How Does Inequality Matter?

There are many ways to measure economic inequality — for example, in terms of income, wealth, or consumption, either pre- or post- tax-and-transfer, or with reference to the use of material resources that are not personally owned, such as access to public goods provided by local governments, and command over the economic resources of corporations. One can criticize this or that measure of economic inequality, as John Nye and Will Wilkinson do. One can question whether a particular measure, such as the Gini coefficient of pre- tax-and-transfer income, has intrinsic moral significance in isolation from other factors (I agree with them that it doesn’t). One can question whether a particular measure tracks something of causal relevance to things that matter. What I don’t think is credible is to suppose that no measures of economic inequality have any causal relevance to the forms of social inequality I identified as objectionable from an egalitarian point of view — relations of domination, stigmatization, and state favoritism toward those in economically superior positions.

Obviously this is an empirical question, as Wilkinson properly reminds us. But even he doesn’t exactly deny that in the world today laws are, in effect, bought and sold in a “bidding war” that is won by “interests with more resources.” Surely this is why, as he concedes, “a good deal of the United States’ legal and regulatory regime has been rigged to lock in the advantages of well-financed corporate and other interests.” Instead, he criticizes a particularly crude version of the claim that economic inequality causes state favoritism toward the economically better off. The crude version says that “the rich” constitute a unified class that always votes and lobbies in its own economic self-interest, and that command over economic resources is the only factor that generates political influence. I don’t endorse that view. Rather, I think there are many and varied causal paths from particular subgroups that command superior economic resources (as measured by various criteria) to particular state policies that favor their interests over less economically advantaged groups.

Consider the fact that the extreme economic concentration of the banking sector means that there are institutions that are “too big to fail,” which are able to gamble recklessly with the fortunes of the entire global economy. No matter how left-leaning Obama’s economic advisors are (and they are far from socialist), this economic concentration sets profound constraints on feasible state policies. The result, plain for all to see, is a situation in which a particular subset of “the rich” — the executive officers of our leading private financial institutions — rake in the upside of their gambles with the world’s fortunes, and fob off the costs on everyone else via government bailouts, with virtually no accountability for their actions. Notice that in this case, the proper measure of economic inequality will not focus on the economic resources personally owned by this subset of the rich, but rather on the economic resources they command through their executive positions at the leading banks. In this case, economic inequality is not measured by the Gini coefficient on pre-tax income, but by the concentration of the banking sector.

Nye and Wilkinson seem to suppose that egalitarians are committed to redistributive taxation, directly aimed at reducing income inequality as measured by the Gini coefficient, as their primary policy tool. This is not the case. Reducing concentration in the banking sector by breaking up banks too big to fail is a way of reducing economic inequality, as measured by resources at the command of (rather than owned by) a handful of rich people, relative to everyone else. Promoting labor unions is a way of reducing economic inequality by placing a concentrated chunk of critical economic resources — labor — at the command of workers acting collectively, and thereby reducing the unequal bargaining power of employers and workers. Eliminating class-exclusionary zoning regulations is a way of reducing economic inequality, as measured by access to public goods produced by local governments. And so forth.

There is plenty of room to argue about the costs and benefits of different policies that aim to eliminate domination, stigmatization, and state favoritism by reducing economic inequality as measured in various ways. And I have no quarrel with attempts to block the conversion of economic power into relations of domination, stigmatization, and state favoritism that work by other means besides reducing economic inequality, as measured in one or another way. Yet I think it’s naïve to deny that economic inequality, as measured in different ways, generates (by diverse causal paths) objectionable relations of social inequality. And I think it’s equally naïve to take policies against various sorts of economic inequality off the table, on the supposition that alternative policies that preserve economic inequality but attempt to block its conversion into unequal social relations of domination, stigmatization, and state favoritism will always suffice. It’s an empirical question whether such strategies will suffice, and an empirical question which strategies work most effectively at least cost.

Also from This Issue

Lead Essay

  • Economic Inequality and the Mirage of Injustice by Will Wilkinson

    In his lead essay, Will Wilkinson observes what he believes is a poor chain of reasoning: Income inequality is rising; it is also a measure of injustice. To fix this injustice, we should redistribute incomes. Wilkinson attacks this reasoning on several fronts: Income inequality is less important than consumption inequality, and consumption inequality is probably lessening. But if income inequality is a problem, it is so only as a symptom of a different problem: substandard schools, perhaps, or our high incarceration rate, or CEOs who conspire to overpay one another. Rather than redistributing income, we should identify the underlying problem and fix it directly. This may well lessen income inequality, and it will also fix an undoubtedly serious problem somewhere else in our society.

Response Essays

  • Is Consumption the Grail for Inequality Skeptics? by Lane Kenworthy

    Lane Kenworthy argues that income inequality is indeed important, and that we should not be misled by the relatively reassuring data on consumption. Unconsumed income also adds to the quality of life enjoyed by the rich, even if that increase is still hard to measure. A more egalitarian society need not entail a radical social leveling, but it should entail better public services for the poor and the middle class.

  • Why Things Will Feel Worse As They Get Better: The Downside of Growing Consumption Equality by John V. C. Nye

    John Nye adds several considerations to the mix: First, positional goods may make us feel more unequal – there are only so many “top ten” schools for our kids, only so many “best” views or neighborhoods. Yet, with rising incomes, more of us feel that we should be able to afford them, even as they slip further from our grasp. As we become more equal, we feel less equal. Second, one other effect of relative equality has been to erode the security formerly enjoyed at the very top of the economic pyramid. This security itself was a form of compensation, and executive salaries may be rising in recent years in part because executive security has fallen. And third, much of human inequality is not directly measurable in money at all. Differences in appearance, intelligence, ability, and the like are all real and may translate into economic inequality as well. Consideration of these elements is curiously absent from many discussions on inequality.

  • What Should Egalitarians Want? by Elizabeth Anderson

    Elizabeth Anderson agrees with Wilkinson that the root causes of inequality are more troubling than inequality taken alone. But economic inequality is still a problem for two reasons: First, economic inequality of the sort we have today is not making the poor better off in absolute terms, but rather it is making them worse off. And second, economic inequality translates directly into inequality of political power, which in turn reinforces economic inequality. This is an unacceptable state of affairs.

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