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04/23/2006

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John Kelsey

It's not the shape of the distribution that matters, it's the fact that not all kids start school with the same abilities, and thus even giving everyone the same education won't level those abilities out. Further, I expect that a really good education will increase inequality in outcomes, since really smart people will benefit more from it than less smart people.

N.E.Hatfield

As various educational psychlogists have continually pointed out, the first four to five years of life are the most critical in the intellectual development of a child. Or as a Jesuit educator observed, give me the child for the first ten years of life and I will set him on his future path.

To deprive the child in their formative years is to deprive them of a future in adulthood. Such is the insidiousness of Educational Plutocracy.

Jay Jeffers

It's true that school funding will not solve the problem by itself and "the problem" we speak of, (differences in academic and life achievement), may never be solved at all. There are large urban and minority school districts where spending per pupil has risen dramatically in recent years and is apparently equal or greater to spending in many "white" or suburban school districts. But I am skeptical if this is the case in most places. In Arkansas, for example, the largely African-American Delta region has very poor schools and I can comfortably say that spending per pupil is much less than in the booming Wal-Mart, Tyson Chicken Northwest Arkansas economy. That bothers me even though I don't see an easy solution.

To the extent that the educational experience is substantially equal in terms of providing opportunity, great! After that education has done its part and any leftover inequality is not due to the school system. But if kids in Washington D.C. have to worry about getting gang-banged in the hallway, (thereby turning their energies to forming gang alliances and acting tough, rather than concentrating on academics), then their educational experience is not the same as kids in the Virginia suburbs, no matter how much is spent per pupil. Schools should be SAFE, the plumbing should work, the lights should come on and off, the teachers should be competent, curricular opportunities should not be substantially different from other schools, etc, etc, etc. When and if we can say that about all schools in America regardless of what neighborhood these schools are in, then we can say that any leftover inequality is due to people's abilities and/or preferences. Schools which fail to give their students a safe environment to learn and socialize at a level roughly equal to students in other schools, (who our "poor" kids will be competing with later in life), are called "bad" by me.

Even if people have differing abilities, that doesn't mean they deserve to live in dangerous neighborhoods with "bad" schools, since their children may after all be much smarter than them. A school which gave its students the same OVERALL educational experience that kids in Northwest Arkansas or the Virginia suburbs get could not be said to be bad even if its students failed to achieve minimum standards. I just don't believe that we can say that about most schools though, especially schools where poor children disproportionately attend. Even IF we posited that most of the poor (just for argument's sake) were poor because of their abilities, that could still in principle leave a very sizable minority of the poor who are poor at least in part because of living in dangerous areas, sending their kids to "bad" schools, having liquor stores and XXX shops closer to their homes than others, having meth labs down the road, etc. Those on the low-end of the income scale are exposed to these things disproportionately, and the middle class is exposed to these things increasingly, it seems. To be upper-middle class or rich is to have some degree of insulation against problems like those outlined above. Granted, if someone is living in sub-par conditions, they probably should not be spending money on gameboys, DVD players, etc. However I still assert that there are many who can't escape their situation by simply cutting spending on the gadgets that are now available to more people than ever before.

So yes in many ways quality of life is on the rise for virtually all Americans. But I have been poor before and many in my family still are, and I see certain pressures in their life that those who aren't poor don't have.

By saying all of this, I am not suggesting that there are easy solutions to these problems or that I know that there are good solutions available at all, since the solutions may be worse than the problems. But that doesn't mean there isn't a problem. A certain amount of unfairness may be inherent to human experience, I donít know. However the poor are exposed much more; therefore I say income inequality is a problem.

Is the picture I've painted above accurate?
If the answer to the question above is yes, doesn't it follow than income inequality is a problem, assuming we care about the life situation of other people?

Sorry for 2 long posts, I just hope we can hone in on the issue.

spencer

Economic theory says that rising income inequality should lead to greater savings and investment that creates so much extra income and/or jobs that everyone is better off.

