Tag Archives: Inequality

How Important Is Inequality?

My post last August on “Inequality Talk is About Grabbing” got 215 comments, which may be a record. In that post I tried to explain why most inequality talk focuses on the small part of inequality that is financial inequality at a given time between the families of a nation. I suggested that the reason is that we think we could grab lots of money from the rich without much pain to the rest of us.

Recently Piketty’s book has induced lots of folks to express deep concern about the same sort of inequality. Piketty says rising inequality is due to owners of capital getting higher returns than the economic growth rate, and recommends taxing capital. Yes that would greatly reduce the total amount of capital in the long run, and therefore also cut future wages and wealth, but gosh darn it inequality is harmful enough to be worth paying such a huge price to reduce it. This is a crisis and something must be done! So say Piketty’s loud chorus of fans.

But consider what a more expert source says is the real reason of rising (between-family within-nation at-a-time) inequality:

In summary, the authors attribute the growth of household inequality to three interacting forces. The first is rising returns to education. Earnings across educational classes have become more polarized. The second factor is increased positive assortative mating. People with similar socioeconomic backgrounds tend increasingly to marry each other, exacerbating income inequality. Third, the increase in married female labor force participation has heightened inequality, and has also made women’s earnings an increasingly important determinant of household income inequality. (more)

Do you think those who thought rising inequality was a crisis justifying our destroying lots of long run capital also think it important enough to justify reducing education, assortative mating, and female work, if those are the causes? Yeah, me neither. And that’s what you’d expect if grabbing is more the motive here than cutting inequality.

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Rah Manic Monopolists?

The vast majority of economic growth is caused by innovation. So when it comes to long term policy, innovation is almost the entire game – whatever policy causes substantially more innovation is probably better, even if has many other big downsides.

One simple robust solution to the innovation problem would seem to be manic monopolists: one aggressively-profit-maximizing firm per industry. Such a firm would internalize the entire innovation problem within that industry, all the way from designers to suppliers to producers to customers – it would have full incentives to encourage all of those parties to put nearly the right amount and type of efforts into innovation.

Yes, even monopolists don’t have exactly the right incentives. They will tend to focus on what marginal customers want, at the expense of both lower-value customers pushed out by inflated monopolist prices, and higher-value infra-marginal customers. And when innovations can cross industry boundaries, industry monopolists may also fail to coordinate with monopolists from other industries. But still, this approach seems to get a lot closer to optimal that anything other simple policy. And if two industries had enough innovation interaction, one might just have a single firm cover both industries.

Ideally these monopolies would be global, but if not national ones might still be a big win over the status quo.

Admittedly, common intuitions don’t agree with this. For one thing we tend to think of monopolists as too lazy to innovate – it takes competition to push them out of their comfort zone. And I agree that this is a common situation for regulated utilities and government agencies. Often the employees of a monopolist tend to have enough political power to entrench themselves and resist change, at the expense of investors and customers. This is why I specified manic monopolists – we need investors to have enough power to impose their will, and we need to have  enough competition to fill these investor roles.

Yes, we also tend to be uncomfortable with the inequality and power concentration that manic monopolists would embody and require. It isn’t at all what foragers are prone to praise. But still, if innovation is important enough, shouldn’t we be willing to tolerate a lot more inequality to get it?

Added 8a 11Apr: In general, industries that are more concentrated, i.e., more in the direction of having a monopolist, have more patents, all else equal. This seems to be because they invest more in R&D. Data here, here.

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World Inequality Is Down

From the Nov. ’13 Review of Income and Wealth:

This paper provides a full decomposition of world [individual purchasing-power-parity income] inequality, as measured by the Gini coefficient, in the period 1970–2009. (more; ungated)

WorldInequality

The top two lines show total world inequality over time as estimated by this paper and by another previous paper. Both agree that worldwide income inequality has been falling consistently over four decades, especially in the last decade.

Of course this ignores non-financial inequality and inequality across time.

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The ‘What If Failure?’ Taboo

Last night I heard a  group of smart pundits and wonks discuss Tyler Cowen’s new book Average Is Over. This book is a sequel to his last, The Great Stagnation, where he argued that wage inequality has greatly increased in rich nations over the last forty years, and especially in the last fifteen years. In this new book, Tyler says this trend will continue for the next twenty years, and offers practical advice on how to personally navigate this new world.

