How unequal?
Recently, through sheer happenstance, I flew business class on an overseas flight. What a revelation. I always knew business class was better, but I had no idea it was that much better. As I sipped complimentary champagne and watched an elderly man in coach struggle to get his luggage into the overhead, I mused to myself: “is this fair?”
I have no problem with business class being better than coach. The tickets cost more, so the passengers should get more. More generally, I have no qualms with economic inequality. Economic inequality is fine. It’s even a sign of health for capitalist societies. Someone willing to study an extra decade to be a doctor or to risk their life savings on a startup should get paid more. AARP members should get discounted bus passes. Military veterans should get to board airplanes first. People who smell like oysters get their own row in the movie theater even if they pay the same ticket price. The system isn’t perfect. But in principle our entire governmental, legal, economic, and societal system was designed around the idea that people respond to incentives. Incentive-systems mean that some people will end up with more, and others less. Plus, if America is a melting pot, it must also be a hot stew of inequality. One comes from the other. You can’t acknowledge that everyone is different and then expect everyone to be the same. Equality of opportunity is sacrosanct, but equality of outcomes is sacrilegious.
So again: I have no problem with business class being better than coach. I have no problem with economic inequality. My hangup, though, is how much better. How unequal should our society be?
How much is too much?
This is not the first time MoneyLemma has raised this question. Past posts have examined tax burdens by income level, Americans spending habits, and American household income inequality over time. Each time the results are inconclusive. No matter how much data one pulls, there’s no correct answer. It’s absolutely an opinion. If someone thinks Rutherford B. Hayes was America’s greatest president or that Bowser is justified in kidnapping Princess Peach, they’re not wrong. At least not in the way that flat-earthers or anti-vaxxers are wrong. As long as they have their facts straight, people are entitled to draw their own idiotic conclusions. That’s the first thing to know: the right amount of inequality is subjective.
The second thing to know is that most people don’t even know what they believe because they don’t know the facts. In 2011 PBS did this amazing survey where they asked respondents which of the below pie charts represents the “ideal” amount of inequality, and then asked which one represents America:
Most people figured the middle pie was the best looking, and of course the best looking is America. But America is on the left, Sweden is the middle:
If that wasn’t enough, there’s a third complicating factor: the data itself is subjective. As covered in MoneyLemma’s post on wealth inequality, there’s many different ways to measure inequality and each one yields a different result. That means that nobody will ever change their mind on the topic, because when shown data that contradicts their beliefs they’ll just find different data.
If you combine all these three together, you realize that any attempt to determine the ideal level of inequality, or even quantify the current level of inequality, bears no fruit. The data is inconsistent, people don’t know the data, and even if they do they draw different conclusions.
It’s the motion of the ocean not the size of the boat
Forget absolutes. Everybody can pick their favorite metric, and everybody can be their own Goldilocks and decide if inequality is a squidge too high or low or just right. But when it comes to public discourse, the conversation should be around the direction, not the level. The question shouldn’t be “how unequal do we want our society?” it should be “is our society getting more or less equal?” Using that as the standard, a clear, consistent answer emerges: inequality is increasing.
That’s true if you measure by wages:
That’s true if you measure by share of profits, which shows that corporate income is taking share from labor. I.e., business owners are getting a bigger piece of the pie:
And it’s true using Gini coefficient, an economic measure of inequality:
It’s hard to find a metric that doesn’t show US inequality increasing.
Measure better to get better
This is the current state of discourse on wealth inequality: one person says “things are good” and another person, with a different perspective, says “I totally disagree, things are bad.” Each person uses different data and a different lens through which to view the world, and so finding common ground is difficult. The conversation devolves into recriminations, and pretty soon the usual suspects are brought up. Corrupt politicians, greedy billionaires, the lazy working class, gratuitously violent video games, art as content, the Rats of Nimh, increasingly potent strains of marijuana, the Disneyfication of everything. None of these things (with the possible exception of the Rats of Nimh) are relevant to the topic of inequality at all. The path to better discourse is a focus on the direction of travel. The current state of affairs, no matter what you think of it, is a product of history. Today’s level of inequality shows us yesterday’s world. Tomorrow’s inequality will be where we are today plus the direction we are headed.