The Growing Irrelevance Of Income Inequality

Economists Heather Boushey of the Center for Economic and Policy Research and Russell Roberts a professor of economics at George Mason University debate income inequality in the Wall Street Journal econoblog here.

Here are some notable quotes:

First, consider the level of inequality that we can actually perceive in our daily lives, as opposed to the level of inequality that we might know from reading government statistics. I’ve had dinner with a few billionaires at various charity events. As Hemingway pointed out long ago, the rich are different from us, they have more money. But as my colleague Don Boudreaux has pointed out to me more recently, it’s striking how difficult it is to perceive the differences between us and the super-rich in the absence of reading their tax returns.

The super-rich guy at that charity dinner may have flown on a private jet, but I can afford to fly by jet, too, albeit in a coach seat. The super-rich guy may have been chauffeured to the dinner in a luxury car, but my Honda Accord is pretty quiet and comfortable. The rich guy wears a custom-made suit that may have cost over $1000. But my Lands’ End suit is 100% wool and looks pretty good. I’d have to finger the fabric of his jacket to feel inferior. Yes, his watch is more expensive. But mine probably keeps better time. Unless I stop by his house for a visit, I’m unlikely to feel the pinch of my lower income status. Compare that to 50 or 100 years ago, when the qualitative aspects of the lives of the wealthy were much more noticeable to the average person.

Without the government data that is so widely reported, how would I ever know that I’m falling behind or that the super rich or even the mere rich are racing ahead? What I really care about is whether I’m moving forward.

And this is where the government data are particularly misleading. They usually compare two snapshots at different times, and so they mask the progress the average person makes over time in well-being.

The average poor person has a washing machine, a dryer and central air conditioning. Almost two-thirds of the poor own or have access to a car. The poor’s access to what once were luxuries has improved dramatically over the last 15 years despite pessimistic claims to the contrary. On many dimensions, even access to health care, the average poor person lives better than the wealthy of the past.

Immigrants risk death for the chance to be poor here and live among people much wealthier than they are. They still think of America as the land of opportunity. I think they’re right.

The full debate can be found here.

8 Responses to “The Growing Irrelevance Of Income Inequality”


  • Kjerringa mot Strommen

    How cynical – comparing the rich and the pretty rich.

  • I have to agree with Kjerringa. This deserves a big and loud, “Whatcha talkin’ about Willis (HP)?”

  • This is stupid.

  • Here are the main paragraphs that should be paid special attention to,

    The average poor person has a washing machine, a dryer and central air conditioning. Almost two-thirds of the poor own or have access to a car. The poor’s access to what once were luxuries has improved dramatically over the last 15 years despite pessimistic claims to the contrary. On many dimensions, even access to health care, the average poor person lives better than the wealthy of the past.

    Immigrants risk death for the chance to be poor here and live among people much wealthier than they are. They still think of America as the land of opportunity. I think they’re right.

    This is not comparing ‘rich’ to the ‘pretty rich’, this is poor to billionaire. His main point here is something that is completely valid and should be repeated often: Poverty in the United States is not true poverty, it is only poverty with respect to others.

    Poverty around the world is classified in two ways, on the one hand, there is absolute poverty, where you have children dying of hunger, life expectancy is low, and people are without even basic necessities of food, living arrangement, and health care. On the other hand, there is something we call relative poverty where you are not poor in the absolute sense, but poor only in relation to others.

    Whenever I discuss the difference between absolute poverty and relative poverty I am always reminded of an article I read once, I don’t remember exactly where, it might have been Time Magazine (I subscribe to Time Magazine) or something, but the story explains the difference between the two really well. It starts off with a person from Africa visiting the United States for the first time and somehow him and his guide (the newsreporter) ended up in a very poor area of the United States. The guy was being guided by a news reporter who was driving him around and as they were driving around the poor area of the United States, they saw various aspects of what we consider poor. Bums on the street, run down buildings, alot of graffiti, etc…and in the midst of all of this, the guy from Africa blurts out “Man, I want to be poor in the United States”. The newsreporter, not understanding how he could possibly say that after what he just saw, turned and asked him why he would possibly want to live in poverty in the United States, to which the guy from Africa quickly responded, “Poor people in the United States are fat”.

    His point is very poignant, after all, while poor people in the United States are experiencing an obesity problem, poor people in many underdeveloped countries are experiencing a starvation problem. Clearly, the poverty between the two is drastically different, and that is the point that guy from Africa was trying to make.