But over the last quarter century the sharp rise in income inequality has been accompanied by a collapse in personal savings and a sharp drop in the share of gdp allocated to business fixed investment. Moreover, the growth of per capita real income has slowed sharply -- from 1960 to 1980 it averaged 2.9% and since 1981 it has only averaged 1.9%.

So without even considering the question of who has benefited, or what poverty is, it is obvious that the growth in inequality over the last quarter century has not generated the welfare gains it was suppose to. Actually, a stong argument can be made that the growth in inequality has made us all worse off -- including those in the top of the income distribution.

CompanyCounselor

Interesting statement on pay based on merit, but what about severance packages. Why is it that executives get to negotiate 6 month, 1 year, 18 month, etc. severance packages at the beginning of their employment when the rank and file do not? Doesn't this give them incentives to not care too much about how the company is managed? If the company does not do well and get sold or go bankrupt, don't they still get an upside?

N.E.Hatfield

Spencer, In the past it was called by Economists the "Trickle Down Theory". With the advent of "globilization" and the advent of "Cutcost/LeastCost" business models now extolled in the MBA programs across the Nation (they're actually like a rabid and ravenous wolf thats gotten hold of its own tail, eatin it, and is now starting on its shanks) the economist need to return to their offices come up with a new economic paradigm, the "Trickle up theory". ;)

Corey

Ok Judge Posner, after reading your post on a break from exams and law review work, I have decided to take your message to the people. As soon as I finish writing this, I will go down the street one block from Indiana Law and tell all of our local homeless people that one of the most respected legal minds in the country has concluded that: "poverty is a pseudo-issue here," and if they are hungry tonight, they should eat their "bundle of equal political rights" because really, they are like income.

Personally, I find that right to free association tastes really good with cake, but sometimes, after a hard day of picking up crusty dimes off the sidewalk, a little bit of hot steaming 4th amendment is just what a tired homeless veteran or battered mother of 3 needs.

Perhaps we should create a market where people who are struggling can bargain away their previously unequal rights. That will teach them the true value of being an American! I never ever use my right to bear arms, maybe I could get a new car for it so my friend can drive to a job.

I'm sure the thousands of people in Bloomington who lost their jobs when the local RCA factory closed will take great comfort in knowing that overall, the quality of TVs has vastly improved. If they could afford one, why they would be rich indeed!

And what comfort to the local indigent to know that Kenneth Lay also gets hassled by the cops. Sure, when they get jailed it is for stealing beer so they can feel like a normal human, and Kenny Boy got it for not being content with 5 houses... but I'm sure the solidarity will hold up in the end.

Sarcasm aside, you are right, it isn't about poverty. Income equality is about the upper class benefiting off the labor of the middle. It is about cutting capital gains and dividend taxes, sending every American a $300 check, and getting away with the scam. Things have clearly not become so disparate here in American that I or anyone else can sustain counter-hegemonic social movements, but maybe the time is coming. I couldn't find it on Fox news but apparently there were huge protests over immigration recently. Who might those many thousands of angry citizens and immigrants turn on?

With all this talk about the diminishing marginal utility of wealth, it makes me wonder why people who have wealth guard it so jealously from efforts at redistribution. Bill gates is living better than any of us and he gave back $20 Billion already, so what is wrong with the Waltons and Buffet?

Oh, and incidentally, yes America does have an aristocracy. De Tocqueville identified it over 150 years ago... that would be the lawyers; plugged into the socio-historical genetics of legal rules, with a privileged understanding and control over the prime organizational power in our corporate dominated society. But it is a secret aristocracy, never to be spoken of in public. That fact is never more obvious than when lawyers begin discussing the existence or non-existence of the problem of income inequality.

Hans Gruber

Corey, the homeless issue is more of a mental-health and substance abuse issue than a poverty issue. I would prefer we do more for these individuals, but that'd probably include things you liberals don't like--forced rehab, for example. But it does seem to be a different issue than what most people mean by "poverty."

Corey

Regarding poverty, Posner said:

"The reason is that in such a society the poor tend to be people who are not productive because they simply do not have the abilities that are in demand by employers. It is unlikely that everybody (other than the severely disabled) can be trained up to a level at which there is a demand for his or her labor, and so there is likely to be an irreducible amount of poverty even in a wealthy society such as ours, unless we provide generous welfare benefits--which will discourage work."