Now while I’ve criticized Tyler for overemphasizing automation as a cause of this increased wage inequality, I agree that most of the trends he discusses are real, and most of his practical advice is sound. But I can also see reasonable grounds to dispute this, and I expected the pundits/wonks to join me in debating that. So I was surprised to see the discussion focus overwhelmingly on if this increased inequality was acceptable. Didn’t Tyler understand that losers might be unhappy, and push the political system toward redistribution and instability?

Tyler quite reasonably said yes this change might not be good overall, and yes there might well be more redistribution, but it wouldn’t change the overall inequality much. He pointed out that most losers might be pretty happy with new ways to enjoy more free time, that our last peak of instability was in the 60′s when inequality was at a minimum, that since we have mostly accepted increased inequality for forty years it is reasonable to expect that to continue for another twenty, and that over history inequality has had only a weak correlation with redistribution and instability.

None of which seemed to dent the pundit/wonk mood. They seemed to hold fast to a simple moral principle: when a future change is framed as a problem which we might hope our political system to solve, then the only acceptable reason to talk about the consequences of failing to solve that problem is to scare folks into trying harder to solve it. If you instead assume that politics will fail to solve the problem, and analyze the consequences of that in more detail, not to scare people but to work out how to live in that scenario, you are seen as expressing disloyalty to the system and hostility toward those who will suffer from that failure.

I think we see something similar with other trends framed as negatives, like global warming, bigger orgs, or increased regulation. Once such a trend is framed as an official bad thing which public policy might conceivably reduce, it becomes (mildly) taboo to seem to just accept the change and analyze how to deal with its consequences.

All of which seems bad news for my book, which mostly just accepts the “robots take over, humans lose wages and get sidelined” scenario and analyzes its consequences. No matter how good my reasons for thinking politics will fail to prevent this, many will react as did Nikola Danaylov, with outrage at my hostility toward the poor suffering losers.

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Inequality Talk Is About Grabbing

The US today has about 425 billionaires, over 1/3 of the world’s total. Many folks say these billionaires are unfairly unequal, and so we should tax them lots more.

People usually become billionaires via having “super-powers,” i.e., very unusual abilities, at least within some context. But what if most billionaires had super-powers of the traditional comic book sort, like x-ray vision or an ability to fly, etc.? That is, what if people with physical super-powers earned billions in the labor market by selling the use of these powers? Would folks be just as eager to tax them to reduce unfair inequality?

My guess is no, most would be less eager to tax billionaires with physical super-powers. And I offer this prediction as a test of my favored theory of expressed inequality concerns: that inequality talk is usually a covert way of coordinating who to maybe grab stuff from. Let me explain.

As I’ve discussed before, while people usually justify their inequality concerns by noting that inequality can make lower folks feel bad, that justification can apply equally to a great many sorts of inequality. Yet concern is actually only voiced about a very particular sort: financial inequality at a given time between the families of a nation. The puzzle in need of explaining is: why is so little concern expressed about all the other sorts of inequality?

My favored theory is an application of homo hypocritus: our forager ancestors developed the ability to express and enforce social norms, and then developed rich and subtle abilities to coordinate to evade those norms. One of those norms was that foragers weren’t supposed to grab stuff from each other just because they wanted the stuff, or just because that stuff was easy to grab. But they did have norms favoring sharing and equal treatment, and so it was ok to talk about who might be violating such norms, and what punishments to apply to violators.

But they all knew, at least subconsciously, that some groups would be quite effective at retaliating against such suggestions. The accused might physically resist the attempted punishment, or might retaliate with contrary accusations. So foragers needed ways not only to overtly accuse folks of violating norms, and to officially propose to take stuff away as punishment, but also to covertly discuss who might have especially nice stuff to take, and who they could most easily get away with grabbing from.

I suggest that most talk about the problems of inequality actually invokes this ancient hypocritical ability to covertly discuss where to find lots of nice easy-to-grab stuff. We don’t discuss inequalities across time, because it is hard to grab much more than we do from the past or the future. We don’t much discuss the inequality of rich foreigners, because it is much harder to grab their stuff. We don’t much discuss inequality of those with unusual artistic abilities or sexual attractiveness, because we can’t directly grab their advantages and while we might try to grab their material goods to compensate, they don’t have that much, and the grabbing would be hard. (Also, such folks have more social status to resist with. For foragers, status counted lots more than material goods for influence.)

A few people within our nation who each have lots and lots of material goods, however, seem to make a great target for grabbing. So people discover they have a deep moral concern about that particular inequality, and ponder what oh what could we possibly do to rectify this situation? Anyone have an idea? Anyone?

