In discussing inequality of income and wealth (I’ll use “inequality” to cover both) one could focus on inequality between countries—rich countries versus poor countries—or on inequality of wealth within countries. The two inequalities could change at different rates, even in different directions. I will focus, as does Becker, on inequality within countries.
As he points out, it has grown. This seems to be the result of four forces: (1) a trend away from redistribution—that is, from policies designed to equalize after-tax incomes by combining heavy income taxation with subsidies for poor people; (2) greater competitiveness, in part because of deregulation, more rapid innovation, freer international trade, and a decline in discrimination; (3) the growth in the size of markets (this is related to freer international trade), which increases the returns to excellence and innovation; and (4) an increasing return to IQ because of the changing character of production. The first three points are related to the collapse of communism and the failure of collectivist policies in noncommunist countries (notably the failure of regulation in the United States in the 1970s and the ossification of labor unions despite government support), and the last to the decline of manual labor relative to brain work as economic activity becomes increasingly automated as a result of technological progress. Most commentators on inequality would reword (4) as an increasing return to higher education, but it is very difficult to gauge the value added of a higher education, especially the economic value. Think of such college dropouts as Bill Gates, Steve Jobs, and Mark Zuckerberg. Higher education is indispensable for persons who want to be members of professions, and doubtless helpful for most people who want to go into business, but it will not make up for deficiencies in IQ.
Compare two people, A and B. A does not go to college, and his lifetime earnings are $1 million. B goes to college, and his lifetime earnings are $2 million. In gauging the value added by a college education, one has to control for, among other things, difference in both cognitive and noncognitive abilities (IQ illustrating the first, ability to apply oneself to a task the second). The point is not that B didn’t derive a benefit from college. Maybe without college his lifetime earnings would have been only $1 million too. But maybe if A had gone to college, his lifetime earnings would still be only $1 million because he wasn't smart enough, or motivated enough, to derive any benefit from college. The University of Chicago economist James Heckman may well be right that the only hope for many Bs is early childhood intervention.
Thus the question is whether today in America everyone who can benefit from a college education gets a college education. If so, increasing college enrollments would not reduce inequality, though school reform at the high school and elementary school levels might increase the number of persons who can benefit from a college education, although Heckman’s research provides a basis for skepticism.
Inequality is self-limiting to a degree; if it generates tremendous envy and resentment, the government will be under irresistible pressure to adopt redistributive policies. (Equality is likewise self-limiting: too much, and it destroys incentives.) Oddly, increased inequality in the United States has not generated much envy or resentment. The principal opponents of inequality are upper-middle-class liberals rather than poor or lower-middle-class people, and they failed to obtain a rescission of the Bush tax cuts for high-income taxpayers. Obama’s health care reform is the only major redistributive measure adopted in the United States in recent times, and its major redistributive component is an expansion in Medicaid, which the states (which pay half the cost of Medicaid) are busily trying to undermine by reducing the medical treatments for which Medicaid will reimburse providers of health care.
If I am correct that inequality is not influencing public policy in the United States—is just not a political issue—then I don’t think there is an inequality “problem.” There is just the facts that in the United States a small fraction of the population has an enormous share of the nation’s income and wealth and, at the other end of the income distribution, there are many very poor people. Are the rich a “problem”? I don’t think so. All their money is either spent on consumption or invested, and either way it is economically productive; it’s not as if the rich hoarded their wealth in the form of gold bars. The rich influence elections by their campaign contributions, but they would have the same influence with much less money, because it is not the absolute level of a rich person’s campaign contributions that sways elections but the level relative to contributions by other rich persons supporting competing candidates.
Warren Buffett warns that without stiff inheritance taxes (which the United States does not have), we will find ourselves in the grip of an “entrenched plutocracy” (according to the Economist article that Becker cites). I don’t understand that concern. The heirs of the rich spend their money on consumption or investment, just like their parents; dissipate it rapidly, if they’re dumb; but in any event do not by virtue of having inherited a lot of money block the upward striving of others.
