Is Redistribution the Wrong Cure?

In my initial comment I addressed Will Wilkinson’s contention that consumption inequality is much more important than income inequality. Here I turn to his central argument, which is in the second half of his essay.

Will argues that regardless of the degree to which inequality has risen, focusing on it is a distraction from the mechanisms that contribute to that rise, and some (not all) of those mechanisms are the real things we should object to and try to fix. He seems to be saying that the standard liberal or progressive proceeds as follows: observe rising income inequality –> advocate an increase in redistribution to reverse that rise. Will is suggesting that instead we should inquire into the causes of the rise in inequality. If a particular cause is not morally objectionable — such as, in his view, skill-biased technological change or an increase in immigration — no policy response is called for. If the cause is morally objectionable — such as unequal access to good schooling or racial discrimination — we should try to address the cause rather than turn to redistribution as the cure.

I have a different view, though it isn’t diametrically opposed to Will’s. First, I agree that we should look for the particular injustices that underlie a rise in income inequality. Indeed, we should do that whether or not inequality is increasing.

Second, I also agree that some of the causes of rising inequality are more objectionable and deserving of policy remedy than others. For instance, though the research isn’t conclusive, I strongly suspect that increases in imports from low-wage countries and in immigration into the United States  have contributed to the rise in income inequality over the past several decades. But unlike some American progressives, I believe that on balance both are desirable developments, so I don’t favor heightened trade or immigration restrictions as a policy response. The same holds for technological change.

I do favor government action to help the Americans most vulnerable to these processes to better adapt and adjust. Potentially helpful policies include more aggressive early education, improved K-12 schooling, portable health insurance and pensions, more generous unemployment compensation, wage insurance, retraining, job placement assistance, a minimum wage pegged to inflation, and a beefed-up EITC for those without children. Some of these involve “redistribution” in the usual understanding of the term, while some don’t.

There are other injustices that I, like Will, think we should attempt to address head-on, irrespective of their impact on income inequality. I agree with him that discrimination and inadequate schools are among these.

Suppose, optimistically, that we succeed in reducing these barriers to opportunity and yet income inequality continues to rise. My sense is that Will would say no policy response — in particular, no increase in redistribution — is merited. In this view, everyone starts out with roughly equal opportunity. Differences in outcomes, such as earnings and income, are a product mainly of effort and hence are morally neutral.

I disagree. Hard work, drive, and diligence are heavily influenced by luck. To a considerable extent, they are a result of things over which we have no control: our genes, development in utero, birth order, our parents’ traits, childhood nutrition and health, early social experiences with peers, and stumbling into an occupation that suits our likes and abilities, among others.

Now, the fact that luck plays a significant role in outcomes by no means implies that we should redistribute until outcomes are perfectly equal, or even close to equal. How much to redistribute requires taking a variety of things into account, including administrative costs and incentives for work, investment, and innovation. But luck’s influence means that redistribution is a justifiable remedy. Skyrocketing CEO pay does not have to be the product of improper collusion, and wage stagnation need not owe to racial discrimination, for us to consider an expansion of taxes and/or transfers an appropriate response. While we sniff out and rectify the injustices on which Will commendably wants us to focus, it is perfectly reasonable to also respond to heightened income inequality by increasing redistribution.

Also from this issue

Lead Essay

  • 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

  • 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.

  • 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.

  • 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.