Unequal Inequality

President Bush just spoke of "income inequality" for the first time, Tyler Cowen (the most impressive mind I’ve met) said last week that "inequality as a major and chronic American problem has been overstated," while Brad DeLong just said that "on the level of individual societies, I believe that inequality does loom as a serious political-economic problem."

I find it striking that these discussions focus almost entirely on the smallest of these seven kinds of inequality: 

  1. Inequality across species
  2. Inequality across the eras of human history
  3. Non-financial inequality, such as of popularity, respect, beauty, sex, kids
  4. Income inequality between the nations of a world
  5. Income inequality between the families of a nation
  6. Income inequality between the siblings of a family
  7. Income inequality between the days of a person’s life

Consider that "sibling differences [within each family] account for three-quarters of all differences between individuals in explaining American economic inequality" and that "eliminating income inequality within all nations would reduce global income inequality by no more than one-third."  So why do we talk mainly about financial inequality between a nation’s families, when each of these other six inequalities is arguably larger? 

DeLong’s excuse is that "It is hard … to envision alternative political arrangements or economic policies during the past 50 years that would have transferred any significant portion of the wealth of today’s rich nations to today’s poor nations."  But surely we could have transferred wealth if we had wanted to, just as parents could teach their children to share income if they wanted.  We could compensate for unequal beauty by transferring from the pretty to the ugly.  And we could reduce species and era inequalities by sacrificing less for rich future generations and sacrificing more for other species.   

Clearly, we do not just have a generic aversion to inequality; our concern is very selective.  The best explanation I can think of is that our distant ancestors got into the habit of complaining about inequality of transferable assets with a tribe, as a way to coordinate a veiled threat to take those assets if they were not offered freely.  Such threats would have been far less effective regarding the other forms of inequality.

Added 5/7/07: There is also a huge ignored inequality between actual and possible siblings.

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  • ChrisA

    I too have always wondered at the focus on national inequality versus international inequality. I see the same paradox on people who argue against free trade on the grounds that it costs jobs in their own country. Both of these approaches seem to me to be supremely selfish. Perhaps it is a matter of incentives – there are established methods of transferring wealth nationally through government channels, which creates the opportunity for rent seeking in the Govt employees. There are no such channels with the rest of the inequalities you mention.

  • Chris, there is an obvious channel to transfer between siblings: parents.

  • I see people fall in the US tech sector because their mental state doesn’t lend itself to being a cog in that sort of machine. It could have something to do with “social intelligence” or the ability to function in a group, or … whatever.

    To me though, having seen people make poor choice, or blow a good thing, I’m not sure that the stat (“sibling differences [within each family] account for three-quarters of all differences between individuals in explaining American economic inequality”) dissuades me that there is a problem.

    That’s an interesting stat, but what-if there was a fairly random distribution of chance that you would (even within a family) have the tool-set needed for advancement in an advanced technical society?

    If it is a birth-lottery, that makes me think that the safety net should be that much stronger.

    (just my early morning thoughts)

  • Robin, the link to sibling inequality does not seem to work.

    I am very curious about this one. How can parents have much impact on “income inequality” between siblings? If we are talking about children, of course parents can adjust allowances to make sure each child gets the same, regardless of other income sources. Parents can do that because the sums are (usually) pretty small for children. But once the kids grow up, and start making money on their own, it would quickly bankrupt all but the richest parents if they tried to equalize income between their adult offspring.

  • Bob, sorry, links are fixed. If parents made a priority of teaching their children to share income with each other, enough children would do so.

  • “If parents made a priority of teaching their children to share income with each other, enough children would do so.”

    … interesting assumptions hidden in that line. Isn’t “wealth distribution” a battleground amongst theorists of “human nature?”

  • Rachel Soloveichik

    Measuring inequality between siblings is really hard. If siblings reliably share resources, then parents will invest the most in education for the smartest child. And the smartest (and best educated) child will work an incredible number of hours to support everybody else in the family. As a result, a small difference in initial ability becomes a huge difference in earnings. In contrast, if siblings don’t share resources, income differences are much smaller. Therefore apparent income inequality is largest when siblings share resources the most.

    For more evidence on risk-sharing within the family in rural Mexico you can see my paper at http://home.uchicago.edu/~rtharris/RS_Job_Market.pdf

  • Rachel, good luck on the job market! Are you suggesting that difficulties in measuring sibling inequality make it harder for families to reduce sibling inequality?