So which is it, are the poor too lazy to work or are they too stupid to learn? How exactly do welfare benefits to untrainable people discourage work that they can't get anyway because they are unskilled? This is blame the victim mentality turning on itself.

You seem to have forgotten the widespread American norm that charity is bad and is a badge of inferiority. I would recommend watching the movie Cinderella Man by Ron Howard, watch how the rags to riches boxing star's most heroic act is shown to be his return of all the welfare money that he reluctantly collected during the depression.

This cultural norm against accepting charity is widespread, it is used to look down on people who take welfare or file bankruptcy, and it means that most if not all people would rather work and pay their debts than take a handout.

Our society has less social welfare than any comparable industrialized economy. Discouraging work should be the last thing we worry about. Rather the issue is what level of living wage is necessary to allow people to sustain themselves and their families through work. Becker blames the disintegration of family for the lack of educational or economic success of certain groups. So how much does a family have to earn off how many jobs to keep it from disintegrating?

Corey

"but that'd probably include things you liberals don't like"

We prefer the term "leftist" Somehow "liberal" connotates an affinity for classical American- or neo-liberalism and a repressed freudian desire to drift moderate and get votes. Plus Ann Coulter and Fox has made "liberal" a swear word, like "union"

Yeah, sometimes homeless people are that way because of mental illness, substance abuse, or some other pseudo-voluntary undesirable quality you might like to have them remedy as a condition on your charity. Other times they are homeless because of actual child or spouse abuse, handicaps, or just plain bad luck.

ben

Corey

After reading your post I realize sarcasm is not only the lowest form of humor. It is the weakest form of argument.

As usual, you misrepresent what Posner said and attack a straw man. Because of this, the first five paragraphs of your first post are pointless.

You then, yet again, complain about returns to shareholders, knowing full well that you or anyone else can buy shares or start your own business and earn those returns yourself. These are not exclusive clubs: there are 5.4 million small businesses in the US, and 50% of households own shares in public companies.

Wrong on the next paragraph too. The giving of the super rich has increased sharply in the last few years. There has been an increase in charity by living donors. There is nothing wrong with Buffett: I understand his wife's $2.5 billion estate has been donated to charity, and most of Buffett's $41 billion is earmarked for charity.

Yong

Unstable growth in income inequality

Consider two men who are equal in every respect -equal in health, ambition, intelligence, social skills, and all the other factors that Judge Posner listed - except that one was born richer than the other, say by a million dollars that the rich man inherited from a dead relative. What will happen to the income gap between the two? Clearly, the gap will only grow like a snowball if all circumstances such as ambition and intelligence remain the same between the two men.

Suppose the two men work in the same kind job as a result of their equal intelligence and skills etc, a job that pays just enough to support the living expenses of an average American family. The richer man's wealth will grow at a rate per year compounded, typically 8%, whereas the poor man's net worth will remain at zero forever. The wealth gap between the two quadruples in about 15 years.

Although the poor man is still poor, the increased wealth of the richer man will increase the average wealth of the two. As a result, the cost of essential services such as health care, energy, insurance, education, housing etc will increase. Hence, relatively, the poor man will in fact become poorer, even though the poor man is still as intelligent, ambitious and sociable as the rich man.

Clearly, income ineqality is much like a two-legged stool that is inherently unstable and will only get larger if everything else remains the same and equal.

The man who was born rich is more likely to be able to pay his children to be well educated to become professionals such as doctors and lawyers, whereas the poor man's children are perhaps more likely to find themselves doing less rewarding and more dangerous jobs, such as serving in Iraq.

Because the initial wealth gap cenables the rich man to gain at the poor man's loss even though they are equal in all other ways, the richer man must be taxed in such a way that the relative income remains more or less the same. What that gap should be is a matter to debate. To let that gap grow out of control cannot be justified. There may be natural mechanisms to contain the growth - for example the richer man may be more likely to gamble his money away or to become lazy, but such mechanisms do not help the poor from lagging behind the advancing average.

