Inequality

Figure 19.12

In a comment to the post CORE – The Economy, Raghuram quoted from the book:

In November 2016, we asked students beginning economics at Humboldt University in Berlin, ‘What is the most pressing issue that economists today should address?’ Their replies are shown in the word cloud in Figure 19.12, in which the size of the word or phrase indicates the frequency with which that term was mentioned. Students in other universities around the world gave similar answers.

Inequality is, by far, the main problem that students think economics should address.

Click on the image above in case you wish to read the chapter on “Inequality” but it is not necessary for this post.

Inequality is one of those concepts that can be rigorously defined and frequently easy to estimate, such as the commonly used Gini coefficient. We have a natural preference for equality arising out of our innate sense of fairness. But it is not clear what should or even can be done about fixing any perceived problem of inequality. What if inequality is not a bug but rather a feature of the universe we live in? What if inequality is a good rather than a bad?

People naively believe that we have a moral responsibility toward reducing inequality. The belief is naïve because it is arrived at without much reflection on the cause(s) and consequences of inequality. For example, the students referred to above were starting an introductory economics class; they must have been teenagers, who as we know from our own experience are not the most clued-in people in the world. They thought that inequality should be at the top of the agenda for economists. And the authors of the survey concluded without justification that “Inequality is, by far, the main problem that students think economics should address.”

Economists, economics — whatever. What’s the difference?

Seriously, there’s a difference. Economists are people just like the rest of us, and economics is an academic discipline, one among many. Economics cannot do anything about inequality. Economics is not an agent; it doesn’t have a will. Economists are agents, just like everyone else.

Economists of course can attempt to do something about inequality but they should not. Economists don’t have any privileged position that makes them more capable of, or responsible for, or worthy of shaping society. Most importantly, as Buchanan frequently warned economists, they should desist from getting involved in advocacy, from promoting this or that social policy, from acting as if they were advisers to some sort of disinterested “benevolent despot.” Governments are despotic but are far from being benevolent.

Inequality is a political — even a moral — problem that society perhaps has to deal with. It’s clearly an emotive issue, and most people who care about inequality are too emotionally invested in it to have the capacity to have any disinterested clarity on the matter. Like those students. They are concerned about an issue that in their minds needs to be addressed by someone urgently. Something is amiss and someone (usually the government) should do something about it, is the demand. “How dare you?” (in the immoral words of the great Greta) not do something about it when our survival depends on it? How dare you!

A moment’s reflection makes it evident that inequality is baked into the fabric of the universe. Moreover it’s not something to be lamented but instead celebrated. You cannot have differentiation without differences. Differences matters because a universe of undifferentiated goo would be featureless. We would not exist without differentiated matter.

OK, you may say, we want to exist in a universe that has galaxies and stars, and also has living beings, and has plants and animals but we also want uniformity and equality among humans. I appreciate that sentiment but I am afraid that that’s not likely to happen however much you wish it to be so. Wishing doesn’t make it so.

Fact is that people were equal for most of human history. The inequality that arose was because some people were able to escape the dismal fate that was common to all humanity — poverty. It is not as if all people were prosperous and then somehow some people got afflicted with the curse of poverty. What actually happened was people began to become wealthy and as time went on, more and more people became part of “the great escape”, as Angus Deaton explained in his 2013 book The Great Escape.

I am convinced that in about 15 years, all of humanity would have escaped poverty. And that will be accompanied with even greater inequality. Absolute levels matter to me more than relative levels. I don’t care how much more wealthy the top 1 percent is relative to the bottom 20 percent or whatever, as long as the poorest person is not poor.

An obsession with inequality is silly. Equality is not sustainable because even if you mandate equality through legislation, inequality will arise if people are free to engage in the Smithian “propensity to truck, barter and exchange one thing for another.”

Socialist countries have attempted to impose equality only to create misery. We should learn from their disasters.

Read part 2 of this post.

Further reading: Robert Nozick’s “Critique of End-State and Patterned Principles.”

21 thoughts on “Inequality

  1. Prabhudesai Friday November 5, 2021 / 4:26 pm

    I have come to the conclusion that concern for inequality is eventually driven by people envy. Most people who are for equality have never given away their own wealth to become more equal with others, they always demand that someone else must be forcible made poor (Bezos or MusK).

