This is a persuasive account. However, a few points.

It seems that one way to combat the problem of poverty is to lower the costs of a decent life. If housing, food, and so forth are cheaper, then lower incomes are needed to survive and live relatively well. In other words, efforts to reduce poverty could be directed at reducing "the poverty line."

Unfortunately, in the U.S., the "poverty line" is a useless barometer of what it actually takes to live a decent life, for several reasons. Geography plays a major role in true cost of living, but the official government estimate is an across-the-board figure. Moreover, the methodology (cost of food times three) is questionable.

However, pushing at this problem in the other direction is that societal standards of what it takes to live a "good life" tend to rise as the costs of that life fall. In other words, we now believe a good life requires indoor plumbing; that was not always so. Perhaps a more useful barometer is not "what does it take to live a good life?" but "at what level is a person confronted with insurmountable structural barriers to class mobility?" By this I mean, if you are starving to death, it is unlikely you could (even if you are very smart) train up enough to earn a good wage; similarly, if you are homeless, you face a structural barrier to ever having a home, because it is hard to find a job.

These thoughts are very preliminary, but I hope you think they're interesting.

"Finally, rising income inequality in the United States is due in part to increased immigration, since immigrants, legal as well as illegal, tend to work for lower wages than citizens. Immigrants do not, however, compare themselves with wealthy citizens, but rather with the much lower wages they could expect to earn in their countries of origin. Rather than immigrants envying wealthy citizens, many citizens are hostile to poor immigrants!"

Judge Posner, why be shocked that citizens would be hostile to immigrants when you concede that massive immigration increases income inequality? First, many are likely to resent increased poverty even if their own wages are unaffected. Who wants to live among poverty? Who wants their children or grandchildren to attend schools with many poor and bilingual students (this may seem impolitic, but it's the bare, untarnished truth)? On top of all of this, the "hostile" citizen understands that all of these problems are the result of a government refusing to enforce its laws and the manifest will of the people.

Further, I believe you are deluding yourself if you believe immigrants are less affected by envy than the average citizen (just look at voting preferences to get some idea of whether the recent immigrant desires more or less income redistribution).

On the symantics of the income debate, it is important to recognize the continued racial overtones of the conversation. Professor Posner's anthropological evaluation of income disparity between 'black' and 'white' envy is compelling. Admiration over envy is a well considered barometer of social attitudes towards personal wealth. However, even a reader who is workingly proficient with the Professor's work, and who understands the lack of malevolence in his use of the 'black' and 'white' terms, cannot help but recoil at the antiquated terminology.

In the future, one hopes that our social lexicon will evolve to a point where the excellent analysis presented on this blog can be interpreted without the sad connotations which its terminology presently evokes.

Ad Hoc,

I suppose you would lecture Judge Posner if he used the adjective "niggardly" as well. I figured somebody would try to insinuate it was a racist term, but didn't expect the criticism to appear so soon!

It's nice to hear someone broach this issue so clearly. I always enjoy reading Judge Posner. We often hear "the rich are getting richer and the poor are getting poorer." It seems to me that the rich may be getting allot richer, but the poor are also getting richer. I'm not sure where the "the poor are getting poorer" story came from, but it doesn't seem to be true.

I especially agree with Judge Posner's comments about the improved state of automobiles, medical care, and electronics. However it does seem like there are some things that the poor are exposed to that the rich aren't; namely, bad schools and dangerous neighborhoods. Since this is a big factor in how people assess where to live and how content they are with their lives, schools and neighborhood quality seem important.

This may be another suspect story that society told me, but it seems like there was a time in the childhood of the baby-boomer generation when working, lower-middle class people could send their children to the same schools that rich people sent their children to. This of course still happens, but less and less IMHO. From my perspective the only way to ensure that your children go to a school mostly free from serious violence is to move somewhere (perhaps somewhere you wouldn't have gone otherwise) specifically for the school system or send them to private schools.

