Should we be pushing for more equality of income and wealth?

Author:Stringham, Edward Peter

Is inequality in income or wealth something society should attempt to reduce, or is inequality something individuals just have to live with? In America, the top 1.0 percent owns 42 percent of the wealth, and the top 0.1 percent owns as much as the bottom 90 percent (Saez and Zucman 2014, 8). It is easy to see why someone in the 1.0 percent would be okay with having a disproportionately high share of a pie, but what about others? A New York Times poll found that two-thirds of Americans believe that "wealth in this country should be more evenly distributed among more people" (Scheiber and Sussman, 2015). When artist Steve Lambert stationed a large "Capitalism works for me" sign in Times Square and asked people to select true or false, the majority selected false. John Rawls (1971) famously asked people to think about what type of society they would like to live in, assuming they would find themselves the least well-off. Let us continue with a thought experiment in the spirit of Rawls, and ask: Supposing you knew your income or wealth percentile, what type of society would you choose?

Consider choosing between the following two actual countries, supposing you knew you would be in the lowest, second-lowest, middle, second-highest, or highest 20 percent. Country B has much more inequality than Country A. On the Gini measure of inequality (where 0 indicates perfect equality and 100 perfect inequality), Country A has a Gini index of 26, among the top-ten most equal countries, and Country B has a Gini index of 45, the 103rd least-equal country. Table 1 indicates the share of income by quintile in the two countries. The top and bottom rows show that in Country A the bottom quintile gets 10 percent of income, and the top quintile gets 36, whereas in Country B the bottom quintile only gets 5 percent of income, and the top quintile gets 46 percent. In other words, the people in the bottom quintile make less than one-ninth of what those in the top quintile in Country B make. Choose between the two countries in each of the five cases. Finally, choose where you would rather live if you had an equal chance of ending up in each income quintile.

Now let us consider an example that looks at wealth rather than at income. When income inequality is high, the rich have the opportunity to amass more and more wealth over time, increasing inequality even more. Assume home values measure wealth. Table 2 indicates how much each quintile's homes are worth as a percentage of total wealth in two neighborhoods. The top and bottom rows show that in the much more equal Neighborhood X, the bottom quintile's homes are worth 61 percent as much as the richest quintile's homes, whereas in the much more unequal Neighborhood Y the poorest quintile's homes are worth a mere 15 percent as much as the richest quintile's homes. (1) In neighborhood Y, the top 20 percent own more than everyone else combined. Again, you must choose between the two neighborhoods in each of the five cases. Finally, choose where you would rather live if you had an equal chance of ending up in each wealth quintile.

At this point, all your answers are final. Country B describes the United States, and Country A describes the far more equal former Soviet state of Belarus. Figure 1 displays average income per quintile in America, where gross domestic product (GDP) per capita is $62,000, and in Belarus, where GDP per capita is $5,700. In America, income in the highest quintile averages $143,000 and in the lowest quintile $15,500. In Belarus, income in the highest quintile averages $10,300 and in the lowest quintile $2,900. For the lowest quintiles, 5 percent of the very large American economic pie is much bigger than 10 percent of the very small economic pie in Belarus. If you chose to live in Country A, be sure to send postcards.

Neighborhood Y describes a street in Holmby Hills, Los Angeles (next to Beverly Hills and Bel Air), whose residents have included Humphrey Bogart, Bing Crosby, Neil Diamond, Hugh Hefner, Casey Kasem, and Aaron Spelling. Homes on that street are, according to the online real estate database company Zillow, worth $8.9, $10.4, $10.6, $10.8, $10.9, $11.1, $11.8, $12.7, $12.9, $13.0, $14.0, $14.6, $16.1, $19.9, $26.5, $26.6, $58.0, and $68.1 million. (2) One for sale is described this way:

125 rooms. Exquisite 2 Acre Country English Holmby Hills Manor. Adjacent to Los Angeles Country Club. This magnificent walled estate includes remarkable grounds and privacy. 2 story entry, spacious living room w/ fireplace and beautiful garden vistas, large family room adjoins the dining room and eat-in gourmet kitchen opening to charming outdoor terrace. Enormous motor court. Rolling lawns, mature trees and wonderful private pool area. Neighborhood X describes a not-so-hot neighborhood a couple miles from where I live in Hartford. The somewhat-rundown homes cost $84,000, $85,000, $88,000, $89,000, $95,000, $97,000, $97,000, $101,000, $102,000, $102,000, $103,000, $104,000, $105,000, $106,000, $127,000, $143,000, and $156,000. Figure 2 shows home value by quintile in the two neighborhoods. I don't know about you, but I'd rather be the poorest person on Aaron Spelling's street than the richest person in East Hartford. (3) It would be quite easy to make Holmby Hills like East Hartford--any tornado could do the trick. But should we bring all wealth down for the sake of equalizing it?

The fundamental problem with calls to make income and wealth equal or more equal is that they make judgments based on relative income or wealth (i.e., what people have compared to others), not on what people have in their own right (i.e., absolute income or wealth). In its strictest incarnations, egalitarianism considers it negative if everyone starts poor, and then everyone becomes rich, but some richer than others. In its strictest incarnations, egalitarianism endorses keeping or making everyone poor as long as it reduces differences in income or wealth. Increasing work skills, working more, working in jobs in higher demand, and saving and investing increase inequality compared to a society where everyone remains poor.

Egalitarianism takes different forms and different degrees. Its goal can range from "everyone should have equal income and wealth" to the milder calls that "we should push society to have more-equal income and wealth." Some egalitarians, deontological egalitarians, support equality as an end in itself, and others, instrumentalist egalitarians, support it because it advances other social goals such as helping the poor. Although many simply ignore the incentive problems that arise when monetary rewards are eliminated, others engage in ideal theorizing about how people will be motivated...

To continue reading