# Inequality - Maybe not so bad?

1. Nov 9, 2014

Staff Emeritus
MIT's Technology Review ran an article on inequality, where they argue that a) it is bad, and b) it is technologically driven, in that it raises some people's income and wealth more than others.

I see a tension in these. Suppose I could wave a magic wand, and double the income of everyone in the bottom half, and triple it for everyone in the top half. This would benefit everybody, at the cost of increasing inequality. Would this not be a good thing?

2. Nov 9, 2014

### Danger

"Equality" is a term that is thrown around in a lot of ways without definition. Some ideas about it are totally valid, and some are totally stupid. (For instance, equal pay for equal work is proper; equal pay for vastly different skill levels is not.) What do you have in mind?

3. Nov 9, 2014

### SteamKing

Staff Emeritus
This argument sounds similar to those made by people who suffer from terminal altruism: If we can't help everybody simultaneously, it's immoral to help only some.

Ever since the Og figured out he could eat better using a bow and arrow to hunt prey, while his cousin Nog was still chasing down his prey to capture it, technology has produced some type of unequal result. Does this mean that we should renounce all technology and return to living in a state of nature?

Regardless of various platitudes thrown about, humans suffer from unequal abilities as individuals, whether these are physical, mental, or social. Is there some sinister reason behind this? Or is it just a normal variation one would expect to find?

Trying to mandate equal outcomes for everyone is doomed to failure, IMO. The best we can do is ensure that everyone receives an equal opportunity to prosper.

IMO, MIT should stick to what its name says, 'Technology', and leave the social engineering to its brethren up the Charles River at Harvard. After all, Harvard has more money to play around with such ideas.

4. Nov 9, 2014

### Staff: Mentor

This it?
http://www.technologyreview.com/featuredstory/531726/technology-and-inequality/

Frankly, I think that the data shows - relatively clearly - that inequality rises naturally with a rising economy. You can change the slope, you can artificially re-distribute, but you can't disconnect the two. And, more importantly, the economy rises faster than the inequality. Meaning that the scenario you outlined (though not necessarily the proportions themselves) is true: in a rising economy, everyone sees gains, it's just that the rich gain faster.

That has nothing to do with whether it is "good" or "bad", but it is important for understanding how it works/why it exists.

People tend to think inequality is "bad" because it is an affront to their sense of fairness. That's all it is -- and it is beaten-in to them by politicians and, perhaps, upbringing that drove-into them that mindset. I was brought-up well-off, but my parents were frugal. I didn't have the best toys and was the only guy on the junior high wrestling team who wore sneakers instead of wrestling shoes (I did get a quality new trumpet before any of my peers though, but that was only because the starter one I got initially was such a piece of crap it really held me back).

What bothers me about the "debate" is that that it is being driven largely by dishonesty. We've been discussing that for years here:

[discussed in detail in the above threads] "The rich get richer while the poor get poorer" is a common refrain of politicians. It's false, at least in the way that most people intuitively understand what "richer" and "poorer" mean. But the clever, ambitious, dishonest politician doesn't need to accept that. All they need to do is re-define "poverty" to be tied to inequality. Then they can have their cake and eat it too: the poor make more money, can buy more stuff, have less food insecurity, but we can still say they are "poorer" because Bill Gates is getting richer faster. That's exactly what the OECD did for measuring poverty.

Of course, while that is a useful lie, it is also one that its tough to keep going. When the economy does well, poverty goes up. When the economy goes poorly, poverty goes down. Even impressionable, jealous non-rich people won't buy something like that. So they had to add a correction to the re-definition to avoid that problem at certain times.

It's very surprising to me how naive that is. Being able to take advantage of opportunities has nothing to do with "equality". That's mobility, not equality. It doesn't change the fact that a janitor is still a janitor and that's a low-paying job.

Worse, mobility has nothing to do with technology -- if anything, they are inversely corellated. Computers are expensive and a poor kid might not have a computer at home, so that technology would work to separate kids by income. More important though is things like quality, government provided education. That is also independent of technology (and something we do poorly because of poor laws).

Next sentences:
Here, again, they mix together separate things. Yes, if you have talents and you acquire skills, training, and acumen you will prosper. The implication that you won't is totally nonsensical. There is nothing that corellates better to income than education. But again: still nothing to do with technology.

The article is a little tough to read so I'll have to finish later. But my take on the issue:

1. We allow politicians to frame issues, which often means the questions we care about are posed as lies. We need to stop accepting that. Issues need to be discussed with honesty in order to understand them. So, more specific:

2. We need to stop accepting being lied to about poverty. Poverty barely exists in Western countries. Whether the "real" rate is 2% or 5% I'm not sure, but it isn't helpful for understanding the issue to define someone as "poor" because they make less money than 2/3 of their friends. Similarly

3. We need to stop accepting being lied to about inequality. Inequality isn't poverty. If I give you $1,000 and give the person next to you$2,000, you just got richer, not poorer. If people start recognizing that a rich person getting richer does not mean they are going to have more trouble making ends meet.