As to neighborhood quality, again I may have a fantasy view of the era of my parents’ childhood, but poor people used to live in areas without crack dealers or meth labs, the former being the urban story and the latter the rural. It's interesting that crack has been a serious problem in urban communities (promoting drug addiction and gang violence) for many years, but now that meth has infiltrated rural communities all across America, politicians seem to agree that something has to be done and fast. But that's neither here not there; the point is that the poor in America live in areas where there are more bars, XXX shops, bad public schools, and much more violence. And there are many cities were the middle and working class (not just "the poor") are exposed to these harms as well.

Perhaps none of these observations touch on which system of taxation we should have, or which party should be in office (for these problems seem to exist equally either way). But if the topic is on the quality of life of the rough categories of rich, middle class, and poor, then school systems and neighborhood problems of drugs and violence need to be included in the discussion.

Public schools may at the end of the day be local problems, and I understand that Judge Posner has serious disagreements with our current national drug policy.

One could point to periods in American history where social stratification was much greater than it is now. After World War II, legal equality expanded greatly, but in the same period of time, society has had to face new problems in drugs and increased violent crime. While violent crime has dipped in the last several years, it still must be much higher than the rate my parents saw in the 1950's. These problems may have occurred independently of "liberal" or "conservative" solutions to social problems. However the poor bear the brunt of these social problems and therefore these realities should be a part of any discussion that claims to describe the condition the poor live in. These problems seem to be getting worse in this generation of young people, in spite of the recent dip (which according the Levitt is due to abortion). Problems as serious as these become so pervasive that they are having a spillover effect into the other classes to the point of significantly impacting important decisions people make about where to live; even if you like a house, it may be in the wrong district. Increased social stratification may result from these conditions.

If the picture I have painted is true and I was a poor man, I would much rather go back to a day when I could send my children to school without worrying about gangs or meth or crack or extremely poor schools. I agree that the poor and middle class are able to gain access to things like nicer cars, Gameboys, Air Jordan's, and voicemail, and this is definitely an improvement worth mentioning. But these trinkets pale in comparison to quality schools, living in a neighborhood where folks took pride in their homes, and the peace of mind that comes with knowing that your child is safe. These dreams seem increasingly out-of-reach for the lower classes.

Hans: Immigrants can't display their jealousy at the polls until they become citizens, which for illegals is never and for legals is at least 5 years of law-abiding, productive life after their arrival. Since we set the rule that after 5 years, you deserve the rights of a citizen, they are entitled to vote for more redistribution after this time if they so choose. I haven't seen this empirically confirmed but I am inclined to think you're right.

That said, Judge Posner makes an excellent point that income cannot be measured solely in pecuniary terms. Leisure is often omitted from this calculation even though it is very highly value and most certainly considered wealth by many people. Thus, someone who is on the lower end of the financial income spectrum might be better off than someone who make somewhat more money but works many more and unpredictable hours. The 80-120 hour work weeks of my junior investment banker friends make me shudder, and I am sure I'm not the only one would take less money just to have more free time. This is particularly true for those with families and children. This just goes to show that the income disparity is a much smaller issue than it would appear from simply looking at the numbers.

"Immigrants can't display their jealousy at the polls until they become citizens, which for illegals is never and for legals is at least 5 years of law-abiding, productive life after their arrival. Since we set the rule that after 5 years, you deserve the rights of a citizen, they are entitled to vote for more redistribution after this time if they so choose. I haven't seen this empirically confirmed but I am inclined to think you're right."

Amnesty. We keep giving amnesty, so yes illegals get to vote eventually. Further, it's incorrect to say that illegals can't vote at all. Some cities have actually allowed illegals to vote in local elections.

Even if amnesty isn't given, and the illegals themselves never vote, their children carry forward their political beliefs more than they do not. This is true across the political spectrum. Bottom line: Our immigration policy promotes both increased income inequality and strengthens the restributionist impulse.

Does Judge Posner really believe the following passage?:

"The rich have more and better goods, but they do not act as if they were a 'superior' sort of person, refined, well bred, looking down on the average Joe."

Find me one Harvard grad who does not feel "superior" (justifiably or not) to a graduate of say, the University of Alabama, and I will concede the point.

The problem with discussing the "middle class" in America is that everyone believes themselves to be middle class. Even multi-millionaires lay claim to middle class status, when they're knee deep in mortgage payments for the nice suburban home and the summer home, car payments for the two BMWs, and tuition payments for private high schools and ivy league colleges. But let's have a reality check here: that's not "middle class" in any sense of the word (or even the euphamistic "upper middle class"). While no one wants to admit to being rich in America (expect perhaps Bill Gates or Paris Hilton), wishing that one were middle class doesn't make it so.