  • If you thought that parents did not have enough influence to get their kids to share income, you might favor the government giving parents the legal power to transfer wealth between their kids. I don’t see how this could be more objectionable than the government directly transferring wealth between citizens.

  • Sure it all comes back to “transferring wealth between citizens.” Beyond that, I don’t know, man … when I drive off to work I go past a … essentially a soup kitchen … and have to sometimes slow for the people walking obliviously (or suicidally) across traffic. My attitude is “there but for the grace of God go I” … but there are biases in that too, right?

    Humans swing between compassion and disdain for the … well even to say “less fortunate” is to put a cause on it, to pick a bias.

    I don’t want to be too repetitive, but I do think life has more randomness in it than we like to acknowledge (see also your good catch on “Academic Tool Overconfidence?”). But if we do acknowledge that randomness, it might lead us (depending on our individual natures with respect to wealth and sharing) to make some sort of “fairness” decision.

    Obviously the whole thing is a nest of human biases.

  • michael vassar

    The distinction between 5 and 6 seems odd and arbitrary.
    You have earlier linked to Brian Caplan’s claims that most Americans think that we have already spent MUCH more than we have to reduce income equality between nations, without effect. Other posts indicate skepticism as to whether we can have such effects. Personally, I am not convinced that to the typical American, something as abstract as “starving children in Africa” even registers viscerally as REAL. They assent to the proposition, like they do to religious propositions (and it’s usually phrased, like religious propositions, as an appeal to guilt, and accompanies assertions that they can’t plausibly judge the credibility of, but which seem intrinsically implausible, such as “for the price of a cup of coffee a day you can save a life”), but they don’t really believe in it. Evidence for this view comes from the common statements given by people who have been to Haiti, for instance, about how they couldn’t believe what they saw.

    Obviously most people give most members of other species exactly zero moral consideration. They can’t rationally expect reciprocity, altruism, or moral consideration from other species, nor can they think “there, but for the grace of god, go I”.

    The past can’t be effected. The future is probably already rich, and elicits no sympathy. In so far as it’s poor, there is concern, e.g. to protect the environment. Humans didn’t evolve in a context where wealth maximization was a coherent desire. They don’t have a drive for it, but rather they have sympathy for those worse off than themselves (at least so long as those people are neither competition nor scape-goats used for preserving group harmony)

    People do care about non-financial inequality, except in the case of sex, which is for evolutionary reasons a special case where one expects emotions to be dominated by disgust and contempt instead. However, the inadequacy of governmental bureaucracies in confronting such inequalities is so grossly obvious that people only attempt to use them to confront the grossest such inequalities (via social work, governmental psychological work, etc) and even then they are much conflicted about doing so (did you ever see a social worker or government psychiatrist portrayed positively in a movie?). OTOH, part of the reason that people give for school is to reduce the non-financial inequality in upbringing, and unequal schools are considered highly pernicious. Courts try to correct for various types of inequality in rhetorical skill etc. Church charities, and some secular charities dealing with, for instance, battered women, also try to confront such types of inequality. Social disapproval of cosmetics and cosmetic surgery is a form of direct dissuasion of those who increase beauty inequality.

    People deal with inequality between their days by saving and using insurance. No other method would plausibly be superior.

    I think that this deals with the whole post.

    However, it is also worth mentioning that it sometimes makes sense to submit to veiled threats of this sort, that even successful people often want a safety net because they might someday benefit from one, and because some people they know probably will so benefit (parents don’t want to be stuck deciding whether to feed their f*ck-up children or let them starve). A safety net, like bankruptcy, also reduces risk aversion and increases the amount of risky investment with high expected individual and societal returns.

  • So, who is the smartest one you know: Tyler Cowen or Bryan Caplan???
    Forcing you to pick among your various lunch partners, but, hey,
    you asked for it! 🙂

  • Michael, I don’t see why the distinction between families and nations is irrelevant – through most of history families did the most to reduce inequality. If the future will be rich we should stop sacrificing for them as much as we do. How clearly we envision world poverty is a choice we make – we don’t bother to notice it because we do not care much about it. We could use cash transfers from the pretty to the ugly to reduce total inequality that is caused in part by unequal beauty. Yes people transfer some income across the days of their lives, but a lot of inequality remains that doesn’t seem to bother them much.

  • Barkley, I said Tyler was the most impressive and Bryan was the sharpest. Impressive is an overall evaluation of mental ability. Sharpness is more about a tendency to produce novel penetrating insights.

