I’m Back! Response to Schmidtz, Singer, and Hacker

Let me begin with a brief apology to my fellow contributors. Because I’ve been traveling through a region of the world where there is real poverty—lots of it—I had almost no chance to check the internet at all. (Combined with the fact that my hosts exploited my presence in a very welcome but particularly ruthless way, with meetings, lectures, seminars, and interviews from 8 am to 2 am, that meant that I couldn’t even read the ongoing discussion until today.) Having seen a great deal of real poverty in the southern Caucasus, I can only applaud Professor Singer’s focus on poverty, rather than on inequality per se. I agree entirely with the focus, but not with the remedy. There is a problem with his recommendation of the Jeffrey Sachs approach to alleviating poverty by sending taxed dollars to poor countries; it doesn’t seem to have worked so far. The experience with state-directed aid is not a very happy one and, if anything, has worked to increase poverty (and inequality), because it is directed by the generally predatory elites of the recipient states. (A quick look at aid to African states shows how badly development aid has worked. For those reasons, I am not in favor of increasing foreign aid and instead favor freeing trade and promoting improved domestic governance in poor nations.)

Of greatest importance, the best way to reduce poverty is to increase wealth. As the late Peter Bauer, a pioneer of development economics, used to put it, poverty doesn’t really have causes; it’s the natural state of humanity. Wealth is what is caused. And it’s wealth that needs an explanation. We now have a rather good understanding of what causes wealth: good institutions. The most important institutions for producing more wealth are those associated with security of property and the freedom to exchange. A look at the data (all of which are publicly available for examination at www.freetheworld.com) makes it quite clear that wealth production is so positively correlated with economic freedom that one has to conclude that it is the cause, rather than, say, resources. (A good recent overview of the international data can be found in Yi Feng’s Democracy, Governance, and Economic Performance [Cambridge, Mass.: MIT Press, 2003].)

One notable finding of the studies done in recent years is that there seems to be no significant correlation between income inequality and economic growth; what is important (and quite relevant to Professor Singer’s laudable concerns) is that in absolute terms those with lower incomes do much, much better under conditions of greater economic freedom than they do under conditions of lesser economic freedom. (The data from the Economic Freedom of the World studies indicate that the share of income earned by the poorest ten percent of the population is about the same in the least free and in the most free nations, with a dip in the share of the lowest ten percent in the nations in-between on the scale of economic freedom.)

Although I am in substantial agreement with Professor Singer’s targeting of poverty reduction (better known as wealth creation), I think that he misses the mark in his remarks regarding the inherent value of certain kinds of goods. He states that, “the prices of goods and services vary in importance with their scarcity, not with how important they are to us.” I think that that remark reflects an important conceptual confusion and that that confusion carries over to the inferences he draws from the claim that “Wealth does not exist without society, and the security that society provides.” Scarcity refers to the value of a unit at the margin, not to the value of the aggregate of all the units of a good; the former refers to the choice of one unit more or one unit less, the latter to the choice of all the units of a good compared to all the units of another good. It is the marginal unit that determines “how important they are to us,” not the aggregate of all the units together. (That is why, as Professor Schmidtz points out, a unit of water costs less than a unit of diamonds, although the aggregate of all the water would surely be worth more than the aggregate of all the diamonds.) Professor Singer’s confusion of the two is, I think, what leads him to the inference that “society” (more realistically, those elites who make the decisions that guide the deployment of state powers) is entitled to choose how to intervene to alter or override the decisions of others, presumably because “society” provides security, which is an input to production that can also be valued on the margin. That very confusion was the main target of my original comment.

