Home > Economics, Philosophy, Policy > I am the 99%…

I am the 99%…

November 2, 2011 Leave a comment Go to comments

Imagine my relief to confirm, upon using the IFS’s income percentile calculator, that I am not in the hated ‘1%’. I can go on with my diatribes about inept financial regulation and crony capitalism safe in the knowledge that I am not endangering my own kind.

However, all the IFS figure says that I am not in the 1% of all households in the UK. But why is that the morally relevant measure of income inequality? I have written before about the fallacy of analytical nationalism; that using the nation-state as the unit of analysis can produce misleading results. My suspicion is that I would be in close to the top 1% of the European Union as a whole,  the top 0.1% of the world and probably the top 0.0001% of all human beings who ever lived.

What I also suspect I am in is the top 1% of 23 year olds in the UK, and probably of those under 30. For my ‘life stage’, being a second-year associate at a strategy consultancy is one of the more lucrative gigs in town. Suppose for the sake of argument I earned the median household income in the UK – under an ‘egalitarian’ system should my income be redistributed? On the one hand, I would be earning the median income. On the other hand, earning the median income when you are 23 is doing considerably better than other people your age.

On the other-other hand, I also work significantly more hours than the median employee – should this be taken into account? As Tyler Cowen once observed in an excellent essay that I’ve linked to before:

“The funny thing is this: For years, many cultural critics in and of the United States have been telling us…We should be less harried, more interested in nurturing friendships, and more interested in the non-commercial sphere of life. That may well be good advice. Many studies suggest that above a certain level more money brings only marginal increments of happiness. What isn’t so widely advertised is that those same critics have basically been telling us, without realizing it, that we should be acting in such a manner as to increase measured income inequality. Not only is high inequality an inevitable concomitant of human diversity, but growing income inequality may be, too, if lots of us take the kind of advice that will make us happier.”

I’m sure there are plenty of people I know who could do my job but would hate it, and much rather earn less money and work a lot less. That’s a perfectly reasonable preference to have, but I don’t see why it should be rewarded in the tax code (as it effectively is).

I also know people who are considerably wealthier than I am but have very little income. They’re called ‘retirees’. Should my income be redistributed income to them? And if we’re going in for redistribution of income by money transfer, surely the money should go to those in need regardless of where they are born?

I guess what I am trying to say here that inequality is complicated. Changes in measurements such as the Gini coefficient can reflect injustice, or they can reflect structural changes to society (such as an aging population). Furthermore, even if I had decided to do a Philosophy PhD instead of being a consultant and had zero income, I would still have had the option to take a high-paying job. That option is a form of wealth, even if I had chosen not to exercise the option. You can’t measure the option value of people’s skills, so you can’t measure the inequality and of course can’t tax it.

When we’re thinking about the kind of society we want to live in, it is often very difficult to map that vision onto hard data. For example, did you know that wealth inequality is higher in Sweden (Gini coefficient 89) than Canada(75), Finland(68), Germany(78), Italy(61), the UK(66) and the US(81)?* This is obviously less of a worry if you have an extremely generous government safety net, but nevertheless ‘the data’ says what it says.

And finally, when we talk about minimising inequality, how do future persons come into the equation? Obviously, by promoting economic growth you are thereby promoting intergenerational inequality. If you are one of those who worries, erroneously, about foisting society’s debts on our grandchildren, take comfort in the fact that they are likely to be richer than you are. Also, when contemplating the trade-off between equality and economic growth which almost certainly exists, bear in mind that growth compounds. If real wages rose by by 2% instead of 1.5% over the next 50 years, that translates to real income being 30% higher in 2061 – a massive difference in standards of living.

My belief is that a significant proportion of the wealth accumulated by the world’s wealthiest citizens is the result of systematic injustice. However, I have not inferred this from the data, but just by looking at how our financial system works. For example, large and interconnected firms are operating with an enormous de facto subsidy from the government for irresponsible behaviour. Whatever ‘distribution’ of wealth or income that comes out of it is unjust because the system is inherently so. I therefore welcome my technical membership in the 99%, but would encourage my fellow members to constantly reflect on what really matters when it comes to injustice.

*It looks like this is largely a function of a significant portion of Swedish households having negative net worth. My instinct would be to link this to the incentives created by the welfare state, but that’s a subject for another time

Categories: Economics, Philosophy, Policy
  1. November 9, 2011 at 12:56 am

    “trade-off between equality and economic growth which almost certainly exists”

    In prosperous countries, this is false. Faith-based belief. Okun was wrong. There are certainly equality-promoting policies that can hurt growth, particularly short-term growth. But many others promote it, especially long-term.

    Compare countries, compare U.S. states, compare periods for multiple prosperous countries or states. There’s both facts and theory to back it up.

    http://www.asymptosis.com/wealth-equality-and-prosperity.html

    http://www.asymptosis.com/equality-and-prosperity-can-we-have-both.html

    http://www.asymptosis.com/wealth-and-innovation-the-freedom-to-do-cool-shit.html

    And once we go beyond GDP as a measure (it’s got really big flaws), we find that high inequality in prosperous countries correlates very negatively with well-being.

    Finally, I’d like to point out that every thriving, prosperous country in the world engages in massive amounts of redistribution. Without exception.

    If libertarian ideas about redistribution were in fact so economically efficient, wouldn’t we expect to have seen at least one large country adhering to those principles emerge, and surge ahead of all the rest? At least one?

    Hasn’t happened. Instead we hear proposals for seasteading. You go girls.

    Is that libertarian paradise in fact a literal utopia (no land)? We all know how planned utopias have turned out over the centuries.

    I think this explains why Wilkinson went the direction he did. Smart boy.

  2. November 9, 2011 at 8:09 am

    Hi Steve, welcome to the blog! You are quite right to point out that not all policies that promote equality hurt growth, and that equality may be in some way conducive to a more vibrant economy (Steve Waldman made this point on his recent post on negative real interest rates). Mea culpa, and I will not be so overly simplistic in future. However, what I would say I am not persuaded by the graphs, and I suspect you would find is that both the coefficients and the t-stat on those correlations are extremely low. What the graphs do reflect is that high government spending is not the giant economy-killer that causes people to want to build their own nations on a boat. If anything, I would say that within the ‘libertarian movement’ far too much emphasis is placed on basic rates of tax and welfare spending than other aspects of libertarian policy.

    • November 9, 2011 at 4:09 pm

      Thanks for the response, Richard. Agreed.

      My feeling is that Freedom’s just another word for having money, and it disappoints me when libertarians support and promote a system that funnels and pumps money — hence freedom and liberty — from the masses to the incumbents on top.

      Freedom and real, *widespread* opportunity to climb the ladder, to do better than your parents did? That’s what we really want, right? Here’s just one study, but they all say the same thing:

      http://www.asymptosis.com/pubs-and-economic-opportunity-not.html

      Think: not (just) safety net, but platform, springboard.

  1. November 12, 2011 at 12:46 pm
  2. December 9, 2011 at 3:50 pm

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