  • michael vassar

    >Michael, I don’t see why the distinction between >families and nations is irrelevant – through most of >history families did the most to reduce inequality.

    I didn’t say families AND nations, I said 5 and 6, within families and between families.
    It’s an irrelevant distinction today because families basically have little legal significance or relevance today. We do look down on middle class parents who pay for one child’s college but not the others, but that sort of thing is not considered a suitable subject of legislation. We certainly don’t think that we have any significant stake in the equal or unequal outcomes within families other than our own.

    >If the future will be rich we should stop >sacrificing for them as much as we do.

    Only given certain assumptions. My statement was simply about how people think about these things, in so far as they do think, and about what the logic of their behavior and the situation indicates.

    >How clearly we envision world poverty is a choice we >make – we don’t bother to notice it because we do >not care much about it.

    You assert that, but I just pointed out that psychologically it isn’t clearly true. Almost no-one very clearly envisions ANY issue abstract from their day-to-day concerns. If they did, I confidently assert that they would pretty much all be working to prevent UFAI and to develop life extension tech, but at the very least one might expect them to focus monomaniacally on saving their souls and those of the people they cared about.

    >Yes people transfer some income across the days of >their lives

    Some? The middle and upper classes essentially NEVER spend all of their money at once and max out their capacity to borrow out of indifference to the future.

    >We could use cash transfers from the pretty to the >ugly to reduce total inequality that is caused in >part by unequal beauty.

    > a lot of inequality remains that doesn’t seem
    > to bother them much.

    Why should it? As utilitarians, monetary inequality is bothersome because the rapidly diminishing marginal utility of a dollar indicates that it is, the amount of spending being equal, higher utility for money to be more equally distributed. There is no equivalent obvious principle of diminishing marginal utility to other valued attributes. Also, Wealth is transferable in ways that other attributes are not (though not as much so as socialists imagine). Social contractarians might expect those who feel that it inadequately expresses their interests to negotiate a new social contract violently, and might want to avoid that.
    Kantians might reasonably argue that behind a veil of ignorance everyone would agree to laws establishing a safety net, but that they would agree, even behind a veil of ignorance, to monetary transfers aimed at mitigating non-monetary inequality at the expense of utility. Even Nietzschians might expect equality of initial monetary opportunity to make it more likely that the most able to realize their potential.

  • Doug S.

    Regarding inequality between nations: it seems like it’s harder for a government to affect other nations than it is for it to affect its own, so addressing inequality between nations may seem to be a job for our (relatively toothless) international institutions than individual national governments.

  • Curt Adams

    Robin, do you have a better link for the claim that almost all income inequality in intrafamily? I find that extremely hard to believe in the face of evidence (mentioned here http://www.post-gazette.com/pg/05133/504149.stm) that 40-65% of income disparity is passed from parents to children, plus the fact that there’s going to be some sibling correlation apart from parental effects. My own anectdotal evidence is also the important disparities are between, not within families. A link to the option to purchase a pop science book is, well, underwhelming.

    Regarding why intracountry income differences count and not the others: I think it’s because that’s the inequality that people will care about – because they must interact with those of differing income, and incomes can be transfered, unlike beauty or intelligence. I don’t interact much with people of different times or nations. Intrafamily and especially interday interactions are a very different ball game. Objectively the horrors in Africa are far worse than what goes on in the barrios of Santa Ana a few miles from where I live. But I have to see and deal with the locals, producing visceral effects on me, and their situation can affect me criminally or politically. Further, I can potentially participate in political alliances with them to achieve my own goals. I can get little personal benefit from alleviating poverty in Africa.

  • Curt, Dalton Conley is a respected and competent sociologist whom I know personally and have confidence in. You may care more about people you interact, but you don’t interact much with most people in your nation. So that reasoning would suggest a focus on inequality at the town/city level.

    Doug, the fact that we have stronger national than world governments is in large part a choice we have made, because we care more about other people in our nation than in the rest of the world.

  • joeo

    Here is the chapter of conley’s book where he gives the 75% figure.


    He uses an estimate of 0.5 for the correlation between sibling’s log incomes.

  • It seems to me that there is a direct contradiction between a desire for income parity and respect for indigenous culture. The most salient principles geopolitical neocons evangelize are all about extending the economic conditions which guide their own actions to nations that don’t have those economies. I think the conflict is unavoidable. Think colonialism. If you want to have money like me, then you must do as I do. If you want to have democracy like me, then you must give up the meaning of your internecine conflicts and work them out as I would.

