Why relative inequality matters

[Propertarian]

In the thread on inequality recently, a poster claimed that relative inequality is unimportant. This is so clearly fraudulent at the national level that it surprises me that anybody honestly believes it to be true. Obviously, relative inequality would matter simply because of diminishing marginal utility. But, in a paragraph from a recent essay , Chris Bertram summarizes several other reasons why this inequality matters at the domestic level.

"Domestically, it seems to me that relativities in wealth and income matter because of the way that they can impact upon people’s absolute levels of well-being . There are a number of components to this, and I needn’t rehearse the arguments in grim detail. Amartya Sen goes through some of them in his well-know essay “Poor Relatively Speaking”: if wealthier people come to have access to new technologies, and if access to important goods get mediated through access to those technologies, then the poor who lack such access will find it harder and more expensive to supply their needs. You can run this one from everything from cars and out-of-town shopping centres to the internet. Second there are arguments about how inequalities in wealth and income undermine political equality. Third there are the Frank-style arguments about how relativities impact directly upon happiness. Fourth there are the Marmot and Wilkinson (the other one) arguments about how inequality impacts on health. Fifth, there arguments such as those put forward by Adam Swift concerning how people can translate their advantage in wealth and income into better educational opportunities for their children and place them better in the queue for jobs that those of poorer individuals. Some of these arguments may have flaws (I’m inclined to be more skeptical about the Frank ones than the others) but together they make a compelling case for the idea that inequality is bad for people, domestically"

In the rest of the short essay, he goes on to argue that inequalities between nations are less important because these considerations don't seem to apply (obviously, some people consider them to be unfair, and diminishing marginal utility still applies).

[BCPVP]

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if wealthier people come to have access to new technologies, and if access to important goods get mediated through access to those technologies, then the poor who lack such access will find it harder and more expensive to supply their needs. You can run this one from everything from cars and out-of-town shopping centres to the internet.

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This seems like a very poor argument considering technology usually gets cheaper and more accessible as time goes by. Take cars. When first invented, they were only for the rich man. Then Henry Ford came along and suddenly cars could be had by more and more people. Nowadays, even quite poor people can own a car. Computers are the same way. Started off quite expensive, but now are getting cheaper and cheaper. The incentive to make expensive goods that the rich buy more accessible is massive considering there are far more non-rich people.

[Propertarian]

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if wealthier people come to have access to new technologies, and if access to important goods get mediated through access to those technologies, then the poor who lack such access will find it harder and more expensive to supply their needs. You can run this one from everything from cars and out-of-town shopping centres to the internet.


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This seems like a very poor argument considering technology usually gets cheaper and more accessible as time goes by. Take cars. When first invented, they were only for the rich man. Then Henry Ford came along and suddenly cars could be had by more and more people. Nowadays, even quite poor people can own a car. Computers are the same way. Started off quite expensive, but now are getting cheaper and cheaper. The incentive to make expensive goods that the rich buy more accessible is massive considering there are far more non-rich people.

[/ QUOTE ] Your comment is a non-sequitur; it does not show that the argument is poor. All your argument says it their is some factor that makes technology cheaper at work; it doesn't change the fact that the claim being made their is true.

I wish I could give you a link to Amartya Sen's (Who recently won the Nobel Prize in Econ) original article on this in case you don't understand it fully from that statement, but it's not online.

It's funny that you mention cars, however. One of Sen's examples is that the invention of the car made things worse for people who didn't have a car, because the invention of the car (predictably) lowered the quantity and quality of other types of transportation, caused jobs to move from the city to the suburbs (harder to reach for people living in the city without a car) and even allowed the affluent who worked in the city to live in the suburbs, decreasing the property values and tax revenue within the city.

This shows how you misinterpreted the argument in another way. Your last line in your critique of the argument is "The incentive to make expensive goods that the rich buy more accessible is massive considering there are far more non-rich people". but the article said "wealthier" vs. "poor"; this factor has it's largest negative effect on those who have lower (especially considerably lower) than the average income. Their are far fewer people who have less than half of the median income (by definition) than their are those who have close to the median income or above; hence, if the market caters to the many instead of the few like you claim, that would in fact strengthen the claim (properly comprehended). In fact, in direct contradiction to your ostensible critique of this argument, generally speaking, the more people who have access to these new technologies, the larger the negative effect on those who do not have access.