Sorta similar to (but backwards from) the politicians who are selling these lies, I think these issues are among the most important issues facing us right now. Much of the reason why our economic mobility isn't as good as it should be and we have perpetually under-achieving classes is that people are belieiving these lies. They believe that no matter how hard they try, they can't get ahead, so they don't try. If, instead, we convince them that they can get ahead (because it is true), more people will try and will succeed.

Now, none of that addresses your question. That was all about the framing of the issue. In order to properly answer the question, we first have to ensure we're playing with an honest/full deck and analyzing the true reality. So:
Well, mathematically that is a "positive" thing, but "good"? That's a matter of judgement/opinon.

Let's start with the opposite: is it a bad thing? I would argue that an improving situation can't really be called "bad". Indeed, in a broader sense, I'd say that life overall in the west is spectacularly "good" by historical standards. That's not exactly what you were asking, but maybe that's the point...

What if it could be better? What if a different set of laws were possible that enabled the bottom half's income to rise by 2.5x while the top half's increases by 3x? Mathematically, that would have to be considered "better". Do we have that choice?

See, that's what is missing from the dialogue because so much of the debate is framed with lies. If we accept the fact that inequality rises with rising prosperity for everyone, then we can start exploring the difference between good, better and best options: how different options affect the slopes of all of those "good" options. Or, even, we can discuss the option of trading some of that prosperity for more equality if we feel like that would be a nice thing to do.

But maybe I'm jumping ahead of what kind of dialogue is really possible. As long as people keep believing "the rich get richer while the poor get poorer" and political organizations screw with statistics and definitions to make that "true", it is tough to have a serious dialogue about what we can really do.

5. Nov 9, 2014

### Staff: Mentor

Good point. In the US, there are two conflicting definitions:

1. The Constitution prescribes that the country be set up with equality of opportunity under the law, to allow people to make of themselves what they will without fear that the government will treat them differently and force them down a different path.

2. A popular definition in the US today is that the government should provide for equality of outcome, meaning that it should seek to forceably (if necessary) alter social structures to reduce the inequality of income/wealth that V50 discussed.

More specifically, "equal pay for equal work" vs "equal pay for vastly different skill levels" is a difficult one. Underpinning some of the discussion for #2 is the idea that wages should rise when the economy rises -- even if the work is the same. If a company makes more money, should the employees make more? Even if they didn't contribute directly to the company's increasing success? That's a tough call.

6. Nov 9, 2014

### Staff: Mentor

If the advocacy of equality of "outcome" were based on more solid factual ground, there could actually be a legitimate discussion to be had there.

If I'm very rich and I give to charity, it makes me feel good and it helps someone not be as poor while making me less rich. My happiness actually goes up, so life has improved for both me and the person I helped. In rich countries, we may be able to change things for the better by re-distributing some of the wealth.

What is tougher to know is the secondary effects of such trade-offs. If the rich have less money, perhaps they will invest less in new business and the economy won't grow as fast. If money is given to the poor without them having to work for it, will it negatively effect their work ethic?

These are legitimate questions, but I don't think they can realistically be explored until people first accept that a person isn't a bad person just by virtue of being rich. Being rich is not inherrently "unfair" to people who are not rich. Otherwise, that's all you'll ever get in response to an attempt at a legitimate discussion: it's unfair, it's unfair, it's unfair, it's unfair.

7. Nov 10, 2014

### Danger

I'm far too tired right now to read any of the prior links, or even fully follow the complexities of your answers to other statements, but I saw that you quoted me and would like to clarify what I meant. My "equal pay for equal work" bit is that, although it happens, there should be no difference in pay, benefits, etc. between a straight caucasian male and a lesbian black woman if they are doing the same thing under the same conditions. The bit about "vastly different skill levels" is what I would use to distinguish you from me. I like to design machines, and have a reasonable understanding of how things work, and I've built a lot of really neat stuff. I never graduated high-school. I've gone on trial-and-error (although always starting with a guaranteed safety factor and working down). You can design something from knowledge and education and do it right the first time by calculation and scale testing. There is no way in the world that I should be paid anywhere near as much as you for a mechanical design job.

8. Nov 10, 2014

### Zarqon

I think a simple answer to that situation is that since you increase the total income more than a factor of 2 in total, the cost of living would go up more than a factor of 2 as well. Thus, the people who just got the incoming "only doubled" would effectively get poorer. Even poorer than they were before the increase actually.

I agree with the statement that inequality is bad, it's just that you need some inequality to help growth. I think the best situation is when it can be kept to the bare minimum needed to stimulate that growth but not more.