    I believe that the very things we key in on when considering the corruption of a third world country is precisely the extent to which its leader(s) live in the style of the West and its people do not. Those leaders who presumably adopt Western values cannot pull Western economies out of their hat. It’s easy for small numbers of people to sell out (buy in) but you need the entire economy for the people to do so.

    Economies must be grown. They cannot be bought, sold or transferred.

    On a smaller scale when we talk about income equality between families you cannot avoid a discussion of values, or of cultural differences which express those values in a social context.

    Aside from all that, what is the point of income equality if it does not provide social equality? And between social equals, what difference does income make?

  • There are 4 types of inequality. Three are:
    Wealth inequality (inequality in one’s claims on resources);
    Income inequality (inequality in the yearly increment to wealth); and
    Consumption inequality (inequality in the resources actually claimed).

    Of these three, consumption inequality is the one primarily relevant to the effects of material resources on well being (wealth not contributing to well-being-that-is-due-to-material-factors unless you spend it (except for misers)).

    But consumption inequality has to be divided into two parts:
    nominal consumption inequality (inequality in the amount spent);
    and most important
    Experiential Consumption Inequality (inequality in how good ones experience of living is, insofar as ones experience is due to material factors).

    The only important form of inequality for conscious beings is Experiential Consumption Inequality.

    But Experiential Consumption Inequality can only vary within very narrow limits, once a person has enough to satisfy basic needs.

    This is because every person has only 16 hours a day to live, and can only do 1 thing at a time. So a person who has 2 cars (or 10), or 2 houses (or 10), can only live in one house at a time, or only drive one car at a time, and any satisfaction they experience is due to their experience: one car’s worth, or one house’s worth, not 10 cars worth or 10 houses worth.

    A person who buys a $300 meal can only eat as much as a person who buys a $10 meal; their satisfaction is not 30 times as great ($300/$10).

    In addition, the decreasing marginal utility of consumption kicks in to decrease the increment in well being: the $10 meal may be way more satisfying than the $300 meal if the $10 eater is hungry. To someone without a car, getting one car is deeply satisfying; to someone who has 9 cars, another may be a pain in the ass (“Stop with the cars already!”).

    This is why differences in wealth (income, consumption) do not turn into differences in well being, once you get above basic needs (google World Database of Happiness for exhaustive empirical verification).

  • TGGP

    Steve Sailer seemed to say that #3 is the only one that really matters in this response to David Friedman and Will Wilkinson’s dismissing of inequality.

  • One only need to compare Stephen Hawking to Michael Jordan to realize that inequality exists and is not necessarily a problem.

    However, inequality with respect to opportunity is a problem. This is why I support free-trade, public education, and equal opportunity legislation.

    I would point out that equal opportunity will not create equal representation. Equal access to an opportunity does not mean that those who grasp the opportunity will be proportionately representative of the population at large.

  • michael vassar

    I don’t think that Steve Sailer is saying that ONLY 3 matters, but rather that 3 matters a lot.
    I think that it’s worth noting that non-experiential consumption inequality may be a good thing, for instance, if people with very high productivity have house-keepers to save them time this helps everyone.
    It’s true though that the inefficiency of experiential consumption on luxury goods is an argument for greater equality.

  • Paul Gowder

    At least international inequality is a huge, huge, huge subject of discussion amongst activists, government, NGOs, and political philosophers and theorists (in the latter category, check out the burgeoning literature on global justice).

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  • Zach

    Personally, I feel a visceral disgust whenever I think about how unequal the numbers 14 and 38 are.

    I agree that inequality is not inherently bad in that I don’t think most humans have a direct moral instinct to abhor inequality. It’s only bad insofar as it reflects or causes lack of fairness. Since inequality and lack of fairness are so strongly correlated, many people have probably been trained to automatically disapprove of inequality. I think in America today inequality does frequently both cause and reflect lack of fairness. So while it may sometimes be imprecise to malign inequality directly, I don’t think it’s inappropriate.

    As for sibling inequality, I’m sure many less successful siblings feel and express great resentment over the perceived advantages of their more successful siblings. They don’t expect the government to interfere because the unfair system that caused the inequality is at the family level and dictated by culture. This is in contrast to inequality caused by Wall Street excess.

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