I’d like to respond to Christopher Joye’s recent blog post (re-posted at The Drum) about inequality.
Why should we care about inequality?
Christopher Joye doesn’t “think there is anything wrong at all with a rise in income inequality if one assumes that we have equality of opportunity; we are committed to combating extreme poverty; and we are vigilant in protecting those members of the community who are fundamentally and irreversibly damaged through, say, mental or physical disabilities”.
This is a common position among small-l liberals of the centre-right, and I see this as a key ideological dividing line between liberals and social democrats.
I place myself on the other side of that dividing line: I do care about inequality, and I think Governments should act to reduce inequality above and beyond ensuring a formal equality of opportunity, or ameliorating extreme disadvantage, or protecting people with disabilities.
I’d like to address a few of Joye’s points in turn to demonstrate where our reasoning differs (and where our ideology differs, too). As an aside, I’d like to note that the question of how much inequality we should tolerate is an inescapably ideological question, one of moral and political philosophy.
Equality of outcomes vs equality of opportunity
I view this as a false dichotomy. I will assume for the purposes of this post that Christopher understands equality of opportunity to mean equal treatment before the law and by public institutions, in other words ‘procedural fairness’, plus perhaps support for public school education. If society ensures equality of opportunity, defined in those terms, should we be comfortable with the dimensions of the inevitable inequality of outcomes that results? I suggest not.
Over time, vast inequality of outcomes erodes equality of opportunity. Wealth, privilege and connections are handed down through generations. Last generation’s meritocrats [fn1] become this generation’s entrenched, quasi-aristocratic elite, able to secure their children’s place in the hierarchy by paying for them to attend expensive schools, or by buying them houses or providing start up capital for entrepreneurial ventures.
If we were to start in one generation with a truly level playing field, with meaningful and substantial equality of opportunity, subsequent generations would nevertheless face unequal opportunities by virtue of the intergenerational transmission of relative status. Significant disparities in parental incomes, and therefore disparities in access to high quality education and health services, stable housing, and the justice system, erode poorer children’s ability to achieve their potential, even if there is procedural fairness. Equality of opportunity is an unstable equilibrium.
Another way of saying this is that social mobility, the likelihood that children will end up in a different earnings quantile than their parents, is eroded by inequality. This makes intuitive sense: the longer the ladder between the bottom and the top, the less likely it is that poor children will manage the journey from bottom to top, whatever their ability, and the less likely it is that rich children will slide down the ladder even if they lack ability.
As it happens, Andrew Leigh and Dan Andrews of Harvard University have quantified this relationship between inequality and social mobility. According to Leigh and Andrews,
“sons who grew up in more unequal countries in the 1970s were less likely to have experienced social mobility by 1999. Across countries, our estimates suggest that a 10-point rise in the Gini coefficient is associated with a 0.07-0.13 increase in the intergenerational earnings correlation. Moving from rags to riches is harder in more unequal countries”.
So, even if you are only concerned about equality of opportunity and social mobility, there are good reasons to be concerned about gross inequalities of outcomes.
What is ‘extreme poverty’?
Christopher indicates that he is concerned about ‘extreme poverty’, and supports its amelioration. He implicitly draws a distinction between extreme poverty (presumably defined in absolute terms) and relative poverty. This distinction has been the basis for the famed ‘poverty wars’ of Peter Saunders (et al) vs Peter Saunders (et al).
The question for those, like Christopher, who express a concern with absolute or extreme poverty, but not with inequality or relative poverty, is to define what they mean by absolute poverty. Is it a fixed quantity of income, for example $US2/day? If so, that is very low, and is indeed an arbitrary figure. Is it the quantity of income necessary to acquire a fixed basket of goods that are seen as being required for subsistence? If so, what is in that basket of goods?
