a bigger problem, since it potentially involves coercing poorer people to enrich the more powerful. But while each individual rich person might have more influence than each individual poor person, it is not clear that they have undue power. Rich people, especially the superrich, pay far more in taxes than the poor. And as John McGinnis notes, the superrich disagree about ideology.  It may be that corporations and labor unions have undue influence, but measures to address income inequality won’t necessarily help with that.

Significantly, actions to address inequality often lead to lower welfare—for both the rich and for the poor. Most actions to address inequality—such as high tax rates—serve to create incentives that reduce wealth. This aspect of government policy should be taken into account in the examples above about distribution—so that more equal distributions might provide fewer resources to the poor. But people often assume that actions to address inequality will not harm the poor, even though they do. For example, while there is outrage about the super profits that some innovators make, Nobel Laureate William Nordhaus showed that innovators secure less than 3 percent of the gains that their innovations produce for the public. Discouraging such innovation would not be desirable. Thus, it is the combination of economic ignorance and a strong desire to reduce income inequality that is deadly—to the poor and to society.

Reader Discussion

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on February 13, 2019 at 10:11:25 am

In ages and places where "inequality" meant (means) that masses of people are starving (literally; none of this "food insecurity" nonsense), then coerced redistribution from the better-off had a sound moral foundation. With that evil of human history largely eradicated (like polio and leprosy), the moral foundation no longer exists, which is why Rappaport had to list "dislike" as the most morally pressing reason, which is neither moral nor pressing.

Credit where credit is due: the efforts of feminists and civil rights activists through the 1970s made a country that already featured the greatest opportunity for individual prosperity and advancement even more great in that respect. Millions upon millions of people in the world who are truly poor, or far closer to true poverty than any American, continue to migrate here, legally or otherwise, for that very reason.

Equality, like a true market economy (if I recall Polanyi correctly), is an artificial state; it can be achieved and maintained only by force. It is the antithesis of liberty. There is no need to reduce the matter to one of mathematical welfare models: forced equality is simply tyranny by euphemism, and is morally wrong in an absolute sense. The fact that people who "dislike" it may commit political violence in its name is neither here nor there; progressives commit violence every day, for any reason or no reason, it is just how they are. "Power," too, is a symbol, not a real entity; unquantifiable, unqualifiable; undefinable; unmeasurable. Both words are merely trojan horses carrying envy, resentment and sheer will. All of us need objects for our wills. For some, those objects are economic in nature: a person spends his life improving his economic condition to the point where he is satisfied, and some are satisfied by less wealth than others; to each his own. For others, the only objects that satisfy their wills are other people whom they need to dominate; inequality, power, social justice--all such language is mere fashion; or at least it is in a time and place such as ours.

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QET
on February 13, 2019 at 10:44:05 am

Good article and a point that needs to be repeated. My only disagreement is in "..people in the US [don't] display that kind of dislike or envy. ..they tend to have favorable opinions of the superrich as celebrities." Sure, Bill Gates is a folk hero as are highly paid atheletes. But there is great resentment of the Wall Street types , which is who the Elizabeth Warren types want to bring down, at least in their populist rhetoric. This is what dominates the political discourse and drives the movement. The welfare of the poor is secondary. It's a (push the) top down mentality and not (pull the) bottom up.

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Scott Smaller
on February 13, 2019 at 10:51:31 am

You can easily see who is motivated by altruism vs envy by asking the following:

If a state of affairs could be arranged by which the poor were made absolutely better off, yet the middle class and the rich remained with unaltered economic outcomes, would you support it?

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OH Anarcho-Capitalist
on February 13, 2019 at 11:15:58 am

[…] Mike Rappaport argues that “it is the combination of economic ignorance and a strong desire to…” […]

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Some Links - Cafe Hayek
on February 13, 2019 at 11:28:09 am

Interesting piece and thanks for it. Nice reading.

But which comes first: poverty or inequality? As I see it, there are systems and mechanisms that generate and perpetuate inequality, and thus poverty. Poverty is then passed on from one generation to the next because it rewires the brain.