Haris

Yong

Your post makes an excellent argument for high estate taxes that prevent such wealth from being passed on. To be fair, accumulated wealth is necessary for investment, but high estate and inheritance taxes would encourage consumption prior to death and lessen the advantage that some people get simply because they are born into the right family.

Corey

"you or anyone else can buy shares "

Oh, yeah, I forgot that I can just make money appear and use it to invest. Thanks ben! I will tell my homeless friends they should invest too! I just can't understand why they haven't already.

"After reading your post I realize sarcasm is not only the lowest form of humor. It is the weakest form of argument."

I wasn't trying to argue according to your hegemonic definition of form. One has to respect an argument before taking it on its terms. I was trying to point up how aristocratic and out of touch the post might sound to someone who was struggling to get by. (A group that I am pretty sure doesn't read this blog) It seems a bit silly to have a discussion about income inequality that only includes people on the high side of the gap.
"oh its a non-issue" vs. "we should have more pity"... well what about "give me my fair share"

I'm sure the judge appreciates your efforts to defend what he said. Maybe he will give you a cookie.

Wes

Public policies designed to reduce income inequality, such as highly progressive income taxation and middle-class subsidies, are likely to reduce the aggregate wealth of society,... It is true that progressive taxation and other income-equalizing policies are found in rich rather than poor countries.Clearly, it is possible for a country to have progressive taxation and also be a rich country. On the other hand, not counting countries with lucrative natural resources (eg. oil), there aren't very many examples of rich countries that have done away with progressive taxation and allowed massive wealth inequality to develop.Interestingly, the recent trend in the United States has been to do away with progressive taxation and allow wealth inequality to increase. Ultimately, no one really knows whether there is a point at which too much wealth inequality will start to severely cripple the US economy.By allowing wealth inequality to increase, the Republicans are doing an interesting economic experiment. Maybe they will squeeze a few more percentage points of efficiency out of the US economy or maybe they will cripple it severely. Being a scientist I actually like experiments. What has me worried is that if too much wealth inequality does turn out to have a severely crippling effect on the US economy (ie. the US economy starts to substantially lag the more socialist economies of other rich countries), it is unlikely that the Republicans will have the intellectual honesty to recognize this and reverse their policies.Even if the health of the US economy was at stake I would not expect the Republicans (as exemplified by the Bush administration) to admit their mistake and re-impose a progressive tax to re-equalize the US wealth distribution.

Corey

It doesn't matter Wes because the republicans are done as of this Fall's congressional elections and are out of the White house for a long while in '08. More and more social conservatives are realizing the folly of voting their bigotry over their pocketbook. Its about time for another rousing chorus of "oh how could we have been so stupid as to believe in RegaBush?"

The better question is have the Democrats gone so far toward the middle that they won't think to change the policies when they take back over. Wealth inequality grew under Clinton too. I think it really is a question of whether profits go to dividends or to wages. Can we think of someone who we know would change that set of policy preferences?

Nader in '08!

Haris

Ironic to see someone espouse using profits to increase wages and also bemoan the plight of now unemployed former RCA factory worker on the same website. As if forcing redistribution to the workers will make companies want to create jobs here. Fortunately, sending jobs abroad does lower worldwide income inequality, so maybe Nader would be good for the world.

james janecek md

One of the nice thing about living in Minnesota is all the charming egalitarians continue to strive for equality by spending public money.

Most recently the Minneapolis School District took advantage of President Bush's generosity and offered tutoring to those who needed it. The results were not awe inspiring.

"...The dominant provider of required after-school tutoring in Minneapolis didn't produce any better reading gains last year than those for students who skipped tutoring.
That's the result of a new district analysis that scrutinized gains by elementary students who got after-school help that must be offered under the federal No Child Left Behind law...

The article was authored by Steve Brandt in the 28th of April edition of the StarTribune. The URL is: http://www.startribune.com/1592/story/398387.html

In 1906 Pareto discovered that 20% of the people controlled or owned 80% of the wealth. Subsequently, this became the 80-20 rule where 80% of the results come from 20% of the effort.
In spite of being widely discussed and witnessed in a host of business and other applications tbe 80-20 rule has yet to influence politicians.