I think we’ll find that defining which goods and services are necessary to live in dignity in a civilised society is a necessarily relative question; the answer depends on the prevailing attitudes and norms of the society the individual inhabits. Adam Smith famously expressed the same view in the Wealth of Nations:
“By necessaries I understand, not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without. A linen shirt, for example, is, strictly speaking, not a necessary of life. …But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt … Custom, in the same manner, has rendered leather shoes a necessary of life in England. The poorest creditable person of either sex would be ashamed to appear in public without them. … Under necessaries, therefore, I comprehend, not only those things which nature, but those things which the established rules of decency have rendered necessary to the lowest rank of people.”
In modern times, newer conceptions of relative poverty like ‘capability deprivation’ or ‘social exclusion’ have evolved to describe individuals who lack access to goods or services that are socially defined as necessary, and/or lack the capability to acquire them. Here’s Ken Henry describing Amartya Sen’s conception of capability deprivation:
Sen points to some capabilities that are close to being absolute — ‘to meet nutritional requirements, to escape avoidable disease, to be sheltered, to be clothed, to be able to travel, and to be educated’. Others, like the capability to live without shame or to participate in the activities of the community, are relative to community standards. Being computer literate was not necessary to participate in society 30 years ago, but it is now. Sen views poverty as capability deprivation. And, seen in those terms, poverty is clearly intolerable. It is a form of personal injury that should not be abided in any just society.
In the end, nearly all poverty measures in advanced societies are relative, and they are all ultimately arbitrary. In Smith’s time, extreme or absolute poverty would have been well below the level at which one could afford a linen shirt, yet he rightly saw that lacking a linen shirt would make a person feel, and give them reason to feel, sufficiently impoverished as to be excluded from the mainstream of society. In modern, industrialised society, not having sufficient income to purchase a linen shirt would be likely to put you into ‘extreme’ or ‘absolute’ poverty, but there are many newer goods that we might think of as being equivalent to that linen shirt.
By saying that he is concerned about extreme poverty, rather than relative poverty (inequality), Christopher is really just saying that he is willing to tolerate a higher degree of relative poverty than social democrats. Being willing to accept a higher degree of inequality still implies that you draw the line at some point, and that point is ultimately just as arbitrary as the point at which social democrats would draw it. [fn2]
‘Level effect’ or an ongoing trend?
Joye questions whether rising inequality is likely to be a persistent trend, or whether we have merely taken a one-off ‘step up’ to a higher level of inequality that will remain stable:
I am pretty sure that the latest research shows that rising income inequality is a relatively recent phenomenon (ie, since the 1970s), and it is not clear to me that this will necessarily persist through time. That is, it is just as likely to be a once-off ‘level effect’ that manifested as a result of the relentless centre-right campaign of market liberalisation that took place over the last three to four decades
My reading of the evidence suggests to me that we have not experienced a ‘step up’, but rather a persistent upwards trend in inequality. See, for example, Andrew Leigh’s graph of the top income shares in Australia (below).
This does not appear to be a case of ‘stepping up’ to a higher level of inequality that is then stable over time.
What alternative are we striving for? How much inequality will we tolerate?
Christopher implies that there is something of a slippery slope, that preferring ‘more equality’ necessarily leads one inexorably towards preferring ‘complete equality’. I don’t agree that this is the case. I also believe this is another false dichotomy, this time between those who are comfortable with gross inequalities of outcomes (‘libertarians’, in shorthand) and those who will not settle for any inequalities of outcomes (‘Marxists’, in shorthand).
It’s true that social democrats (myself included) have difficulty pin-pointing the precise degree of inequality we are willing to tolerate. Should we be happy with a Gini coefficient of .28? .25? .2? The judgement is necessarily arbitrary and imprecise, but it is informed by the community’s widely held sense of justice.
That is a nebulous and ill-defined means by which to assess the acceptability of a given degree of inequality, but it is nevertheless important. Joye is dissatisfied with Leigh’s reference to “Australians’ fundamental sense of fairness”, saying that we should not appeal to some “visceral gut feeling about right and wrong”. Leigh here is giving voice to the Rawlsian notion of an ‘overlapping consensus’ in favour of a particular conception of justice, which Joye swats away, perhaps because it is insufficiently quantifiable.