Inequality must be addressed first or we will fail to reduce poverty - and the share of poor people in a given population - significantly.

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Ramesh Gampat
on February 13, 2019 at 11:41:57 am

The current concern about income inequality, outside of the shallow trendiness that uses it as a talking point, is that income inequality reflects a broken free market.

In a strong free market you will have a few very wealthy Edisons, etc. that contribute so much to the economy and nation as a whole that their contribution is reflected in their own wealth. But overall you will not have a huge variation in income -- there will be some. A manager may make four times more than a worker, etc.

What we have now is a situation where a segment of the population is making wildly more than your average Joe doing work that is not much more productive or contributive -- and sometimes is counterproductive. In addition, those large salaries very often are government connected, so that we are becoming a nation with an overclass of those able to get fairly useless government jobs at fairly high pay.

For exqmple, the average pay at the federal Department of Education (an agency the Constitution does not even allow for) is over $50,000 a year. The average for a high school principal is $90,000 a year. DMV manager in California makes $75,000 a year.

The average salary for a truck driver -- the guys that bring most of our stuff to us -- is around $50 a year; teachers aides, the ones that do the classroom grunt work, make about $25 a year. Walmart clerks make $10 an hour, pizza delivery guys make $8 and hour, while DMV clerks make $15 an hour.

The reason disparity rankles is not envy, it's because it seems to reflect our screwed up national priorities. No one resents an engineer making $100,000 a year while a waitress makes $30,000. But if you have an engineer who designs toasters that are made in China and break within a week of purchase who makes $250 a year and a waitress that does hard work getting people fed making only $20, that's a reflection of a national problem.

This is related to the second point about political power. We have developed an overclass of, essentially, bureaucrats who are connected with government and able to perpetuate and extend their reach, wealth, and security. This is obviously the case. Some years ago we passed the mark where there were more government workers than workers in agriculture, construction, and manufacturing combined. This can be attributed to automation, but with our current tech situation most government work should be subject to automation, also. If you look at the stats, between one and two in every hundred working Americans works for a public school system. This is a serious problem for our economy and our culture, and it's a problem that touches on liberty, not material quality of life.

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Marie P.
on February 13, 2019 at 11:49:08 am

Actually, mobility between class levels is at an all time low, and drastically lower than it was during most times in American history. America was built on this mobility, the early colonial days saw a globally unprecedented ability to change your state in life and that ability became, as you note, a hallmark of the American culture. You can argue about why the change has come about -- many would say that we have enough of a meritocracy that the classes have just shaken down and settled (I would not). But Americans as a population (individuals are always excepted) are much more likely to die in the class they were born in than ever before.

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Marie P.
on February 13, 2019 at 11:53:59 am

True, but this largely driven by the perception that those "Wall Street types" both do nothing to particularly earn more money and harm the general welfare with their work. This is demonstrably sometimes the actual case, as we saw with the influence the mortgage market had on the economy at the start of the Great Recession.

Envy may be part of the root of it, but you don't see people angry at Richard Branson, who is perceived as being rich because he makes things (including companies). People are rich when they think a man is very rich because he moves money around (Americans have a tradition of distrusting the "money economy") without producing or facilitating and production; or when he is perceived as being rich because he or she is simply manipulating the economy (e.g. the Kardashians).

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Marie P.
on February 13, 2019 at 12:14:46 pm

[…] Source: Helping the Poor Versus Reducing Inequality […]

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Image of Helping the Poor Versus Reducing Inequality – Melvin Charles McDowell, Member of PA Republican State Committee, Representing Bedford County
Helping the Poor Versus Reducing Inequality – Melvin Charles McDowell, Member of PA Republican State Committee, Representing Bedford County
on February 13, 2019 at 12:30:44 pm