No doubt with extraordinary efforts and state power it may be possible to even things up a bit but the results will be minimal compared to the effort required. In the age of information and technology intelligence matters and nature distributes it unfairly but predictably on a Bell Curve distribution.

Corey

"As if forcing redistribution to the workers will make companies want to create jobs here."

First, it isn't a re-distribution because there is no transcendental entitlement you can claim to the current distribution. It is an alternate distribution based on a different set of core principles.

Second, you don't get far attacking radicals with the radicalness of their positions. If I am willing to force living wage minimums then one might easily conclude (and be right) that I am also willing to be protectionist by classifying offshoring as an externalization and severely taxing it. (Or alternatively by holding multinationals to the same labor laws elsewhere as they would be subject to here)

And yes I realize that would lower total GNP and I would be distributing a smaller pot more equitably. However I believe it would still do better for all but the richest Americans.

"In the age of information and technology intelligence matters and nature distributes it unfairly but predictably on a Bell Curve distribution."

Funny how often the bell curve comes up in discussions about equality and distribution. The implicit (and retrograde) assumptions you make are that there is only one kind of intelligence that matters, and that it is objectively measurable. In reality, intelligence is tested against a norm, that norm is "prior successful individuals," because of past and present overt racism and sexism, prior successful individuals are overwhelmingly white males. Thus, intelligence norms perpetuate the effects of past discrimination.

There are multiple intelligences and there are multiple paths to success. The more you insist on objective criteria as markers for distributing opportunity (educational or economic), the more you limit the number of paths to success and power. At every stage of life people are measured against prior norms and tracked. "Standards" determine their opportunities (admissions, scholarships, hiring).

Yet standardized tests reveal a performance gap that persists even when you control for socio-economic background, education, and other race-neutral factors. (see recent studies on the LSAT at Berkeley) That leads to one of two conclusions, either there are different bell curves for different races, or "intelligence" is measured in a culturally biased way. I say it is the latter.

Which is why I support distributions according to need, not according to merit. merit is a culturally loaded and potentially discriminatory concept.

Corey

To further illustrate my point about discriminatory norms, look at Posner's opening paragraph:

"I would add only that as society becomes more competitive and more meritocratic, income inequality is likely to rise simply as a consequence of the underlying inequality--which is very great--between people that is due to differences in IQ, energy, health, social skills, character, ambition, physical attractiveness, talent, and luck."

Social skills, character, and physical attractiveness are all normatively loaded concepts. There is a culture-specific answer to how to behave, what character traits are admired, and what is attractive. In a majoritarian society, the majority culture will dominate in selecting candidates based on these characteristics.

So you don't even have to believe me that IQ, SAT, LSAT, and similar tests are culturally biased. Clearly many of the other characteristics Posner identifies are. If you want to do something, say... be a judicial clerk, there is a set of characteristics, a way of thinking about law, a manner of dress, speech, and deference to authority that you must adopt.

That much is uncontroversial, the trick is, someone has simply decided that those traits = good clerk candidate. It is derived from history and tradition, the standards are cultural, learned. They only represent transcendental objective merit if you believe in a particular American mythology of transcendental objective merit.

Corey

That is, if we did things a different way, a different set of people would be smart (and rich.)

ben

Oh, yeah, I forgot that I can just make money appear and use it to invest. Thanks ben!

My point, Corey, is that there are no barriers to entry into ownership of capital (recognizing that not everyone is in a financial position to buy). This means that your theory of undue returns to capital is probably wrong: free entry will equate returns to capital and labor. Otherwise there is a "free lunch".

I was trying to point up how aristocratic and out of touch the post might sound to someone who was struggling to get by.

You have mis-read the post. Posner anticipated your concern but pointed out it is peripheral to the issue being addressed. That is not the same as saying poverty doesn't matter - quite the opposite. He could have just ignored the issue entirely. Must poverty itself be discussed in detail any time it is peripheral to an issue?

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