This question, of precisely how much inequality social democrats will allow or prefer, is no less a problem for those whose ideology stresses the primacy of liberty. If you are not a Nozickian minarchist, but you are nevertheless of a pro-market bent, you have chosen to support a degree of ‘freedom’ that is less than complete and yet still substantial. How much freedom do you support? What should be the boundary of state intervention, or of regulation? Would you like Government spending to be reduced? By how much? What is the optimal tax/GDP ratio? What are the valid functions of the state?
These questions are, at the margin, essentially arbitrary in the same way that social democrats’ answers about the preferred degree of inequality are arbitrary. You may support more freedom rather than less, but recognise some limited role for government in particular areas. Where you choose to draw the line has no more or less basis in rational analysis than social democrats’ choice of how much inequity to tolerate and how much state intervention in markets to support. It is a choice; as Ken Henry has said, “societies will choose how much inequity they allow according to the institutions, norms, laws and programs they adopt”.
In the end, the question of how much inequity we allow, and how much liberty we preserve, is one of moral philosophy and of politics. It is difficult to satisfactorily advance a position on these questions using only the tools of the modern economist, but that does not mean they should be abandoned.
——-
[fn1] Michael Young, who coined the phrase meritocracy, foresaw decades ago that a society dominated by a meritocratic elite may be no more desirable than a society dominated by a traditional aristocratic elite.
[fn2] I’d like to note here that there is a clear dividing line you could choose that is not arbitrary: the line between life and death. You could support ameliorating poverty to the extent that individuals’ lives were not immediately imperilled by lack of food and shelter. I am assuming that Christopher’s support for addressing extreme poverty extends beyond poverty which immediately imperils lives, and therefore my critique stands.
[...] Cowgill responds Christopher Joye. [...]
Good post – a much more thorough version of some my instinctual responses to Joye’s post.
The other thing that occurred to me was Joye’s apparently fairly superficial of “connectedness” as social capital. Social capital is built not just by the *number* of connections and ease of forming them (a la his social networking argument) but by *distance* (social, not geographic) of these connections. There is mounting evidence that social networking helps us connect with lots of people who are all “just like us” … and very few who are much different.
On the other hand, the clubs, political parties, volunteer organisations and churches whose membership declines Leigh speaks of are often known as places for the gathering of (relatively) diverse groups of people. In that respect I am fairly confident that Leigh’s assertion of diminish-ed/ing social capital withstands Joye’s criticism.
And to complete the circle, this is the other reason that too much income inequality matters. Social capital is what makes us behave as a (relatively) unified society, and prevents us fragmenting into societies masquerading as one. High income equality – and particularly the geographical segregation that accompanies this – makes that job harder.
[...] Go read the rest yourself. This entry was posted in Uncategorized and tagged Economics, Education, Politics. Bookmark the permalink. ← I enjoyed… LikeBe the first to like this post. [...]
Matthew you sound like a commie. Joye is spot-on. we do not need a visible hand forcing convergence in financial outcomes. More Joye less Cowgill, I say. He is also super hot while you should grow your hair long.
A good post.
Your discussion of the arbitrary nature of inequality made me think about Polanyi’s statement that “regulation both extends and restricts freedom; only the balance of the freedoms lost and won is significant”. It is a political choice and isn’t neutral. It is fundamentally about who’s freedom (or as I interpret it, capabilities) you will extend.
I was also curious about Joye stating that there is no evidence that more income inequality leads to more crime or worse health outcomes without discussing the evidence put forward in The Spirit Level.
Ok, this is a substantive post but I’ll do my best to respond succinctly.
A few points – I remain in the Joye camp ie I don’t think there is anything wrong at all with a rise in income inequality if one assumes that we have equality of opportunity; we are committed to combating extreme poverty; and we are vigilant in protecting those members of the community who are fundamentally and irreversibly damaged through, say, mental or physical disabilities”.