Poverty is a problem, but if the rich are not a problem, then the problem of poverty is not a problem of inequality. It looks like a problem of inequality only because the wealth of the wealthy seems an obvious source of money to alleviate poverty. But it is not that taxing the rich would alleviate poverty, but that taxing the rich and using the tax revenues to raise the incomes of the poor would alleviate poverty. Inequality should be a non-issue in the United States—and to a considerable degree it is.
Well the article is very interesting,I like it.I will always come to visit again... Poverty is a problem, but if the rich are not a problem, then the problem of poverty is not a problem of inequality.
Posted by: Cross Country Home Services | 03/22/2011 at 08:14 AM
If McD's or Walmart's biz model doesn't work without their employees being heavily subsidized (ONE billion a year for Walmart -- the wealthy heirs of which were much of the impetus for Bush getting rid of the "death tax") then honest capitalism would dictate they change biz mod...... or become creatively destroyed that something better rises in their place.
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Posted by: Safe | 03/26/2011 at 02:07 AM
our political system decides how long Jobs has patents and copyrights that create the only value extant at Apple. Copyright determines the value of Disney. I could go on and on. Hopefully the reader has something of an open mind.
Posted by: Acne Care | 03/26/2011 at 11:05 PM
Truth is income taxes are a lower percentage of GDP than in recent or post WW history. It's only the regressive SS taxes that much higher than in past years.
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I would like to conclude by addressing a point raised by someone posting in the comments section who identifies himself as James Thomas
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Posted by: visvim | 04/21/2011 at 09:45 AM
Well Inequality is self-limiting to a degree,if it generates tremendous envy and resentment, the government will be under irresistible pressure to adopt redistributive policies....Hope you will continue to post such type of post in future also...
Posted by: Cindy Margott | 05/02/2011 at 03:07 AM
As he points out, it has grown. This seems to be the result of four forces: (1) a trend away from redistribution—that is, from policies designed to equalize after-tax incomes by combining heavy income taxation with subsidies for poor people; (2) greater competitiveness
Posted by: Rosetta Stone | 05/21/2011 at 02:47 AM
Forecasts of the world’s population only a few years in the future are generally quite accurate because the number of births and deaths during the next few years are largely determined by the existing distribution of the number of people at different ages.
Posted by: nike lunarglide+2 | 05/21/2011 at 03:08 AM
decline of manual labor relative to brain work as economic activity becomes increasingly automated as a result of technological progress. Most commentators on inequality would reword (4) as an increasing return to higher education, but it is very difficult to gauge the value added of a higher education, especially the economic value. Think of such college dropouts as Bill Gates, Steve Jobs, and Mark Zuckerberg. Higher education is indispensable for persons who want to be members of professions,
Posted by: Christian Louboutin | 06/05/2011 at 03:39 AM
Well their lives don't materially improve, and when credit runs dry, workers in rich countries are completely devastated and scramble for any message that seems good and pure.
Posted by: crowd SPRING | 06/09/2011 at 04:03 AM
Well In a discussion of our acceleration of inequality and the "need" for huge incentives at or near the top there's something else to consider..
Posted by: Just Energy | 06/28/2011 at 07:42 AM
ACE Online Takes Aerial PvP Combat to the Next Level with 4v4 Tournament
June 3, 2011 — TORONTO, ON — PvP combat is a key aspect of gameplay in ACE Online http://ace.subagames.com/landing.aspx , but SubaGames http://www.subagames.com/ is taking it one step further with the announcement that they are implementing a 4v4 tournament! Fans of the popular aerial shooter MMORPG can now team up with three of their friends and battle other teams in organized matches in a ladder-style tournament that will both reward an enhanced gaming experience and a combination of in game items and physical merchandise!
From June to July, ACE Online will play host to some of the most unique player versus player combat ever experience in a Massive Multiplayer Online Role Playing Game. Players will be signing up with a leader that is responsible for leading their team to victory, as well as signing up their team http://ace.subagames.com/tournamentlist.aspx. Battles consisting of Best of 3, 5 and 7 matches will take place amongst teams of the same nation. This will all lead to the eventual winning teams of in game nations Arlington National Influence (ANI) and Bygeniou City United (BCU) facing off in a heated rivalry match that will leave only one victor.