    The only people who seem to be doing that sort of sacrifice are transgenders who cut off their private organs to be more like others. 🙂

    Liked by 1 person

    • keshavbedi Friday November 5, 2021 / 9:43 pm

      I don’t think so. The concern for equality is driven by a sense of fairness and justice. Not envy. People are not jealous of other people’s wealth. They realise that accumulated unutilized personal wealth has an opportunity cost. That of letting poor starve. They are appalled by the moral calculus in which welfare of the poor rests on the whims or moods of the wealthy as to whether they want to part with their wealth or not.

      On comparing individuals with multi billionaires, that’s so off the mark, one can only wonder how you could say something like that. Wealth of Musk and Bezos is more than national income of several countries. A tad bit of drop in their wealth will not make them ‘poor’ (whatever that perversion of semantics is supposed to mean), but it will benefit millions of real poor. An average person’s charity will not make a dent anywhere. So its only natural for an average person to pitch for multi billionaires to give away some of their wealth.

      When Lord Shiva was asked to consume poison by Devtas, he does consultation with his wife, and remarks to her:
      जो प्रभु/सामर्थ्यवान होकर भी प्रजा का कष्ट दूर ना करे, वो बड़ा पापी होता है। (A person or a lord who is capable enough to alleviate his people’s misery, but doesn’t do so, is a great sinner.)

      Like

  2. keshavbedi Friday November 5, 2021 / 9:42 pm

    I don’t think so. Concern for equality is driven by a sense of fairness and justice. Not envy. People are not jealous of other people’s wealth. They realise that accumulated unutilized personal wealth has an opportunity cost. That of letting poor starve. They are appalled by the moral calculus in which welfare of the poor rests on the whims or moods of the wealthy as to whether they want to part with their wealth or not.

    On comparing individuals with multi billionaires, that’s so off the mark, one can only wonder how you could say something like that. Wealth of Musk and Bezos is more than national income of several countries. A tad bit of drop in their wealth will not make them ‘poor’ (whatever that perversion of semantics is supposed to mean), but it will benefit millions of real poor. An average person’s charity will not make a dent anywhere. So its only natural for an average person to pitch for multi billionaires to give away some of their wealth.

    When Lord Shiva was asked to consume poison by Devtas, he does consultation with his wife, and remarks to her:
    जो प्रभु/सामर्थ्यवान होकर भी प्रजा का कष्ट दूर ना करे, वो बड़ा पापी होता है। (A person or a lord who is capable enough to alleviate his people’s misery, but doesn’t do so, is a great sinner.)

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    • baransam1 Friday November 5, 2021 / 11:07 pm

      Who decides what one’s सामर्थ्य is?

      Let us assume you have a family, and you love your family, and your family’s financial security is your topmost concern. Hence you may be accumulating three months of your living expense as an emergency reserve.
      To a beggar on the street who possibly does not know about her tomorrow’s meal, you are misusing your financial सामर्थ्य by not giving away your three-month reserve to feed her and hundred others like her right on that very day.
      Is she morally right to snatch your three months of emergency reserve in the name of justice?

      Let us assume Elon Musk loves humanity and existential security by creating a backup in Mars is his topmost concern. Hence he may be holding onto his stocks to raise funds for developing ten Starships.
      To Keshav Bedi and Sambaran, who have not secured their three months emergency reserve for their family’s financial security, Musk is misusing his financial सामर्थ्य. Musk is misusing his financial सामर्थ्य by not giving away his wealth to feed the poor beggar and others like her right on that very day.
      But Keshav Bedi and Sambaran think that it is morally right to snatch a “small portion” of Musk’s wealth in the name of justice.

      PS: Your post made me furious and wretched, Mr Keshav Bedi. My initial impulse was to shut up because I knew I would not convince you, and I still wrote this up. I don’t know why.

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      • keshavbedi Friday November 5, 2021 / 11:10 pm

        Of course it made you furious. That’s what Pavlov conditioning does to people. Read comment again, you’ll get your answer.