A couple of responses to your critiques of this:
• Re Equality of Outcomes v Equality of Opportunity. I don’t think this is a false dichotomy – it’s too simplistic, but it’s a useful basic construct nonetheless. Can we agree as basic principle that in a free society, we’d expect (and in fact hope) to see unequal economic outcomes between two people of exactly the same backgrounds purely as a function of people’s life choices? If one twin decides to spend his life as a conceptual artist living in the scrub around Byron Bay, shouldn’t we expect to see him/her earning less than a twin who chose to work as a brain surgeon in Sydney? If we can accept that, we can accept that it’s not inequality per se that we’re worried about, but the mechanism for determining the manifestation of that inequality.
What most progressives/social democrats object to is inequality that manifests itself in circumstances where it’s not the free choice of individuals. It’s here where the ‘Equality of Opportunity’ language is too simplistic. As you say, it’s too easy to kid yourself that this simply means equal protection under the law, or even the provision of some kind of baseline level of financial support. Of course most progressive policy makers now know that battling inequality is about far more than access to justice and economic redistribution. An individual’s ability to ‘choose’ to pursue a particular outcome is about more than financial security, it’s a function of parenting, local societal impacts, parenting, access to education, parenting and access to good health care. In this respect I’ve long been a fan of Amartya Sen’s Capabilities Framework for breaking this down (http://www.ippr.org/uploadedFiles/events/TaniaBLSE.ppt).
HOWEVER, the core point that we should be interested in the mechanisms of inequality, not simply outcomes is still an important and fundamental distinction that all progressives should appreciate.
• I’m still not persuaded that inequality of outcomes per se (which is all gini is) is worth worrying about. The two arguments that you advance seems to be that inequality itself entrenches inequality and inhibits social mobility. Re the Leigh research you cite, it’s unsurprising that there’s a correlation between inequality of outcomes and social mobility – as Chris Joye points out, poor countries are generally inefficient in unfair ways. but what’s to suggest that there’s a causal relationship between inequality and lack of social mobility? You could think of literally dozens of intervening variables that would both better explain a lack of social mobility (eg racism, lack of health care, lack of education system, endemic local crime etc) and would be more amenable to intervention by policy makers. I’ve always wondered why inequality researchers put so much stock in gini while paying relatively little attention to levels of social mobility (I suspect it’s purely a function of the difficulty in measuring social mobility compared to gini). Going back to my outcomes v mechanism of inequality point, why isn’t our focus on social mobility rather than gini? Why aren’t we trying to understand what prevents lack of social mobility rather than what causes inequality? It seems to me to be focusing on the macro while avoiding the micro.
• You say that there we’re facing a trade off between equality and liberty and that where you draw the line in that regard is an inherently subjective call based on different moral judgements/value calls. I’m not sure that’s the case. Hypothetically, take two countries who with two citizens – one with $8 and the other with $2. Country A pursues a redistribution policy that reduces the first citizen’s income to $7 and increases the second citizen’s income to $3. Country B pursues a growth policy that increases the first citizen’s income from $8 to $12 and the second citizen’s income to $4. That situation isn’t a trade off between liberty and equality – it’s a trade off between growth and equality. Shouldn’t the focus be on ensuring that everyone has a shot at getting better off rather than on ensuring everyone is more equal?
• Finally, the data that I’ve always wanted to see is a comparison between levels of social mobility in equal and less equal countries. For example, I’m (intuitively) certain that the levels of social mobility in France would be much lower than its macro equality standings would prima facie suggest. Similarly, I’m sure that levels of social mobility in the US would be higher than their headline equality figures. I know which country I’d rather be poor in…
Great, as always.
Tim – I little googling brings up quite a great deal of research to the effect that parental income is a better predictor of a child’s future income in the US than Europe – that is to say that income mobility is higher in most of Europe (and highest in Scandinavia). It’s a consistent and repeated result. This could be attributed to the lack of a race divide, but this raises the question of whether historical discrimination has merely left inequality that prevents the descendants of those discriminated against moving up the ladder, even when explicit discrimination is passed.This could be attributable to education – for instance there are less discrepancies between school districts in Europe – but even this is just a way of offsetting problems that happen when one generation’s inequality feeds into the next.
Interestingly Hayek also made the case that equality of outcome and opportunity could not be differentiated. His case was that since a massive incentive and motivation for most people was to give their children an advantage, worrying about equality of opportunity would be as destructive as trying to engineer equality of outcomes.