Professor Hacker is quite focused on inequalities in income, but shows no concern about inequalities in consumption, which seems to me the thing that should most concern an egalitarian as such. If someone earns $100,000 and invests $60,000 of it (thus increasing the ratio of capital to labor and tending to increase the marginal productivity—and thus the wages—of labor), or even gives $60,000 away to the poor, is that of greater concern than the person who earns $80,000 and spends it all on consumption? If one compares measures of income inequality over time (notably the Gini index) with measures of consumption, one finds that greater inequality of income does not translate into greater inequality of consumption. Differences in wealth do not always translate into differences of consumption, for a variety of reasons, including increased investment, gifts and charitable donations, and likely errors in capturing some of the income of the poor. Moreover, the European welfare states that Professor Hacker compares favorably with the U.S. target a far greater share of their welfare payments to middle and upper income people, in comparison to the U.S. When you take the lid off European welfare states, you find something rather different than what is often represented by their enthusiasts. (The data for the above paragraph are available in chapter 15 of Olaf Gersemann’s Cowboy Capitalism: European Myths, American Reality.)

In addition, Professor Hacker’s laudable concerns with the health and sustainability of liberal democracy have led, I think, to a misdirected set of priorities. If the concern is that disparities of wealth are translated into disparities of political power (presumably as people compete for access to the state), I submit that a better way to address the issue is to limit the powers of the state, and thus its value to potential bidders, rather than to use the state’s coercive powers to redistribute income, which is more likely to increase competition for control of the state’s powers. (The greater share of transfer payments captured by the non-poor in France, Italy, and Germany, in comparison to the U.S., is consistent with that claim.) Moreover, it is worth noting that income is not the only determinant of political power. Differences in ability to articulate one’s ideas should be of at least equal concern. Those who write, speak, and profess professionally (including professors at Yale and writers at the New York Times), have a great deal more political influence than many people—most, in fact—whose monetary incomes are greater. I’m as concerned to limit the differential political power of the more articulate as I am the differential political power of the wealthier, because I believe that the ideal of equality before the law should move us more than equality before the cash register or the bank counter.

By attempting to diminish the ability of those with monetary incomes to affect political outcomes, we tend to increase the relative strength of those with the ability to lead (or mislead) the public through their ability to speak and write. The dictatorship of the articulate is not obviously more attractive than the dictatorship of the rich. What is more attractive, to this old-fashioned liberal’s mind, is the elimination of dictatorship.

Also from This Issue

Lead Essay

  • When Inequality Matters by David Schmidtz

    “Everyone cares about inequality. Caring about inequality, though, is not enough to make inequality matter,” writes political philosopher David Schmidtz. “Unless we have the right sorts of reasons to care, equality does not matter, at least not in the way justice matters. So, why care about inequality?” Drawing on his illuminating new book, Elements of Justice, Schmidtz lucidly clarifies which inequalities matter, and why, in a world where our fellow citizens are partners in a cooperative system of joint production, not competitors in a race.

Response Essays

  • Why Care About Equality? by Peter Singer

    “When Jeremy Bentham first suggested that the pains and pleasures of an African should count as much as the happiness of an English person,” philosopher Peter Singer writes, “this view had radical implications, for slavery was still legal in the British colonies. Today, the suggestion that the pain of a nonhuman animal might count as much as the pain of a member of our own species is still radical. That is why this sense of equality remains important.”

  • Which Inequalities Are Ours to Arrange? by Tom G. Palmer

    Picking up where David Schmidtz’s lead essay ends, Cato Institute Senior Fellow Tom G. Palmer argues that a common line of reasoning used to justify the authority of the state to rearrange the unequal distribution of wealth is based on a mistake. The kind of equality that matters, Palmer argues, is the “equal right of every person to exercise choice over his or her own person.” The inequalities that emerge from the voluntary interaction of persons exercising that right are not “ours” to reconfigure.

  • Down to Earth by Jacob Hacker

    In his reply to David Schmidtz’s lead essay, Yale political scientist Jacob Hacker agrees that material inequality as such is not our greatest concern. “The problems arise,” Hacker argues, “when resource inequalities translate into substantial, cumulative, and self-reinforcing inequalities of political power.”

The Conversation