9. Nov 10, 2014

Staff Emeritus
This model predicts that the standard of living is stagnant over time. This is not the case.

I'm not sure why this got moved, because there's relatively little social science in this. This is largely about opinions and more specifically, value judgments. "Is achieving equality more or less important than eradicating poverty?", is an example of a question that cannot be answered scientifically. I'd hate for this thread to be moved to Social Sciences and then be closed because it's not scientific enough.

10. Nov 10, 2014

### Staff: Mentor

That is exactly the fallacy we are referring to. In the data, that would manifest as zero per capita GDP growth or overall GDP growth exactly equal to population growth. As V50 said, that just isn't what happens.

People have been sold the idea that wealth/poverty is a zero sum game (for one person to gain another must lose) and it simply isn't true.

11. Nov 10, 2014

### Staff: Mentor

I didn't move it, but I see the logic:

While the specific question requires an opinion-based answer, many people don't accept the premise and will give an opinion based on a different premise. That's what already happened: people don't believe that the rich and poor can both be getting richer at the same time, so they think income inequality is unfair as a result. So the reality is that you can't get people to answer the question you posed without first educating them that the premise is a true reflection of the reality. And that was my point: unfortunately, our society is current just not equipped to answer that question.

12. Nov 11, 2014

Staff Emeritus
Here's a historically based hypothetical. Pre-bankruptcy GM had two major branches (and some minor ones) - an automotive branch and a financial services branch. If one does well and the other does not, should employees on both sides of the company make more? And if the answer is "yes", where do you draw the line?

13. Nov 11, 2014

### Staff: Mentor

In Capital, a seminal work published this year on inequality, Thomas Picketty argues that inequality is primarily a problem when economies aren't growing. In your hypothetical everyone would be better off but if a small section of the population was accumulating greater wealth whilst everyone else stagnated or lost money then there is a problem. I'd recommend reading the book, I've not read it fully myself but intend to when time permits.

Of course there are other perspectives, a Marxist argument would be that inequality exasperates class distinction which in turn can lead to other problems in society like disenfranchisement of those without the finances to sway political power.

14. Nov 12, 2014

### jz92wjaz

In recent years, it appears to me that the rich are getting richer and the poor are getting poorer. Cost of living is rising faster than the wages of all but the wealthiest people. I have no problem with some inequality because it's necessary for a healthy economy. What concerns me is that our country may have already hit the point where the inequality is high enough that it's creating more problems than solutions. It's hard to know for sure what the problem is in today's economy.

15. Nov 12, 2014

### Pythagorean

Wouldn't that cause inflation... everybody has more money so things just become more expensive? I think that currency does require some kind of gradient (i.e. inequality) but the total change over the gradient shouldn't be so big that it causes sever social tension (or so small that it's essentially a system at equilibirum).

Just an intuitive thought though. Could be off-base.

16. Nov 12, 2014

Staff Emeritus
I don't think the evidence shows this - it better fits a flat line. (In real assets, not dollar-denominated). But even if this is true, why is this a problem of inequality? If this problem could be fixed at a cost of making the super-rich even richer, is that a reason not to do it? If we could make everyone equally worse off, would that be a solution?

There certainly are economic problems and causes for concern. But inequality per se seems to me not to be one of them.

17. Nov 12, 2014

### Pythagorean

I think the implicit fear in a democrapitalist nation is that the super rich get more power with money and are able to influence policy in their favor, and not in favor of middle or lower class. I don't know how valid it is in terms of pervasiveness, but it does happen through campaign funding and lobbying. We get in a situation where politicians and policies that favor the rich have more financial power behind them.

18. Nov 12, 2014

### Staff: Mentor

Yes, but the data we're talking about already includes inflation. The poor get richer even after taking inflation into account.

Caveats
1. Long term. Typically from one cycle peak to the next.
2. The 2008 recession was worse than average and incomes haven't recovered yet for any group. We'll just have to wait and see (for the next peak or two) if that is the start of a new trend.

19. Nov 12, 2014

### Staff: Mentor

No, it isn't a flat line either unless we're speculating on a new trend based on just one or two data points. I'm willing to concede that it may be starting to flatten out, but at least through the early 2000s it was definitely an upward slope for all brackets. But it is tough to speculate on due to the unique severity of the last recession.

20. Nov 12, 2014

### jz92wjaz

It looks like it depends on what time period you look at. I found some longer term graphs and it appears to be fairly flat for the last decade or so.

If everyone were better off (short and long term) with increased inequality from where we are currently, them I'm all for increasing inequality. Like I said above, I believe there's a tipping point somewhere where inequality makes things worse, not better. To be fair, excessive income inequality, in some cases, could be a symptom of other problems, as opposed to the cause.

Last edited: Nov 12, 2014