But if those few very rich folks had real physical super-powers, we would be a lot more afraid of their simple physical retaliation. They might be very effective at physically resisting our attempts to take their stuff. So somehow, conveniently, we just wouldn’t find that their unequal wealth evoked as much deeply felt important-social-issue-in-need-of-discussing moral concern in us. Because, I hypothesize, in reality those feelings only arise as a cover to excuse our grabbing, when such grabs seem worth the bother.

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The Poor Wore Color

A year ago I posted on how ancient buildings are usually depicted as colorless, even though they were brightly colored, and suggested this is because we think about the distant past in far mode. I’ve argued similarly about future images and colors.

We also tend to think of the clothes of the past poor as colorless; here are some typical images:

ColorlessGirls

ColorlessBoysBut not only did the poor smile, they wore a lot of color:

“Threads of Feeling” is an exhibition of the thousands of textile tokens left with the children at London’s Foundling Hospital from the middle to late 18th century. The 3-by-4-inch fabric swatches are the largest collection of 18-century common textiles from Britain, preserved for a heartbreaking reason. In 1739, wealthy patrons created the Foundling Hospital, a nice name for a large orphanage, to adopt and take care of abandoned babies being left at churches and on sidewalks across London. This orphanage took in thousands of babies left at its doors from 1739 to 1770, with the hope that mothers would ultimately return to claim their children if their monetary circumstances changed. So when the mothers left their babies, they often attached a small fabric swatch to identify the child. Often, the swatches were cut from the mother’s clothing, and included ribbons, embroidery and brightly colored materials that represent the textiles of the poor in 18th-century Britain.

FoundlingHospitalCloth

Though not a traditional textile or costume exhibition, the trove of fabrics recasts much of working-class London in a vibrant, colorful light, opposing the drab, gray palette depicted in the writings of Samuel Johnson and his contemporaries. The men who chronicled life in London rarely described the attire of poor women; when they did, the colors of smut and sewage seemed to cloud their eyes and words. But the women, by and large illiterate, lived life in florals, needlepoint and intricately dyed fabrics. John Styles, curator of the exhibition, said 18th-century textiles of the poor were rarely preserved, because most peasants sold old fabrics and clothes to be made into paper. …

FoundlingHospital

Since the practice of leaving children at hospitals was so common, many historians once believed wrongly that women and parents were less attached to their children. Indeed, narratives of hardened mothers abandoning their children were documented in texts at the time, making children seem dispensable. But what illiterate women couldn’t chronicle in books about life in London, they could weave into carefully crafted tokens of love for their infants. Some mothers illustrated enduring love with hearts and butterflies, symbols of innocence that displayed their deep attachment to their children. The most wrenching part of the exhibition is the mostly unrealized hope that mothers would return to claim their children. Of the 16,282 infants admitted to the hospital, only 152 children were reclaimed. (more)

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Rich Is Far

[We hypothesized that] reminders of (a great deal of) money facilitate global, abstract mental construals … [while] reminders of expenditure or a little money should trigger more concrete mental representations. … Participants were primed with money or money-unrelated concepts. Money primes caused a preference for abstract over concrete action identifications (experiment 1), instigated the formation of broader categories (experiment 2), and facilitated the identification of global (vs. local) aspects of visual patterns (experiment 3). This effect extended to consumer judgments: money primes caused a focus on central (vs. peripheral) aspects of products (experiment 4) and increased the influence of quality of parent brands in evaluations of brand extensions. Priming with a little money (experiment 3) or expenditures (experiment 5) did not trigger abstract construals, indicating that the association between money and resources drives the effect. (more)

We’ve long known that power tends to induce far mode. So now we can say that the rich and powerful tend to think in a more far mode. That includes the entire world, since the world has been getting richer and more powerful. This plausibly explains why our “moral circles” have continued to widen over time, and helps us see why our era’s thinking is an especially deluded “dreamtime.”

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Wanted: Elite Crowds

This weekend I was in a AAAI (Association for the Advancement of Artificial Intelligence) Fall Symposium on Machine Aggregation of Human Judgment. It was my job to give a short summary about our symposium to the eight co-located symposia. Here is what I said.

In most of AI, data is input, and judgements are output. But here humans turn data into judgements, and then machines and institutions combine those judgements. This work is often inspired by a “wisdom of crowds” idea that we often rely too much on arrogant over-rated experts instead of the under-rated insight of everyone else. Boo elites; rah ordinary folks!

