March 4, 2020: Does economic inequality hurt society?

More from my notes on poverty and inequality from my lecture notes and analysis.

In 2011, Richard Wilkinson gave a TED talk on his theory that economic inequality hurts societies, How economic inequality hurts societies (2011; 16:54). While compassionate -- and passionate -- the analysis tends to falter upon closer examination. One problem is his use of the specious 'correlation implies causality' assumption.

Wilkinson completely glosses over both the "correlation is not causation" argument, if only to blind himself to the possibility that many of the bad social "outcomes" he claims to be caused by economic inequality is actually the reverse, i.e., bad social conditions increase economic inequality.

Further, he casually mixes income and wealth, while ignoring other forms of wealth, such as child mortality, average years of formal education, life expectancy and deaths from wars and natural disasters. My classroom analysis of his talk follows.

Analysis

1. While health outcomes inequalities are a form of injustice, it is not clear that these differences are caused by income inequalities, nor is it clear that reducing inequality would reduce health outcomes, nor is it clear that the direction of the causality assumed in the talk is in the direction Wilkinson claims.

2. There is a cultural difference and a significant difference in economic impact between single mother households and two unmarried parent households. In America, about twenty percent of single-parent households are single father households.

3. The American federal tax system is significantly progressive, e.g., the top 1% of wage earners pay 35% of federal income taxes. Wilkinson needs to use after-tax incomes and after-benefit incomes to better claim inequality in incomes. He is looking at before-tax wages, not after-tax incomes of those with high incomes nor the after-benefit incomes of those with low or no wages.

4. Wilkinson speaks from the clear perspective of an English culture that has maintained a class structure that – by culture, not by income – creates feelings of disrespect and inferiority, based on one’s social standing.

5. Global wars reduce inequality. The greatest ‘leveler’ of global wealth inequality ever was World War I. In global conflicts, almost everyone becomes worse off. Massive, consistent, constructive, prosocial and altruistic efforts to reduce income inequality include taxation, wealth re-distribution, charity, pensions, public education and healthcare (e.g., Medicare, Medicaid), unemployment benefits, Social Security, disability payments, and other social welfare programs, none of which are considered by Wilkinson. In the United States, about 65% of what the federal government spends is in wealth transfers to improve the incomes of the ‘bottom 95%.’ Private, personal charity in the United States in 2016 was nearly $400 billion, which is more than the entire economy of 90% of the world’s countries. The United States has about 4.67% of the world’s people, 21% of world GDP, and 25% of global wealth.

The most important thing to remember here is that increases in economic growth naturally, mathematically and axiomatically create economic inequalities, unless when the growth commences all people have equal incomes and growth is even across all people. While the latter ca be the case, the former never was.

Social justice has three components: Inputs (equality of opportunity), throughputs (everyone receives equal treatment, due process) and outcomes (everyone achieves the same results or outcomes. If the first and second are present, the third form is not possible, even with massive wealth transfers. For example, in a well-run university every student entering a college starts off equally and has equal access to courses, majors and programs. But by graduation, they will have quite different outcomes. The primary reason this happens can be explained by personal choices, primarily differences in work effort and differences in personal choices during those four years. This is akin to the anecdote about a professor deciding -- to be fair -- to award every student the same grade, regardless of their actual course results. This is injustice, not justice.