    Sure there are differences between the poor in the United States and the rich, but when it comes to fundamental differences, there are not many. When it comes to basic nutrients, to basic living conditions, to basic necessities, and even to life expectency (indeed, in many poor areas, life expentency is even higher than rich areas), the poor and the rich are very much on a more equal footing.

    Why does this matter you say? Does this mean us evil capitalists don’t care about the poor and trivialize their very real problems? No, of course not, it just validates the claim that when it comes to truly fighting poverty, economic growth is the thing to pursue. When I blog about the high economic growth the United States experienced this quarter or last quarter, that is not out of some sense of nationalistic pride (although there certainly are elements of that), it is mainly because economic growth helps everyone, especially the poor. The reason poor people in the United States are so much richer than poor people in other countries is because our country experiences much larger economic growth than theirs.

    Economic growth is like a rising tide, sure it may lift some boats more than others, but a rising tide – at the fundamental level – lifts all boats and especially for those at the bottom, that lifting is very much needed.

    In conclusion, this is why I am a conservative; liberal economic policy tends to focus on income equality whereas conservative economic policy tends to focus on economic growth, but if you look at the long term gains, nothing has a better track record of fighting poverty than economic growth.

    Which is of course why this country, the country with the highest economic growth around the world, is the country that poor people from around the world continuously risk life and limb, leave family behind, and give up everything at a chance to grow up here and raise their kids here.

    For a better explanation of what I was trying to say by the article above, read this, to see how important economic growth is read this, this and this, and to see how unimportant income equality is read this, and lastly, to see a more in depth explanation of the differences between conservative economists and liberal economists and the reason why I side with the conservative economists read this.

  • Oh, I get it now! The poor (or “free and reduced lunch” eaters) should be happy because they get to enjoy a higher standard of living than even the super-rich of past centuries. And it’s all because of “economic growth”, you say? Ah, it’s so elementary, I can’t believe the so-called “poor” have the nerve to complain: at least they’re not starving!

    It’s not even funny how right on you think you are.

  • I specifically denied that very charge of yours when I wrote,

    Does this mean us evil capitalists don’t care about the poor and trivialize their very real problems? No, of course not, it just validates the claim that when it comes to truly fighting poverty, economic growth is the thing to pursue.

    In other words, if you truly care about poverty, and want to fight it as efficiently as possible, economic growth is the thing to pursue.

  • Kjerringa mot Strommen

    Oh, this is offensive on counts to numerous to mention! In the first place, the writer, Heather Boushey, was comparing herself to the super rich – both can afford to ride on jets and wear decent suits.

    Comparing the poor in some countries to the poor in the U.S. may, in some cases, be comparing the starving to the malnourished. There is little hope for starvation and with social change, there may be hope for malnutrition. However, the pace of life in the United States is making it harder and harder for the working poor to survive. A parent earning toward the bottom end of the scale may have a job and a car, but may not have the money to afford even a miserly apartment in a dangerous neighborhood. The car he/she owns may not be reliable enough to be counted on to get them to work, child care is out of the scope of the budget, putting both the job and the children at risk, cheap food may be high in calories and carbs, yet low in nutritional value. And of course, if the job pays the minimum wage (that I understand you don’t want to see raised), then it is more likely that a homeless shelter is all the worker can afford. It seems that the social safety network (subsidized housing and childcare, food stamps, free and reduced school lunches, Medicaid) barely keeps the family safe, healthy and secure, but does underwrite the privileged class of business owners who are thus able to keep underpaid employees and avoid paying a living wage.

    Then there is the issue of “liberal” vs. “conservative” economics. It seems to me, that a classic liberal economy is that which you espouse – laissez faire, allowing employers to run their businesses uninhampered by government intervention, whether that be in the form of minimum wage increases or worker safety laws. In other words, what is right for business is right for the worker. That just isn’t the case. I suppose it will continue to be right for business as long as there remains a body of unemployed or underemployed workers from which to draw, and as long as our natural world and resources can withstand the onslaught of business uninhampered by measures to protect the environment. It is clearly not right for the worker, however, who becomes expendable when, either through lack of transportation, childcare or adequate housing, an on the job injury, or illness, becomes expendable. This liberal, trickle down system is not working for the worker or the family.