        Like

        • baransam1 Friday November 5, 2021 / 11:58 pm

          Thanks for your response to my comments.
          Yes, I read your comment multiple times before replying.

          A couple of questions for you.

          Is your primary field of education related to the humanities?
          Are you a professional or a formal student? In case you work for a living, do you work for a profit-making private institution? Or do you work for the government?

          The questions are personal and feel free not to respond. My intention is not to offend you, and I am collecting data for an experiment of mine.

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          • keshavbedi Saturday November 6, 2021 / 12:52 am

            Since you are doing this for some experiment, here are details:

            I have majored in economics, although, I am selt taught. I am quasi professional. I write micro sized newsletters for a website. Needless to say, I work for a profit making institution.

            Liked by 1 person

            • baransam1 Saturday November 6, 2021 / 1:02 am

              Thanks a lot.

              Like

      • keshavbedi Friday November 5, 2021 / 11:17 pm

        On सामर्थ्य, I have commented on people whose wealth exceed national income of multiple countries put together. If you’re still puzzled about their सामर्थ्य and want to flirt with subjectivity, I have nothing more to say.

        On the general principle, there’s no reason why we cannot define an income level that is too much if we can define an income level that is too little, i.e., poverty line.

        On coercion, you’ve two alternatives. Letting poor starve while respecting mood swings of the super wealthy, or take away their wealth by coercion. I see morality in latter, not former. You clearly see it in former. Good luck to you.

        Liked by 1 person

    • Prabhudesai Monday November 8, 2021 / 5:46 pm

      I wish you could write in simple language that I could understand.

      Concern for equality is driven by a sense of fairness and justice.

      How is it fairness or justice to talk about other people’s wealth ? If I start complaining that my neighbor has more money than he needs everyone will correctly see me as a loser. At least that is what my parents taught me.

      They realise that accumulated unutilized personal wealth has an opportunity cost.

      Either I fail to understand this or you do not understand what opportunity cost is. Of course most wealth is not “unutilized”.

      That of letting poor starve. They are appalled by the moral calculus in which welfare of the poor rests on the whims or moods of the wealthy as to whether they want to part with their wealth or not.

      Actually it is other way around. Wealth in private hands creates more wealth. Amazon is worth ONLY $2T which they generated over 20 years.

      US government spends around $10T EVERY YEAR which does not generate new wealth rather destroys more wealth.

      If world hunger is my problem, more money in the hands of likes of Bezos or Musk.

      जो प्रभु/सामर्थ्यवान होकर भी प्रजा का कष्ट दूर ना करे, वो बड़ा पापी होता है।

      One has to be completely retarded to draw the conclusion you have drawn from the Lord Shiva’s tale. Lord Shiva drank the poison on his own. Rest of the world did not catch him and force it down his throat.

      When people blame Bezos or Musk, they are essentially talking about using violence on those people. It is equivalent of forcing poison down the throat of othrs.

      Secondly, rich are not our “prabhu”. They own their own money and co-operate/trade with us to get their money. The only “prabhu” is the government which takes our money by violence.

      Liked by 1 person

      • keshavbedi Monday November 8, 2021 / 8:25 pm

        Trouble with people like you is that you’re trapped in your dogma. You’ll go on arguing like a broken record from within the system that you believe in, not seeing meta criticism of it.

        According to philosopher Thomas Nagel, Taxation does not take from people what they already own. Property rights are the product of a set of laws and conventions, of which the tax system forms a central part, so the fairness of taxes can’t be evaluated by their impact on preexisting entitlements. Pretax income has no independent moral significance.

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        • baransam1 Monday November 8, 2021 / 8:46 pm

          Keshav, you DO understand that I can also claim that KeshavBedi is trapped inside his dogma and unwilling to see beyond it.

          Like

          • keshavbedi Monday November 8, 2021 / 9:00 pm

            I exempt myself from it because I am familiar with the arguments being made here (fervently believed in them at one point as a matter of fact) whereas you all seem to be not familiar with the criticism of it. I only see trained knee jerk response in the form of rhetoric, everytime a point is made.

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  3. Raghuram Saturday November 6, 2021 / 1:04 pm

    Keshav wrote:

    On coercion, you’ve two alternatives. Letting poor starve while respecting mood swings of the super wealthy, or take away their wealth by coercion. I see morality in latter, not former.