Many of the symposium folks are part of the IARPA ACE project, which is structured as a competition between four teams, each of which must collect several hundred participants to answer the same real-time intelligence questions, with roughly a hundred active questions at any one time. Each team uses a different approach. The two most common ways are to ask many people for estimates, and then average them somehow, or to have people trade in speculative betting markets. ACE is now in its second of four years. So, what have we learned?

First, we’ve learned that it helps to transform probability estimates into log-odds before averaging them. Weights can then correct well for predictable over- or under-confidence. We’ve also learned better ways to elicit estimates. For example, instead of asking for a 90% confidence interval on a number, it is better to ask for an interval, and then for a probability. It works even better to ask about an interval someone else picked. Also, instead of asking people directly for their confidence, it is better to ask them how much their opinion would change if they knew what others know.

Our DAGGRE team is trying to improve accuracy by breaking down questions into a set of related correlated questions. ACE has also learned how to make people better at estimating, both by training them in basic probability theory, and by having them work together in teams.

But the biggest thing we’ve learned is that people are unequal – the best way to get good crowd wisdom is to have a good crowd. Contributions that most improve accuracy are more extreme, more recent, by those who contribute more often, and come with more confidence. In our DAGGRE system, most value comes from a few dozen of our thousands of participants. True, these elites might not be the same folks you’d have picked via resumes, and tracking success may give better incentives. But still, what we’ve most learned about the wisdom of crowds is that it is best to have an elite “crowd.”

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Inequality /=> Revolt

Famous historical revolutions were not consistently caused by high or rising income inequality:

[French income] inequality during the eighteenth century was large but decreased during the revolutionary period (1790-1815). … When industrialisation began about 1830, inequality increased until sometime in the 1860s. (more)

In 1904, on the eve of military defeat and the 1905 Revolution, Russian income inequality was middling by the standards of that era, and less severe than inequality has become today in such countries as China, the United States, and Russia itself. (more)

In 1774 the American colonies had average incomes exceeding those of the Mother Country, even when slave households are included in the aggregate. … American colonists had much more equal incomes than did households in England and Wales around 1774. Indeed, New England and the Middle Colonies appear to have been more egalitarian than anywhere else in the measureable world. Income inequality rose dramatically between 1774 and 1860, especially in the South. (more)

So why do most people so confidently believe that revolutions were caused by high or rising inequality? I’d guess its because it feels like a nice way to affirm your support for the standard forager value of more equality.

Added 24Sept: OK, I see that the French data isn’t so relevant to my point.

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Inequality Is Diversity

The Cambrian explosion … was the relatively rapid appearance, around 530 million years ago, of most major animal phyla, as demonstrated in the fossil record, accompanied by major diversification of organisms including animals, phytoplankton, and calcimicrobes. Before about 580 million years ago, most organisms were simple, composed of individual cells occasionally organized into colonies. Over the following 70 or 80 million years the rate of evolution accelerated by an order of magnitude (as defined in terms of the extinction and origination rate of species[4]) and the diversity of life began to resemble that of today. (more)

Now that humans have pioneered powerful innovations in law, tech, and organization, the obvious long-term future to expect is a diversity in use of those innovations: our descendants will radiate out in feature space to fill a wide range of niches, not only on Earth, but under and above it as well. Just as Cambrian explosion descendants shared common cell tech and structures, our descendants may mostly preserve some key features of human minds and societies far into the coming explosion. But that still leaves room for a vast diversity.

Since our society tends to give lip service to celebrating diversity, it can also give lip service to celebrating this future diversity. But humans also tend to be wary of inequality. Foragers were especially vigilant to prevent some of them from overtly dominating others, and while farming and industry cultures have led us to tolerate more inequalities, we aren’t especially happy about it.

This is a problem because it is very hard to imagine a Cambrian explosion level of diversity among our descendants without a lot more inequality. For plants or animals today, pick most any dimension along which you want to call some “better” than others, and you’ll find a wide variation — some are a lot better than others. Pretty much the only dimension in which all existing species are near “equal” is survival – all have survived. But of course they are a tiny fraction of winners vastly outnumbered by all the dead loser species.

Thus our descendants are likely to differ greatly from one another on most all imaginable dimensions, including dimensions of value, where some are called “better”. The only ways to prevent that is either to destroy all descendants, or for a central power to seize control of this process and impose a concept of equality favored by those who control it. And if you supported an attempt to seize central control on this basis, you’d risk folks with other agendas seizing control of this central power base.

While such a central control attempt might make sense someday, when we have learned better ways to coordinate, for now I think we have to accept that the future will come with both great diversity and great inequality – and that we can’t really have much diversity without a lot of inequality as well.

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