One way of looking at the inequality debate in our real context might be to ponder what is “just” if there was equality of opportunity and then seeing how the real world seems to relate to that.
We could do this by giving a moral dimension to market theories. There’s no fundamental reason for this, but it is tacitly assumed by many people. “Free markets” are a fallacy (markets are not the absence of government), but how a complete functioning market would distribute income. From this we can posit that the just outcome (above extreme poverty) would be to distribute income according to productivity, and each person’s contribution to output. Now, if we look at, say, the US, when can see that 24% of the income growth between 1997 and 2001 went to the top 1%.
From this we can assume one of two things. The first is that this 1% did grow their productivity phenomenally enough that they made up a quarter of productivity growth whilst the bottom 50% only made up 14% of the growth – or that a bank CEO is hundreds and hundreds times more productive than the median worker. The second is that we can say that the markets are not complete, and are badly malfunctioning in this regard.
I think occam’s razor and other evidence suggests the latter, at least where the super rich who are driving much of the inequality growth are concerned. It doesn’t take much to see than the BRW rich list is disproportionately made up of miners and property developers, media moguls and other industries where government licences and deals are essential – i.e rent seeking opportunities are high. It’s also easy to see that the flaws in corporate governance and the rise of institutional investors mean that executive pay is not determined in any real market, but is based on social norms amongst a very small group of men (the principals (shareholders) find it impossible to control the agents (executives) either because the shareholder democracy is weak or because they are several institutions distant).
The burden of proof is on the assumption that this income is productivity based, the default assumption must be incomplete markets.
If we assume that a market system is either virtuous for moral reasons, or even just effectiveness, inequality (at least of the super rich sort) is still a worry – since it indicates that the markets are not operating in some aspect.
As for inequality in the larger swathe of the population, my main concern is that it does beget further inequality of opportunity on the next generation, and this goes beyond that easily rectifiable by government (education, HECS etc.). There’s soft discrimination where traits associated with the middle class are treated favourably – i.e two identical applicants, but the one with the ocker accent is passed over.
Fair enough Richard – I shouldn’t rely on my bias against the French over real data!
Still not convinced on the broader point though – it’s unsurprising that inequality and inter-generational inequality are correlated – but I’m not convinced that there aren’t better, and easier to address, causal reasons.
Thanks for the comments, everyone, I will try to reply tonight
haha CJ used to heart MC, the honeymoon is now well and truly over. I think CJ is sailing perilously close to a defence of the “gilded age”. I can relate to a few of CJ’s comments that you have used him as a bit of a straw man though. As to whether the recent growth in top end incomes will level off, or continue – time will tell. The moral and political debate we should be having is “do we think this is a good thing?”
His and yours were good posts, and I see that Joye has now responded to your response. Perhaps you could respond a la Inception: “We need to go deeper.”
Though your intent was to deconstruct Joye’s article, I’d like to see your rationale for and ideal implementation of redistribution. To what extent should we redistribute? Is it sufficient to impose higher (high) inheritance taxes? Should private schools be abolished?
Would equality of opportunity ruin the perfect storm of obscene natural talent and excellent schooling that often propels forward the world, a la my homeboy Adam Smith? By all accounts, he had much to owe to excellent middle schooling, to firm parenting, and to an excellent university professor.
And what of liberalism’s obvious failures? Gun control in the USA is a hot topic at the moment, or at least it should be. Is there a correlation between liberal views and wealth (the former encouraged by the latter; a rationalisation of one’s success)? Does compensation for military duty amount to coercion of those from lower socio-economic trappings?
Me, I’m 95% preferential utilitarian, about 10% social democrat, and the rest is Rawlsian. So, for mine, capability realisation matters naught relative collective satisfaction. But, putting that aside, I’d like to see more redistribution, but also more liberation of the oppressed…
I didn’t really read all of Joye’s post when I first saw it and just now I didn’t really read all of this post. I note both posts are full of assumptions.
In Joye’s post, it was the first column he has written that I have agreed with – after all his economic predictions are usually wrong.