I'm not certain I understand your point. Class mobility, a highly abstract and constructed concept, is one thing. Poverty, inability to feed, cloth and house oneself, is another. That kind of poverty which was the bane of human societies since their inception, is largely overcome. Once you reach a state of society where everyone has enough food, clothing and shelter, masses of people no longer starving to death in famines or dying off in plagues, class theory becomes gratuitous; it ceases to explain anything. That people are dissatisfied is, now, nothing to do with any sort of historical materialism-based theorizing. It may be that people have not yet developed the ability to understand and express their dissatisfaction in an idiom other than the now-obsolete idiom of socialist materialist class theory, but it is evident that the words no longer accurately describe the reality. I am not denying the dissatisfaction; I am denying the validity of its explanation according to the traditional economic concepts used in the 19th and 20th centuries, "class mobility" being one of them. And in any case, government-coerced redistribution via taxation in the name of "equality" does nothing to ameliorate the class mobility phenomenon.

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QET
on February 13, 2019 at 13:21:26 pm

Don't read me through the lens of Marxism, that's not what I'm referring to.

One of the great revolutions America brought to the world was the idea that you were not locked into a future based on your family's past. Americans largely left behind the strict class structures of the artistocratic European nations, as well as the structures you see throughout most of the world (e.g. the castes in the East, etc.)

A strong feature connected to American liberty is that a man born to poverty can, with industry and moral action, bring himself into the middle classes or higher. It is also a feature, though less celebrated, that a rich man can lose his place and wealth through sloth or indifference. Americans have traditionally been optimistic and generous enough to hope for movement up for all, and we have often seen that.

Whether this is still the case is statistically measurable, although I recognize Twain's criticism that there are "lies, damned lies, and statistics". Argue the reasons, Americans are no longer moving up or down out of their class level, the numbers are pretty hard to dismiss. They generally say that about 40% of those born poor stay poor, and about 40% of those born rich stay rich. Those may not be alarming numbers, but they aren't traditionally American -- if you look at colonial times, for example, you are likely to see over 90% of those born poor moving up into the middle classes. In fact, you could say that the true middle class is largely an American invention.

Though this is a population statistic, the repercussions are for the individual. If you cannot hope to "better yourself" (or fear its inverse) then an entirely different mindset kicks in, one that I would say is distinctly anti-American. The problem of income inequality is not one of poverty or even at its root justice. It is a cultural one. If the United States becomes a nation of sharply divided and rigidly separated class levels, we become something we have never been and something antithetical to our founding culture and principles.

Income redistribution, as an aside, is actually counterproductive to fixing this problem. What you have with redistribution is everyone accepting that yes, we will have several rigid class levels, and we will avoid revolution and discontent by taking money (the least reliable indicator of class level) from one group and handing it to another to buy things. Elite classes with unearned wealth and position always pay the Danegeld to maintain that status quo.

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Marie P.
on February 13, 2019 at 13:25:53 pm

I think you are right.

The rigid class system that income inequality is a symptom of creates separate cultures within one nation and, yes, that rewires the brain.

The original and the revised "marshmallow tests" really demonstrate that well. For the middle class, it resonates that if you are patient and defer satisfaction you will gain more in the long run. For many in the lower classes, putting off an immediate reward for a long term reward means, in their experience, gaining neither.

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Marie P.
on February 13, 2019 at 13:58:48 pm

You are resting your case on concepts and categories that, in my view, are no longer apt. That they still have meaning to some people is because people are chained to them until others are developed. The world is in the process of such change as makes these class distinctions untenable. Not the least of the reasons for which is, that what we have all known and loved and imagined and conceptualized as "the middle class" is disappearing, and not because of billionaires.

I am referring to the USA. The "middle class" is growing spectacularly in India. In India, middle class is defined as people living on between $2 and $10 per day. Under the sort of conditions prevailing in India, "class mobility" is still possible, because the poor really are very very very poor by both relative and absolute standards, and the opportunities available there now really do enable people by effort to reach a $2 per day income level, and the difference between $1 and $2 is enough to radically change the conditions of one's existence. In the USA, going from $10K per year to $20K per year, while welcome, does not radically alter the conditions of one's existence here. And after a few more generations, that Indian mobility will also disappear.