I'm not sure whether this has anything to do with the desirability/undesirability of rising income inequality. But it should put the debate in perspective. If we have to close a $400 billion/year budget gap, it's better to tax the estates, dividends, and summer homes of the Hamptons set than the hard-earned income of the family of four with a combined income of $50,000. Marginal tax rates in this country are nowhere near the point of diminishing returns. And, when there is a health care crisis for ordinary Americans, it is not a solution to tell them to put money they don't have into health care savings account, so that they can pay "market" rates (that is, price-gouging rates) for medical services and presecription drugs.

Income inequality in America does not have to be reversed. But government can and should take steps to equalize the quality of life for all Americans, regardless of income level.

Good discussion. I like Ian's point about
defining poverty.

What are some ways we can measure social
mobility? How do we know it's increasing
or decreasing? I've only heard of one
study on this point; it compared parents'
income levels with that of their children,
but it was limited in its findings.

If we have an acceptable level of social
mobility, we need not worry much about
income inequality.

Hans,

Judge Posner's reputation and CV with respect to civil rights, property rights and all matters of jurisprudence on race or any other form of discrimination is, in my opinion, beyond reproach. The symantics of his argument sould be bifurcated from the merits of his analyses and examined for what it says ABOUT SOCIETY, not the Judge himself.

Dear Judge Posner:

I especially liked your distinction between poverty and inequality. However, I have the impression that many commentators tend to reject or ignore this basic distinction, for they tend to define poverty in relative terms, so that there will always be poverty no matter how wealthy a given society is. For persons who define poverty in relative terms, there will always be 'poverty' no matter how rich the society is, unless incomes are more or less equal. A recent essay in The New Yorker on the subject of measuring poverty, written by one John Cassidy, I believe, provides a textbook example of this type of argument.

As I see it, the notion of relative poverty is unsound--a fallacy even--so I think that your distinction btw. poverty and inequality is a very important one (though often overlooked or ignored).

Do the math. Even if income levels increase at exactly the same percentage rate from top to bottom, the result is a growing disparity. Example: a $20,000-a-year earner who gets a 10 percent raise actually loses ground to a $100,000-a-year earner who also gets a 10 percent raise (the new incomes are $8,000 farther apart). The only way the lower earner can gain is if the upper earner gets an increase of less than 2 percent while the lower earner gets at least 10 percent. This simple equation seems beyond most of the media pundits. Curious.

I'd like to say a word about the immigration issue:



"Finally, rising income inequality in the United States is due in part to increased immigration, since immigrants, legal as well as illegal, tend to work for lower wages than citizens."



This argument presupposes that without immigration, those low-paying jobs would go unfilled by citizens. Presumably, citizens have a reservation wage that is higher than the wages paid by immigrant-held jobs, and without immigration, those low-paying jobs would have to increase their wage offers in order to attract workers. But wouldn't this be a form of economic inefficiency? That is, taking the assumption that all workers are paid according to their marginal productivity, the janitor-and-maid jobs held by immigrants pay exactly what the value of that labor is. If immigrants were not in the U.S. to take those jobs, those employers would have to raise their wages in order to meet the reservation wage of citizens, and would have to pay more than the labor is worth. So in this case, the income inequality caused by large volumes of immigration may in fact be an indication of efficiency in the labor market.



And on the redistributive impulses of immigrants: I am neither empirically nor anecdotally inclined to agree with the view that recent immigrants desire more income redistribution. George Bush saw significant gains in his portion of the Hispanic vote in the last election. Their beliefs on morality and religion clearly trumped any desire for redistributive policies. Finally, I am an immigrant and the child of immigrants. Immigrants tend to be a self-selected group; it's not just anyone that can pick up and leave their home country. From my observation, immigrant culture is based around self-reliance, not welfare or a nanny state.