It isn’t that bad if we assume equality of opportunity. However I don’t assume equality of opportunity because we don’t have it.
To even have equality of opportunity, you have to be sufficiently educated to know what that opportunity is.
To be sufficiently educated to know about opportunities, you have to be able to afford an adequate education. Thus if you are impoverished, you are not able to afford an adequate education.
I also see myself as someone of a classical and social liberal blend with a touch of social democrat. I only add that because Matt included liberals of all persuasion above.
Just like on Matt’s previous post, if he wished to make a political point rather than just debunking The Australian he could have shown this graph which debunks the story about real wage increases for workers with productivity growth. From there we can see the cause of the ongoing crisis with all that capital being invested by financiers instead of productivity.
Actually, Joye’s response contains quite a few points that not only wrong, but maddening. I’ll jot them here so that either he reads them or you note them.
“Since seeking the equality advocated under the socialist model destroys our incentive to work (given we have no reason to do so with guaranteed welfare), which in turn undermines the viability of the overall system’s integrity (as demonstrated by history), we are left with the inherently individualist capitalist solution.”
People are never motivated solely by money. Mastery, enjoyment, respect, pride, babes, and so on, are all reasons for work and achievement.
“But if you have talent combined with patience and persistence, there are few real barriers to progress in contemporary Australia (again, there are clearly exceptions found amongst various minorities).”
Tragically, this is very untrue.
After reading Mr. Joye’s original piece, Matt’s post, all the comments and Mr. Joye’s reply, I would like to make some comments, for what they might be worth.
Matt’s post, as another commenter said, is substantive in an abstract, theoretical sense, as many of the comments it generated.
And while this content is certainly instructive, it also fails to address what I believe is the main reason why some people are comfortable with inequality. The reason is that inequality gives these people differential access to power, economic and political, and social status.
Another commenter (Richard Green) hinted at this, in a somewhat limited manner, when he said:
“It doesn’t take much to see that the BRW rich list is disproportionately made up of (…) industries where government licences and deals are essential – i.e. rent seeking opportunities are high.
“It’s also easy to see that (…) executive pay is not determined in any real market, but is based on social norms (…).”
One could also add other common perks that often go with the position: just ask American and European bankers, or Australian miners, for that matter.
As I see it, and I might be mistaken, Mr. Joye’s The Drum piece reveals that he is personally comfortable with this. I myself don’t’ blame him, nor do I have any difficulty in seeing why.
Further, Mr. Joye does not support his position with empirical evidence (except that lonely piece of evidence provided by Matt himself, which Mr. Joye interprets in a rather peculiar manner).
[...] Matt Cowgill replied: I view (equality of outcomes vs equality of opportunity) as a false dichotomy. I will assume for the purposes of this post that Christopher understands equality of opportunity to mean equal treatment before the law and by public institutions, in other words ‘procedural fairness’, plus perhaps support for public school education. If society ensures equality of opportunity, defined in those terms, should we be comfortable with the dimensions of the inevitable inequality of outcomes that results? I suggest not. [...]
One point that Chris makes, which I think is reasonable, is that discussion about inequality, its impact and what should be changed is too vague. There is a broad consensus amongst progressives in Australia that there is too much inequality, but by how much? Along which dimensions should there be changes? What institutional changes should be made? What is the political strategy to bring that about? Are wage shares and wage setting mechanisms an appropriate focus for concern or should there be more emphasis on social transfers? Does the system of social transfers itself need to be redesigned and if so, which taxes should be raised to pay for it? For example, I’d like to see much more discussion about the flexicurity models employed in Scandanavian countries like Denmark.
This discussion has been interesting but I agree with Chris’ views on this. Equality of outcome, a very social democratic idea, is based more on a utopian view of society rather than a realistic assessment of individual tastes and preferences. In an effort to conform society by force to an ideological dogma, Matt’s ideas will distort both society and the economy.