    People are not jealous of other people’s wealth. They realise that accumulated unutilized personal wealth has an opportunity cost. That of letting poor starve. They are appalled by the moral calculus in which welfare of the poor rests on the whims or moods of the wealthy as to whether they want to part with their wealth or not.

    I seems to me that Keshav is confusing wealth and money. I’m using wealth to mean actually consumable/useful stuff like food, fuel etc. and money as tokens that represent claims on this wealth.

    Elon Musk’s $xxxB net worth is based on Tesla stock he owns. Tesla is currently a meme/tulip stock, in that its price/earnings ratio is totally out of whack. Anyway, Elon is not sitting on piles of grain in godowns and preventing access to these non existent stocks of food.

    It is unfortunate that there are still starving people today. Any proposed solution must be focused on increasing food production. Redistributing the existing money equally among the population will flatten inequality, but by itself will not immediately solve hunger. Indeed, if food production is not increased or worse decreases, then you’ll have inflation.

    I would like to hear your response to Elon Musk’s challenge to the UN-WFP:
    Show how $6B will solve world hunger, and I’ll donate it: Elon Musk to United Nations

    Liked by 1 person

    • keshavbedi Saturday November 6, 2021 / 1:18 pm

      The issue of hunger and starvation is essentially of redistribution and not of production. India is a classic case. We produce so much that we’re now in a crisis of storing excesses. We are telling farmers to not produce what they produce and let prices work.

      On Elon’s wealth in Tesla’s stock, I know it very well. And I had his recent tweet in mind when I wrote what I wrote.

      Apparently, Elon is ready to sell his stock worth $6 Billion if it is shown to him how it will alleviate world hunger completely. And obviously, supporters of Musk have latched on to his tweet with glee, eagerly asking other people, “Do you have a comeback.”

      My answer is simple. That wealth is better served in solving whatever portion of world hunger and starvation it can, if not entire. But of course, libertarians like talking in extremes, that’s how they make their case. A person who isn’t intoxicated by dogmas of libertarianism will feel surprised at the cheerleaders of Musk on this tweet.

      Like

      • Mango Wednesday November 10, 2021 / 1:05 am

        Cry harder.

        Like

      • Mango Wednesday November 10, 2021 / 1:09 am

        “That wealth is better served in solving whatever portion of world hunger and starvation it can”

        Reminded me of a excellent quote on modern medicine:
        “Modern medicine is the study of which pharmaceutical toxins hide the most symptoms”

        Like

  4. Raghuram Saturday November 6, 2021 / 1:17 pm

    Atanu wrote:

    Absolute levels matter to me more than relative levels. I don’t care how much more wealthy the top 1 percent is relative to the bottom 20 percent or whatever, as long as the poorest person is not poor.

    I can only partially agree with this sentiment. While absolute levels matter the most when it comes to poverty, relative levels also matter. You cannot have a meaningful democracy if 1% of the population own 99% of all the property. Unchecked inequality is another ‘Road to Serfdom’.

    Like

  5. Raghuram Saturday November 6, 2021 / 1:44 pm

    Keshav wrote:

    The issue of hunger and starvation is essentially of redistribution and not of production. India is a classic case. We produce so much that we’re now in a crisis of storing excesses. We are telling farmers to not produce what they produce and let prices work.

    If this is really the case, then we (Indians) are big sinners. Currently people in Madagascar, Kenya (and I’m sure other places I don’t know of) are DYING due to starvation, and if our godowns are all full, and we are refusing to produce more food to help these DYING people, despite having the सामर्थ्य, we are बड़ा पापी.

    But, I don’t think this is the case. While I will not deny distribution issues, I don’t think:

    “hunger and starvation is essentially of redistribution and not of production”.
    Production is usually the bigger issue. To increase food production, you either have to bring more land under cultivation, or cultivate existing land more intensively using artificial fertilizers or both. In India, we have run out of new land (just check Google Earth, the only forested areas are all in hilly/mountainous regions). And haven’t you heard that all over the country farmers are queuing up for fertilizer, and crying out that they are not getting sufficient fertilizer.

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