Judge Posner's point about the improvement in the quality of consumer goods has gotten insufficient attention, including from Judge Posner. Low earners spend more of their income on consumption than investment; many spend all their income on consumption, and some spend more than they earn by going into debt. The market price for a good sets up a kind of equality, so why not judge someone's income by the commodity value of what he buys with it?

By this measure, income inequality is steadily shrinking. A Mercedes Maybach costs about ten times as much as a Lexus LS, and about 30 times as much as a Toyota Camry. The Camry is very reliable, and while the LS is a fine car, most objective Lexus owners would concede that the Lexus, while a better car than the Camry, isn't three times as good, though the price would seem to imply it.

Judged by what people buy, not what they make, society is becoming more, not less, egalitarian.

Sophia,

Bush got around 40% of the Hispanic vote; exempting Cubans it's probably several percent less. This is, of course, an imperfect measure of restribution preference, but it's a decent proxy.

Bush did this poorly even though he promised amnesty and guest workers and more clearly supports the traditional social perspective most Hispanics share (compared to Kerry).

The only reasonable explanation is that Hispanics vote Democratic because they favor the increased progressivity in taxation and increased social welfare. That is, they are favor redistributionist policies considerably more than the average American.

Moreover, those who desired to be interviewed in Spanish were more likely to vote for Kerry by a significant margin (65% instead of 58%). This preference is at least a decent proxy for generational status and it shows a greater preference for the Democratic Party among first generation voters than second or third; even though relgiousity is probably greater among recent arrivals and their immediate descendants.

Sophia, I realize I have only dealt with Hispanics and that is a gross oversimplification but it is the lion's share of current total immigration.

Posner's (apparent) belief that immigrants are less likely to support income redistribution is erroneous. But perhaps he just intended to convey that the redributionist impulse is not sufficiently intense to warrant concern (that is, it's unlikely to be sociall disruptive).

Immigrants make the choice to come to America not because of income distribution (tax) policies which escape the consciousness of Americans and foreigners alike, but because of the meritocratic structure of our economy. However, as the learned judge writes,

"as society becomes more competitive and more meritocratic, income inequality is likely to rise simply as a consequence of the underlying inequality"

Recognizing that the vast majority of immigrants, through choice, circumstance or nationality have not invested in their human capital before they come to America; measuring the income equality between immigrants and life-long citizens is moot. Furthermore, measuring income disparity between disparate classes of Americans does not accurately quantify the two most important social barometers of prosperity: ability to subsist on one's wages and efficient/fair compensation for human labor.

Immigrants are every bit as rational actors as law school students (myself included). So long as wages and underlying economic conditions in America afford immigrants with superior opportunities compared to their countries of origin, immigrants will continue to arrive by any means necessary (just as students will put themselves through civil procedure hell with the promise of a six-figure salary). It stands to reason that if immigrants’ conditions in America were inferior to those they ‘escaped’ they would return ‘home.’ Without the benefit of repatriation statistics, I cannot help but conclude that most do not make this choice.

Finally, immigrant or not, living wages are the next moral evolution in American human resource management. Like the migrant farm movements here in California under Cesar Chavez, immigrant labor will have its day. I venture to say that the subjects of our ivory tower debate put in a much more honest day’s work than I have EVER have. The market cannot help but reward their efforts.

Meritocracy sounds so wonderful. Unfortunately for white people the cutting score for graduating from college seems to be an I.Q. of 110. This means means about 20% of this population can graduate from an academically oriented college.

As a sidelight, we now enroll 40% of our population in college; however, only about 20% graduate in 4 or 5 years.

As a second sidelight, there is a marked disparity in the IQs of inner cities and suburbs regardless of race. Presently, the average IQ in the inner city is 85. Since it usually takes an IQ of 85 or better to graduate from HS one would expect a drop out rate of 50% or about what it is in the inner city.

Finally, I know these findings are not egalitarian, meritocratic or even fair. Nature is not fair.

Hernnstein and Murray's "The Bell Curve" was the stealth book of the 90s. Someone has yet to write the stealth book of the new century. Perhaps someone will review the last 100 years of psychological research and realize most of our social, and especially educatonal, planning is based on an egalitarian ideal not replicated by nature.

Then if this person has time he might review E.O. Wilson's work that began "Neuroscience" as a separate and useful discipline. After doing so this person could then reason as to why it has taken so long for people to face the truth about individual, group and crowd psychology.