Perceiving yourself as a member of the middle class requires that the class beneath you be readily perceptible as really less well off than you. You measure by that distance, not by the distance between you and the rich guy. And you perceive it in terms of goods, of stuff. In this country, where people classified as poor have much of the same stuff as you do, you will not feel middle class. We've all heard it many times--that middle class persons today have a higher material standard of living than did the rich of old. That fact bears directly on the obsolescence of the economic class categories. When you have adequate food, clothing, shelter; when you have other consumer goods--a car, a computer, a television, a microwave, a toaster, a refrigerator--then the idea of "bettering yourself" loses some stringency; it becomes much harder to formulate to yourself a notion of bettering yourself that goes beyond just having more money to buy more stuff.

The idea that the relative monetary income or purchasing power positions of economic units only first defined a century ago (or maybe 2; you reference colonial times; was the term "middle class" used then? I don't think so but maybe I'm wrong) represents an eternal fixed order, such that changes in it must be seen as pathological, is, I think, unsound. That people continue to think of themselves in class terms, and, in so thinking, work themselves up into a political froth, is not evidence that classes and mobility among them are still real in the sense they were 100 years ago.

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QET
on February 13, 2019 at 14:46:30 pm

I was taught an economist cannot make interpersonal comparisons of utility. Accordingly, every man is worthy of his hire, unless you are prepared to make earning an income by the sale of knowledge a crime.
.

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Martin Kessler
on February 13, 2019 at 14:59:38 pm

Within a free market, no?

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Marie P.
on February 13, 2019 at 15:17:03 pm

Very, very interesting argument.

Let me see if I can try to convince it is both overreaching and too narrow. I'll likely fail.

(I think the idea of a "middle class" was one formed after the class itself formed, yes, that would be my guess.)

First, I think you are too quick to dismiss the difference between 10K and 20K a year. The first is homeless and soup kitchens, the second is sharing an apartment and eating peanut butter. 20K and 40K is more common, and there's also a pretty big difference in lifestyle, and the same can be said of 100K to 200K. No, the difference is not a cell phone or no cell phone. Where it is material, it is largely perceived in terms of quality or type. A burner phone like my family uses, for example, has drastically less utility within the category of phones than a new iPhone does. Both serve the same purpose, and difference between a burner phone and no phone is obvioiusly much wider than that between the burner and the iPhone. But when you add the increased ease of use and reach of each item purchased of hundreds or thousands, you wind up with a very different way of life. We often don't perceive those differences because we tend to live around people like ourselves, but they are distinct differences. So if the core of your argument is that we are all middle class now (excepting a few outliers), I think that is overreach.

But I also would suggest that material goods and cash tallies are a small part of class distinction, at least in the West. What upper classes normally have is not more cash or more things, but more time, more opportunity, and more security. The difference between the 20K worker and the 200K worker is not so much the better phone or more of them -- it's the fact that the 200K worker has options if he loses his job, has retirement income coming, has the ability to send his children to college, has less fear of foreclosure. Even if he can't pay his mortgage a few months, the bank is less likely to foreclose on a half a million dollar home than on a hundred thousand dollar home right away, because it is assumed the mortgagee has more at stake in finding a way to pay the mortgage and more ability to find that path. (Of course, I could take a page from your book and say that in the current world people living in million dollar homes are not any more invested than those living in apartments, it is changing).

So I think that if you are arguing (I may be getting this wrong) that classes are basically withering away in the modern world, you are too narrowly defining class.

If we fall into defining class solely in terms of cash on hand then it seems to me we fall into the Marxist trap of thinking redistribution and equalizing of material quality of life, externally and artificially, is what makes a happy world.

Don't know if that was coherent, much less convincing, but thanks for the very interesting new ideas for me to consider.

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Marie P.
on February 15, 2019 at 00:30:11 am

[…] Helping the Poor Versus Reducing Inequality Mike Rappaport, Law and Liberty […]

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PowerLinks 02.15.19 – Acton Institute PowerBlog
on February 17, 2019 at 20:27:20 pm

Poverty is generally a personal problem that does not merit society's attention.

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Henry Miller

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