In accepting inequality (which Matt and others have done) they qualify this by looking at the degree of inequality as a key measure for what policies must be enacted. This ends-based focus has been used by regimes in the past to justify egregious economic policies which end up hurting the very people they seek to help. Additionally, policies to redistribute wealth distort incentives and tend to be predicated on the idea that no matter how high the tax rate is, people are still incentivised to make wealth which is then siphoned off as redistribution.
Equality of outcome by necessity means illiberal acts to restrict the capacity of people to earn an income or to enjoy the fruits of their labour. This creates the incentive for people to move to a more liberal environment where their efforts get a just reward. Ultimately losing the Treasury funds which are then redistributed to other people.
Similarly, restricting upside wealth creation disincentivises risk-taking or incentivises complex tax structures to mitigate tax bills. Risk-taking is an essential part of wealth creation but if post-tax profitability is lower due to an equality-of-outcome approach then entrepreneurs and investors have an incentive to minimise the tax bill or move capital off shore. The ultimate outcome is lower revenue into the Treasury to be redistributed to poorer people.
I think the most interesting statistic I have read is the proportion of income tax collected from the richest 1 % in the UK. In 1976-77 11% of the total tax collected came from the top 1% (at a time when the rate was as high as 83p in the pound) whereas in 2008-09 the top 1% contributed 23% of the total income tax collected. The upward shift occurred and continued after Nigel Lawson significantly reduced the top rate of tax.
[...] Cowgill isn’t convinced. At his blog We are all Dead he argues that inequality of opportunity is unsustainable without some limits on inequality of outcomes. He [...]
Sean said,
“I think the most interesting statistic I have read is the proportion of income tax collected from the richest 1 % in the UK. In 1976-77 11% of the total tax collected came from the top 1% (at a time when the rate was as high as 83p in the pound) whereas in 2008-09 the top 1% contributed 23% of the total income tax collected. The upward shift occurred and continued after Nigel Lawson significantly reduced the top rate of tax.”
It is indeed an interesting statistic. If I understand your point, the tax contribution of the top 1% income earners in the UK more than doubled (an increase of 109.09%) between 76-77 and 08-09.
However, I would have thought that only part of the big picture and that, in order to see it entirely, one needed some idea of how their incomes increased in that period.
Luckily that detail can be provided. According to Atkinson, Piketty and Saez, during the 1976-2005 period (their file does not contain data for the period 06-09), the proportion of before-tax income accruing to the top 1% of the UK population increased by 141.94% (passing from 5.89% in 1976 to 14.25% in 2005).
In other words, although the price of the pie paid by the top 1% of the UK taxpayers increased (109.09%), the size of the pie increased faster (141.94%). And the Atkinson, Piketty and Saez data does not include the years 06, 07, 08 and 09.
Magpie,
Thanks for the statistics. I forgot to add that it was 83% top marginal tax rate but this was reduced, eventually to 40% in the late 80s. This means that despite the marginal tax rate being reduced by more than half, the amount of money being taken in as a proportion of the tax rate more than doubled.
Sorry I haven’t had a chance to reply to all your comments yet. Thank you for leaving them.
—
Iain,
On the social capital front, Leigh and others tend to break down our connections into ‘strong ties’ and ‘weak ties’. I think there’s reason to believe that the internet has been a net positive for weak ties, while perhaps not offsetting the decline in strong ties that predates the internet. This is not an area I know much about though, so I don’t want to comment too much. On the relationship between social capital and inequality, yes, that was a point I made in my review of Leigh’s book: http://mattcowgill.wordpress.com/2010/10/10/book-review-disconnected-by-andrew-leigh/
Rachel,
Thank you for that incredibly constructive comment.
Oz,
Thanks! I have to say I’m a little bit skeptical of the claims in the Spirit Level… I would like them to be true, but I’m not convinced they are. For one thing, studies examining the changes (as opposed to the levels) of inequality show that the relationship between inequality and outcomes in other areas (health, crime, etc) are less strong than the authors claim.
Tim,
I suppose it’s not a false dichotomy, but it is a gross simplification. I also think that advocating equality of opportunity, if you mean it, leads you towards an activist rather than minimalist role for public policy. It is difficult for me to see how a person could reconcile a desire for equal opportunity (if by that you mean something more than procedural fairness) with opposition to public policies (tax, welfare, spending, regulation) that would help bring it about.
