Home > inequality, politics > Is it important to have a policy addressing inequality?

Is it important to have a policy addressing inequality?

I left this comment following a confusing post from Karl Smith:

First, to say that people should not care about inequality is a ridiculous statement. I could say, “people should not care about the Twilight Saga it’s aweful”, but the fact is that people do in fact care about it. Preferences are preferences. And no it is not “irrational” to do so, not in the sense of economic rationality at any rate. People’s revealed preference is for lower inequality. Period. (For example, I personally do not want my children to live in a world where there is hunger and deprivation and there is nothing wrong with doing what I can to prevent it.)

Second, your argument from opportunity sets makes as little sense. There is no principle of “conservation of opportunities” in an economy. An aggregate opportunity set makes as little sense. On the other hand, in terms of traditional wellfare analysis someone who has many choices already would recieve less utility from an endowment of many more opportunities than someone who starts with few (new chioces are unlikely to improve utility much if many good options are already available). So unless your wellfare function strongly favors the already rich anyway, the wellfare improving thing to do is to “redistribute” choices from the ones with many to the ones with few.

Finally, I just want to (almost) agree with you on one thing. I don’t think it matters how we get there either. Having said that, it is not enough to sit back and say that the problem will take care of itself. I think there is a strong (but anecdotal) case to make that inequality fell off the political radar in the 70′s largely because efforts at amelioration were successful. It has reentered politics precisely because policy since has done so much to reverse those gains. Unless we want to continue to bounce back and forth between these extremes, we as a society should put some real thought into more robust methods to keep inequality under control.

In fairness to Karl, his philosophy of can-kicking implies that we don’t really need “more robust approaches” to the problem of inequality (or climate change or macroeconomic stabilization policy). But few people would agree with him on that. Besides, it used to be a major political issue how to divvy the spoils of war. This created all sorts of bad incentives of course (see, for example, Julius Caesar). But this is no longer the case.

At some point it just makes sense that we solve problems once and for all (or at least for as long as our current institutions last, which is not actually forever) and it is often possible to do so. Even if projections for social security spending 80 years into the future make little sense, why not clean up its finances now?

Categories: inequality, politics
  1. Karl Smith
    April 18, 2012 at 1:59 pm

    Couple of things on all your comments

    1) So I don’t know I am saying caring about inequality is irrational, I am just saying that I don’t think its something to get upset about. I do think its possible to change people’s minds by pointing things out.

    2) I agree with you on deprivation. The question is whether or not a world with less deprivation and more inequality is better. If it is then do we really care about inequality per se. Don’t we really care about deprivation. This seems obvious to me as I mentioned form the start but given the convo I thought it might warrant saying

    3) I think we are saying the same thing on wealth. I was using opportunity set as a synonoym for wealth but just in a potentially more expansive sense. So, that you might actually be “poorer” but have more free time.

    4) On health care my point is that there may be some dead weight loss and that is a cost. However, the majority of what Kevin is counting as cost is a transfer. My point is that this is not an economic cost.

    • BSEconomist
      April 18, 2012 at 2:17 pm

      A couple of quick replies:

      1) It was another commentor who brought up the “rationality” issue, so that was more a reply to that person. People’s revealed preferences are by definition rational. Having said that, I’m not sure precisely what you mean by “not something to get upset about” though. If people’s revealed preference is that doing something about inequality would be better than not isn’t that the same as saying they are upset when society decides not?

      2) I agree with you that the problem is deprivation. I don’t think that anyone who cares about inequality, though, is really caring about the rich having too much (its impossible to be sure). I think the issue is that there are those with so much while others have so little.

      3) I think we agree on this point, too. I was just trying to draw that same parallel.

      4) On this point, I think I still have to disagree. First, I don’t think I should put words in anyone’s mouth about exactly what he though was a cost. Instead the story points clearly to inefficient rent seeking… rent seeking which employed real resources (lawyers) to achieve AND implies a deadweight loss. The real issue it seems to me is that the economic waste doesn’t appear at all in those numbers precisely because economic waste means that no trade occurred when it may have been profitably undertaken otherwise. In this case the ultimate cost is falling on higher health premiums and that means that some will not get health insurance that would like to.

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