Poverty, Inequality and Opportunity

Buried in President Obama’s Wednesday address on economic inequality lay this claim about the Affordable Care Act:

It’s the measurable outcomes in reduced bankruptcies and reduced hours that have been lost because somebody couldn’t make it to work, and healthier kids with better performance in schools, and young entrepreneurs who have the freedom to go out there and try a new idea—those are the things that will ultimately reduce a major source of inequality and help ensure more Americans get the start that they need to succeed in the future.

One assumes controversy ensues about the claims that Obamacare will lead to better performance in school and more entrepreneurship. Fair enough. The non-controversial pivot is supposed to be the assumption that these outcomes, if achieved, would reduce inequality.

But this is, strictly speaking, absurd. Such outcomes would likely increase inequality. What they would reduce is poverty. Opportunity has a way of doing both. The distinction is vital, and rhetorical imprecision—assailing inequality when what means to target is poverty—confounds the search for useful solutions to the latter.

The clearest distinction between the two, of course, is that poverty is an objective problem while inequality is not. Nothing about a disparate economic situation between two people reveals itself as inherently problematic. It is true—as, for example, Pope Francis’ recent exhortation on the subject argued—that social cohesion is a worthy goal, but economic inequality need not imperil this unless a vice, envy, is presumed or unless, as Theodore Dalrymple recently argued in this space, zero-sum scenarios are falsely presumed. (A further difficulty is the anthropomorphizing of economic “systems” and the consequent imputation of discrete and ill motives to them—another story.)

Note the lumping together of poverty and inequality in this passage from the President’s address:

Across the developed world, inequality has increased. Some of you may have seen just last week, the Pope himself spoke about this at eloquent length. “How can it be,” he wrote, “that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points?”

Now, in fairness, the Pope had spoken about inequality, but he certainly did not in this sentence. Inequality, a relative condition, is not deadly; poverty, an objective one, can be. The comparison of the stock market in this case is reasonable insofar as it indicates the skewed allocation of an actually scarce resource—public attention—without implying, at least explicitly, that one problem caused the other.

But simple conceptual confusion between poverty and inequality is less the difficulty than the fact that the profound tension between them requires, in a deep sense, a choice between the two. The most promising means of combating poverty almost certainly would increase inequality. Expanding access to technical skills, college education, entrepreneurial investment, even simple financial relief—all of these, whatever their merits, are not strategies for reducing inequality. They are likely to increase it, and for reasons that should give satisfaction: namely, that opportunity frees people to put it to different uses.

It will be shocking to legislators, but not to anyone who has ever attended a college commencement and heard the list of degrees announced, that the most pronounced inequality today obtains not among the general population but rather between the most highly educated workers.  Surely one explanation is the simple fact that highly educated workers have choices that unskilled ones do not. Some, quite admirably, become schoolteachers and social workers; others—also, dare one say it, admirably—become investment bankers and entrepreneurs. High school dropouts have no such choices, and therefore equality, and misery, is far likelier to obtain between them.

Consider, by way of further illustration, and for sheer sporting fun, George McGovern’s 1972 “Demogrant” proposal to give every American $1,000—much derided by conservatives, but actually traceable to Milton Friedman’s negative income tax (and a concept Charles Murray (link no longer available) has revived as a potential replacement for the welfare state). Whether this is an efficacious means of reducing poverty is open to reasonable debate—to the extent that poverty is defined, as Daniel Patrick Moynihan would say, as a condition of not having enough money, it would seem promising—but it is an utterly certain route to increased inequality. Assuming the most responsible behavior, savings all around, give everyone $1,000, invest it at even slightly different rates of return reflecting different attitudes toward risk, compound those over several years, and wild inequalities will ensue—but everyone will be objectively better off.

Nor will society be the worse off, unless, again, one assumes envy—which presumably the regime ought not encourage. What it ought to encourage is clarity as to the choices it faces. That clarity is unattainable so long as poverty and inequality are so readily confounded. The issue is not merely that one of them is an absolute problem while the other is, objectively not. It is that a choice between them is unavoidable—and ought not, for that matter, be resisted.