    A more conservative economic system would place value on the worth of the individual in the workforce, the value of sustaining healthy employees and healthy families and conserving our environment and resources. Conservative, to me, means showing restraint, thoughtfulness and conscience. Unbridled capitalism is far from conservative. Which begs the question: who is the real conservative?

  • So many things to discuss, so little time. I have finals next week, so I don’t have the time to give this a response it rightfully deserves, but for now, I will concentrate on your main points.

    First of all, I was not denying the very real problems of the poor, I was doing the very opposite: providing an overall framework to more efficiently help the poor. I granted, and continue to grant, that the poor in the United States, while still in only relative poverty, are still poor nonetheless and something should be done about that. My only point was in what should be done about it, not that nothing should be done.

    Second, you write,

    It seems to me, that a classic liberal economy is that which you espouse – laissez faire, allowing employers to run their businesses uninhampered by government intervention, whether that be in the form of minimum wage increases or worker safety laws. In other words, what is right for business is right for the worker.

    No, I certainly do not espouse a “what is right for business is right for the worker”, I espouse a “what increases competition is right for the worker”, and the two are very different things. In fact, many businesses, especially large long established businesses, hate this and try to use the government to impose government regulations to help them keep their large status. I have blogged on it before, here and here. Big business hates competition, having to compete with others is difficult, it is far easier to impose regulations that help reduce competitors from entering the market, and harm those who can’t afford the heavy regulation. For example, Wal-Mart, explained in more detail here, was trying to do exactly this by pressing senators to increase the minimum wage. Wal-Mart, after all, pays its employees an average of $10 an hour, yet many small businesses cannot afford to pay their employees as much. So an increase in the minimum wage would help drive out those small business and reduce Wal-Mart’s competition, all the while not affecting Wal-Mart at all.

    Remember, it is precisely competition and the fact that the United States has more of it that wages are so high in the United States compared to most other countries. It is precisely competition that has lead, over the years, to such drastic rises in working conditions, workers pay, and overall standard of living. It is also because of competition that capitalism succeeded while communism led to such gross human rights violations and very low standard of living.

    So no, I am not for ‘whatever helps business’, I am instead for, ‘whatever promotes competition’, and am for it precisely because it has such a long proven record of increasing the standard of living for the poor.

    Now, as far as your suggestions for helping the poor, things like a rise in the minimum wage, welfare, food stamps, etc…I could only comment briefly, but really this deserves a much longer response. Maybe we can revive this discussion after finals, and after my 10 day trip to Chicago, because it is something that hasn’t been discussed enough, IMHO.

    But for now, suffice it to say that there are two main problems with the standard ‘more welfare’ response for the poor. I am not arguing, and am not one of those that believe we should completely eliminate welfare, but I am certainly one of those that think we should drastically reduce the amount currently given. My reasons are twofold: 1. Welfare, either through redistribution of taxes, or through government regulations like minimum wage, directly harms competition and economic growth, and as I have shown above, competition and economic growth are the two things that have a long proven track record of really helping the poor. So in the one hand, you are doing something that claims to help the poor, but in the process, reducing the very thing that has proven to help the poor the most – competition and economic growth. That is not to say that all welfare is bad, or all government programs are bad, but if you are going to support something that reduces competition and economic growth, you better have some really large positive results to show for it, certainly far larger than the amount of help competition and economic growth would have provided for the poor. Which is why I am against most forms of welfare and government regulations, I don’t think most of them have reached that level and so they can not be justified on ‘help the poor’ grounds.

    The second reason why I am against them, of which I alluded to above, is because they simply have a bad track record of working. Take Europe for example, Europe has a much larger welfare cushion, a higher minimum wage, and an overall much larger welfare state than the United States, yet their poor are worse off, not better, than the poor in the United States. If you complain about the measly 4 or 5% unemployment rate here in the United States, go to Europe and you will find unemployment rates double or more of what we have here in the United States. In fact, it is precisely the minority and the poor in Europe that feel the brunt of this more, their unemployment rates are well into the 20% and 30% range.

    Economists have been arguing for generations about the best way to help the poor, on the one hand you have those who say we need to expand the welfare state and use the government to help the poor, on the other hand, you have economists who say pushing for more competition and economic growth are the best ways to help the poor, and as time goes on, it seems that those who argue for the latter are the ones that are winning the debate.

    For more on European economies go here, for more on how the minimum wage harms those who it claims to help most, go here, here and here.

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