On your question about basic principle: yes, we can absolutely agree on that point. A society in which individuals receive no return to effort would be as undesirable (ie. in which there is complete equality of outcomes) would be as abhorrent to me as one in which was no prospect of social mobility. That’s why I resent the suggestion by some (including Christopher, on my first reading) that anyone who wants to reduce inequality of outcomes wishes to impose complete equality of outcomes. That is not the case for me, nor for many (most?) advocates of reduced inequality.
On your final point about France, you’re right (I emailed you about this). The OECD surveyed the literature on intergenerational mobility and found that more inequality is correlated with less social mobility. However: “”The exceptions include Australia and Canada, which combine high mobility with only
moderate inequality, and France which has lower mobility than could be expected from its level of
inequality”.
Richard,
Thanks! Thanks for the thoughtful comment, too.
Timothy,
It wasn’t my intention to misrepresent Christopher’s position. His second post makes it clear that by ‘equality of opportunity’ he means something more substantial than I assumed he meant. That obviously softens my critique of his position. Indeed, on reading his second post, his position doesn’t appear a million miles from my own. However, the phrase ‘equality of opportunity’ is sufficiently nebulous that one could use it to mean a range of things, and I therefore had to assume he was using it in a particular way.
Chrisovarian,
Thanks.
Senexx,
I am also quite sympathetic to aspects of the liberal tradition. ‘Social democracy’ is really a label that conceals a hodge podge of philosophical strands. Rawls saw himself as a liberal, and modern American liberalism as being part of a continuum with JS Mill, et al.
Magpie,
I guess you’re right, but I don’t like to stray into that territory because it becomes a bit too close to ad hominem “you like inequality because you’re well off” sort of stuff. I’d rather stick to abstract reasoning.
Labor Outsider,
I was quite clear in my post that I do not know what my ideal distribution would be. Andrew Leigh has made the same point: he advocates increased inequality, but cannot be specific about the quantum of the desired increase. I responded to this point in my post by noting that I think this is as much a problem for people who advocate an increase in ‘liberty’. On your final point, a colleague of mine has published a piece on the applicability of the flexicurity model to Australia in the latest Australian Bulletin of Labour.
Sean,
Your argument is certainly a valid position, but it is a position based on a priori value judgements just as mine is. It is no more or less ‘right’ in an objectively assessable sense. For a response to your final point, see the comment above.
Magpie,
Thanks for that.
Matt,
With respect, you’ll find that, at both ends of the food chain, abstract ideas acquire a very concrete and deeply personal meaning.
In any case, your house, your rules, and I apologize for breaking them.
Matt,
I agree that the extent of inequality that we are comfortable with is a value judgement. People are more willing to accept higher inequality as long as there is the capacity for people to move up by, amongst other things, a public education system, public housing and a welfare safety net (I accept that the last point tends to be contentious) which allow people to have a certain standard of living but with upside potential of far higher earnings.
No worries at all, I didn’t mean to suggest that your comment was out of line (or wrong), just that it’s an argument that I’ve shied away from making myself.
[...] By equality of opportunity, I meant equality of all future possibilities that a member of society could reasonably expect to have a shot at benefiting from: eg, access to similar levels of primary, secondary and tertiary education; health services; public amenity, such as transport and public spaces (eg, parks); utilities; a fair and easy-to-access legal and judicial system; the safety and support afforded, respectively, by law enforcement and emergency agencies; and, as Matt himself argues, access to similar prospects to progress vocationally [Joye is referring to this post by Matt Cowgill]. [...]
[...] Joye takes issue with an AFR piece of mine on inequality, and sparks responses from Matt Cowgill and Club [...]
[...] “good” and “bad” inequality in a more succinct manner than I managed in my response to Christopher Joye back in January. Milanovic argues that we [...]
[...] written before about my belief that inequality matters. Even if we manage to eliminate absolute poverty within a [...]
[...] Why care about inequality? [...]