As a second sidelight, there is a marked disparity in the IQs of inner cities and suburbs regardless of race.

There are also the usual multicausal explanations: pollution, nutrition, etc.

Re-reading my earlier comment, I'm not sure I made my point quite clear. Above a certain multiple of the price for a mass-market product, further increases in price accord only to literal or figurative diamond encrustation (DE), not to any significant increase in objective quality. For example, the iPod is a relatively accessible piece of technology. Designer iPods exist that are identical to mass-market iPods in function but feature a very high DE level and are very costly as a result. I doubt that the average iPod user spends much time lamenting the low DE level of his iPod.

Cars like the Maybach aren't appreciably more reliable or comfortable than more earthbound luxury cars, but are heavy on DE (including, for example, a champagne chiller). Americans aren't more upset about rising income inequality because they realize that above a certain income level (say, $300k a year), vast amounts of extra income yield only a very small marginal increase in standard of living.

Income inequality? is it really due to the rise of a system of Meritocracy or is it a Plutocracy masqerading as a meritocracy? Simply look at the occupations with the largest salary increases in the last twenty years. I believe you'll find that they all fall into the professional categories of Doctors, Lawyers and Injun Chiefs. All stand outside of the normal market forces that are driving wages and salaries down across the board.

It must be nice to have professional organizations that control the numbers of entry into and salary scales across the board in the "profession". Unions? Nah! We're simply Associations bent on maximising our members well being. Financial and otherwise. Never mind the fact that Foreigners unfamiliar with our system have said repeatedly, "There are an awful lot of people in this country who are over compensated for the value that they bring to the table.

Edith Wharton would love it. The Gilded Age is upon us again.

It's quite possible to have an increasingly meritocratic society that leads to an increasingly unequal society. I think that's some of what's driving the increasing inequality. When the external barriers to success are lifted, some people do a lot better than others. Freer markets, greater social mobility, better access to education, better access to information via the internet, new fields and businesses opening up that arent' already ruled by the guys who got there first, all these things make the world a really rewarding place for smart and driven people.

"Bush did this poorly even though he promised amnesty "

Looking at the polls of hispanic citizens, (You know, the ones who can legally vote?) perhaps that should be, "Bush did this poorly because he promised amnesty".

After all, the majority of Hispanic Americans are opposed to an amnesty, not in favor of one.

Judge Posner and Professor Becker both ignore the strongest case for why rising income inequality ought to be an issue in the United States: the question of justice. Both Posner and Becker write about an ideal market that distributes its rewards based on merit alone. While both scholars note that merit is largely the result of life's natural lottery - Posner cites "differences in IQ, energy, health, social skills, character, ambition, physical attractiveness, talent, and luck" - neither takes up the case for why life's natural lottery is the most just distributor of wealth in this country. It is the contention that the natural lottery does not provide distributive justice that I was most hoping Judge Posner and Professor Becker would rebut.

In spite of doubling K1-12 funding (adjusted for inflation) over the last thirty years, educational achievement has been stationary at best. (Source WSJ,Greene, Educating from the Bench, 27 April 2006)

Essentially, throwing money at egalitarian attempts to move the immovable up the ladder of success has not succeeded.

We now spend in the US, on the average, $10,000 per pupil. Still there are claims we are failing to properly fund public education.

I repeat my previous assertion--the Bell Curve parallels educational attainment more than any postmodern effort to change policies or funding. For those who differ the burden of proof is yours. A good null hypothesis would be spending rather than intelligence determines academic achievment. If you can prove this, prepare for world wide notoriety. Many have tried but none has succeeded

If I remember my statistics correctly, the normal distribution curve i.e. "bell curve" may at times not be the natural distribution. Many times it can be skewed either to the right or the left. The problems arise when the data is massaged to make it fit the curve of our choice. Intellectual honesty? Not when so much is at stake. ;)

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.

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.

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 don’t 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.

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.

To continue my thoughts infra, Why Distributive Justice Matters.

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?

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". ;)

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.

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."

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?

"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.

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.

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.

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.

"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.

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.

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!

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.

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.

"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.

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.

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

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?