Variety is the spice of life, as each team will have to use one of every gear type. This includes the A Gear (the tank-like airframe), B Gear (the bomber airframe), I Gear (stealth speeder airframe) and M Gear (medic and support air frame). The balance of the team’s gears means players must use their playing skills if they hope to be the best and come out on top of the pack!
Tournament Prizes
•1st Place Team: Nox Specialist Headset, 3 Hyper Enchant Protects, 2 Prefix and 2 Suffix Super Gambles (for Standard and Advanced Weapons and Armors), 6 Prefix Wipes, 6 Suffix Wipes and 3 Tokens for each player on the team.
•2nd Place Team: 2 Hyper Enchant Protects, 1 Prefix and 1 Suffix Super Gamble (for Standard and Advanced Weapons and Armors), 3 Prefix Wipes, 3 Suffix Wipes and 2 Tokens for each player on the team.
•3rd Place Team: 1 Hyper Enchant Protect, 1 Prefix and 1 Suffix Armor Super Gamble, 1 Prefix Wipe, 1 Suffix Wipe and 1 Token for each player on the team.
•Every team that doesn’t place will receive 1 Weapon Machine Token and 1 Token for each player.
Sign Up
Download ACE Online for free from the Official Game website: http://ace.subagames.com/landing.aspx
After that, if you are signing up your team, do so “here!” (http://ace.subagames.com/tournamentlist.aspx)
For complete rules and details about this tournament, visit the “Tournament Page!” (http://forum.subagames.com/showthread.php?t=28684)
About ACE Online
ACE Online is a 3D space shooter that combines action and MMORPG elements. Developed by MasangSoft, one of Korea’s most renowned game developers, ACE Online puts players in the role of fighter pilots and behind the controls of ships known as “Gears”. As the player battles in this intergalactic world at war, they will complete missions and engage other players in intense aerial dogfights.
ACE Online injects action and shooting elements into the traditional MMORPG formula. Players have complete control over their gear and must engage enemies directly in combat – relying on quick shooting and skillful maneuvering in order to survive. As players progress through the game, they acquire credits which can be used in the game’s item shop to purchase hundreds of customizable weapons and add-ons for their “gear”. Players can then fly their “gear” into immense online space battles as part of ACE Online’s “Nation Wars” PvP system. These RPG elements add a layer of personal customization and multiplayer strategy to ACE Online’s already action-packed gameplay. Through the blend of these two gameplay genres, ACE Online offers a fully unique and unrivaled MMO experience. For more info, visit: http://ace.subagames.com/landing.aspx
About Wicked Interactive
Wicked Interactive Ltd. is a video game publisher, founded in 2008, and based in Toronto, Canada -- the tech capital of Ontario. Through its SUBA Games platform, Wicked Interactive plans to create a centralized destination where North American gamers can access a range of Massively Multiplayer Online (MMO) game experiences. The Wicked Interactive Mission is to provide an exciting and robust MMO game experience that is free and enjoyable to everyone. For more info, visit: http://www.wickedinteractiveltd.com .
About SUBA Games
SUBA Games is Wicked Interactive’s online gaming portal. Through SUBA Games, Wicked Interactive provides a library of free-to-download and free-to-play massively multiplayer online games. SUBA Games users enjoy a unified login and a unified currency across all SUBA properties, in addition to a friendly and active community space with unparalleled customer communication and support. For more info, visit: http://www.subagames.com .
Posted by: Gameking | 07/02/2011 at 02:50 AM
it is very difficult to gauge the value added of a higher education, especially the economic value. Think of such college dropouts as Bill Gates, Steve Jobs, and Mark Zuckerberg.
Posted by: eBridge advertising | 07/05/2011 at 09:11 AM
Differential achievement is an important factor in maximizing the productivity of that fertile environment, inherited wealth is not.
Posted by: crowd SPRING | 07/09/2011 at 05:06 AM
Thanks for the cool badgees! When do we find out who the Petties nominees are???
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