Thursday, February 6, 2014

Inequality Myopia

President Obama says that growing inequality is “the defining issue of our time.” Several Democrats have said that inequality will be their primary campaign theme for the 2014 election season.

If the president is correct, and if the inequality strategy spells success for Democrats, it will be because of a total distortion and over simplification of the meaning of inequality.

At least in their rhetoric, Democrats have made equality their number one priority. It has become more an obsession than a policy objective. Mother Jones contributor Kevin Drum writes, “The heart and soul of liberalism is economic egalitarianism.” According to Jon N. Hall, “For progressives, equality is an end in itself, and a higher value than freedom, happiness, or prosperity.”

Furthermore, liberals have a one-dimensional vision of equality. Virtually the only kind of inequality they ever address is income inequality. The human experience, however, is multi-faceted.

If it were possible to create conditions that would result in equal incomes for all Americans, there would still be wide differences in intelligence, athletic ability, health, ambition, and beauty, just to name a few. If we all had equal incomes, we would not all magically feel equal. Equality of incomes does not equal equality, and equality does not equal fairness.

For liberals it is an article of faith that income inequality is increasing in America. They cite statistics indicating as much. Nevertheless, those statistics are themselves over-simplifications. Such statistics usually hide at least as much as they reveal. Economist Walter Williams observes that “Most of what’s said about income inequality is stupid or, at best, ill-informed.”

For the sake of discussion, however, let’s grant that income inequality is increasing. One of several changes offsetting much of that kind of inequality is a countervailing decrease in consumption inequality.

Historian Victor Davis Hanson, for example, in a column titled “Every Man a King” notes that “Three-bedroom, two bath suburban houses of the 21st century are warmer in winter, cooler in summer, and with far more appliances and comforts than the vast mansions of the rich of the mid-20th century. In sum, Americans are richer, healthier, and have more options than at any time in their history — and in ways that do not register in our outdated metrics of what constitutes being wealthy or poor.”

Virtually every American who wants one has a smart phone. Smart phones open a vast array of alternatives to everyone who has one, especially access to information, an extremely important resource. That universe of choices is essentially the same for everyone regardless of income.

What’s true of smart phones is true to some degree with a large number of other consumer products that have generally increased in quality, variety, and decreased in price. Joseph Schumpeter pointed out that affordable, low-priced washing machines benefit low-income persons far more than upper-income persons.

In regard to impact, consumption is clearly more important than income. Consumption is closer to the ultimate objective — human comfort and satisfaction. Increasing consumption equality deserves a greater weight than decreasing income equality.

Another especially important non-income dimension of inequality is what’s been happening to life expectancies. In an paper titled “Mortality Inequality,” University of Chicago economist Sam Peltzman points out that “The typical income inequality measure leaves out an important dimension: the length of time over which an income or consumption stream is enjoyed.” Rather than focusing only on income inequality, Peltzman uses the term “social inequality.” He found that “Unequal longevity was once a major source of social inequality, perhaps even more important than income inequality, for a long time. But over the last century, this inequality has declined drastically in high-income countries and is now comparatively trivial.”

Life expectancy for Americans born in 1900 was 47 years. It is now 78 years. How much is living an extra 31 years worth? Longevity has increased far more than at any previous time in history, and there is much less inequality of longevity.

According to Peltzman, “The largest contributor to this narrowed gap — and thereby to reduced mortality inequality — has been dramatically reduced infant and early childhood mortality.”

The probability that an infant born in a developed country today will survive to his or her fifth birthday exceeds .99. This is in sharp contrast with much of human history. For example, in the mid-19th century, 23 of every 100 U.S. infants born did not reach their first birthday. Another seven would die before reaching age five.

In other words, 160 years ago, 30 percent of newborns did not live past age five! There is probably no greater source of heartbreak and tragedy than the death of a child. The dramatic reduction of that event is an incalculable social benefit.

Peltzman also points out that, “Even in less developed countries, like Brazil or India, mortality is more evenly distributed today than income is distributed in an advanced welfare state. Inequality of lifetimes is well along in a historical transformation from a major source of social inequality into a minor one.”

The generally accepted summary statistic for inequality is the “Gini Coefficient.” For “lifetime inequality” the Gini Coefficient for the U.S. has dropped from roughly 50 in 1850 to about twelve in 2010. Proportional declines have occurred worldwide. In other words, the degree of mortality inequality is less than one quarter what it was 160 years ago. It would be hard to exaggerate the significance of that change.

Anyone who makes sweeping statements about increasing inequality is being deliberately blind to such enormously important countervailing factors. A longer lifespan correlates more closely with human happiness than higher incomes. Which would you rather have — a 40 percent increase in your income, or a 40 percent increase in your life expectancy? It’s not a close call.

Democrats and the left focus virtually all their attention and concern on inequality in America, not global inequality. If they expanded their focus, it would do further damage to their claim that inequality is increasing.

A World Bank report issued last year concluded that “Extreme poverty in the world has decreased considerably in the past three decades. In 1981, more than half of the citizens in the developing world lived on less than $1.25 a day. This rate has dropped dramatically to 21 percent in 2010.… Extreme poverty headcount rates have fallen in every developing region in the last three decades. And both Sub-Saharan Africa and Latin America and the Caribbean seem to have turned a corner entering the new millennium.”

Decreasing global poverty is at least partially the result of “globalization,” although you will rarely hear about any positive aspects of globalization from the left.

Exaggerating and over-emphasizing negative news while ignoring positive news is not a harmless endeavor. The Bill and Melinda Gates Foundation just released “The 2014 Gates Annual Letter.” They title it “3 Myths That Block Progress for the Poor.” Here is how they summarize their letter:

By almost any measure, the world is better than it has ever been. People are living longer, healthier lives. Many nations that were aid recipients are now self-sufficient. You might think that such striking progress would be widely celebrated, but in fact, Melinda and are I are struck by how many people think the world is getting worse. The belief that the world can’t solve extreme poverty and disease isn’t just mistaken. It is harmful. That’s why in this year’s letter we take apart some of the myths that slow down the work. The next time you hear these myths, we hope you will do the same.

That’s excellent advice. I wonder, however, if the Gates have asked themselves why there are so many people who think the world is getting worse? It’s in large part because creating the myth serves the purposes of liberal politicians.

Inequality is not totally a myth, but everyone is not equally concerned about it. The degree of concern is primarily a function of envy and resentment. Those are widespread and powerful human emotions. Demagogues throughout history have played on those emotions to gain power and achieve their objectives.

However, envy has never been considered a virtue and has been strongly condemned for thousands of years. It is one of the Seven Deadly Sins. The Tenth Commandment is “Thou shalt not covet.” Saint Thomas Aquinas described envy as “sorrow for another’s good.” In Dante’s Purgatory, the punishment for the envious was to have their eyes sewn shut with wire “for having gained sinful pleasure for seeing others brought low.”

In a number of speeches President Obama has referred to “millionaires and billionaires,” with contempt and resentment practically dripping from those words. The resentment toward “the one percent” is driven primarily by envy rather than actually wanting to do something for the poor. Envy is not a sound foundation for public policy. The left apparently is bothered more by the existence of rich people than by the existence of poor people. They subscribe to the absurd belief that wealth causes poverty.

The “War on Poverty” recently marked its 50th anniversary. It is more than coincidental that since 1965 the number of babies born to unmarried mothers has increased from 3.1 percent to 40.7 percent. The welfare state reduces the disincentive for having children outside marriage. Basic economics tells us that when you reduce the price of something, you’ll see more of it.

In a column titled “How to Fight Income Inequality: Get Married,” Ari Fleisher pointed out that “In families headed by married couples, the poverty level in 2012 was just 7.5%; those with a single mother: 33.9%.” Insofar as income inequality has increased over the past half century, a large portion of it could be explained by the increase in single motherhood.

When it comes to addressing the issue, Democrat policies increase the amount of inequality rather than reduce it. Inequality is a problem liberals would rather hype than solve.


Inequality Myopia February 6, 2014

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at

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