[valtaherra]

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One of Sen's examples is that the invention of the car made things worse for people who didn't have a car, because the invention of the car (predictably) lowered the quantity and quality of other types of transportation

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As an aside, I would just like to point out that the reason for the lowering of quantity and quality of other types of transportation, trolleys in particular, was entirely due to government and had nothing to do with market forces.

Although, its almost a moot point since the entire transportation infrastructure of the United States is state run.

Google "Taken For A Ride" and read a little bit about it if you are unfamiliar.

[Propertarian]

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As an aside, I would just like to point out that the reason for the lowering of quantity and quality of other types of transportation, trolleys in particular, was entirely due to government and had nothing to do with market forces.

Although, its almost a moot point since the entire transportation infrastructure of the United States is state run.

[/ QUOTE ] The reason that the quality of the government provided transportation declined was because of the invention of the car; if nobody had a car, then politicans would have to keep these means of transportation running effectively, or people who used this kind of transportation (everybody) would not vote for them.

And, if the "transportation infrastructure" was/is not state run but instead of market forces, than quantity and quality would still decrease. The market forces/gov't dichotomy here is a false one; market forces effect how and what the gov't does (therefore, to claim that because the gov't did something does not show that that action "has nothing to do with market forces"), and if the gov't didn't run all the other means of transportation (which it actually doesn't) then inequality in access would still have made the poor worse off.

[BCPVP]

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Your comment is a non-sequitur; it does not show that the argument is poor. All your argument says it their is some factor that makes technology cheaper at work; it doesn't change the fact that the claim being made their is true.

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My point was that such situations don't last forever as there are incentives to delivering goods and services that only the rich could once afford. IOW, the inequality is temporary and rectifiable without the need for gov't intervention. Not only that, usually expanding such goods and services gives people new opportunities for jobs.

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I wish I could give you a link to Amartya Sen's (Who recently won the Nobel Prize in Econ) original article on this in case you don't understand it fully from that statement, but it's not online.

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If you find it, please post it. I'd be interested to hear the argument fleshed out further.

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It's funny that you mention cars, however. One of Sen's examples is that the invention of the car made things worse for people who didn't have a car, because the invention of the car (predictably) lowered the quantity and quality of other types of transportation, caused jobs to move from the city to the suburbs (harder to reach for people living in the city without a car) and even allowed the affluent who worked in the city to live in the suburbs, decreasing the property values and tax revenue within the city.

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There are positives to this, however. Goods can be transported quicker, which lowers their cost. People moving out of the cities can keep those cities from being overcrowded. And I'd have to wonder at what the alternatives are as well. Not allow people to leave the city because it might lower some already low property values? That sounds like a type of imprisonment. So I guess to the extent that the bads outweight the goods (assuming for the sake of your argument that they do), the alternatives sound worse.

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In fact, in direct contradiction to your ostensible critique of this argument, generally speaking, the more people who have access to these new technologies, the larger the negative effect on those who do not have access.

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That may be, but with increasingly efficient manners of producing those goods, the small portion that can't afford the new technology shrinks. And again, the alternatives seem undesirable.

[hmkpoker]

I have a response to this. It sufficiently demonstrates why structuring the economy to meet the needs of irrational human heuristics is doomed. However, it is very long, and I doubt that anyone other than you will read it; accordingly I don't feel like writing it.

Know that it is good.

[Propertarian]

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There are positives to this, however.

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I'm not saying that cars (or any other innovations) should be banned, obviously, I'm saying relative inequality should be decreased, mitigating the negative effects that the introduction of and increasing access to new technologies have on the less advantaged.

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IOW, the inequality is temporary and rectifiable without the need for gov't intervention. Not only that, usually expanding such goods and services gives people new opportunities for jobs.

[/ QUOTE ] Whether or not the "long run" will eliminate this (which is deeply implausible; cars were introduced 100 years ago and these negative effects are still being felt by people who do not have them. Just how long is this "long run"? 100 years is longer than the life of a human being) is irrelevant to whether or not gov't action is desirable. This sort of mystical belief that "in the long run everything will be ok" is no excuse for not doing anything in the short run. One of the masters has already put this better than I ever could:

"...this **long run** is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again"

-Keynes, giving perhaps the most concise refutation of laissez-faire of all time.

[BCPVP]

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I'm not saying that cars (or any other innovations) should be banned, obviously, I'm saying relative inequality should be decreased, mitigating the negative effects that the introduction of and increasing access to new technologies have on the less advantaged.

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How do you plan to do that? Especially in such a way that there are still incentives to mass produce the new technology for the rest of the public?

[Propertarian]

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How do you plan to do that? Especially in such a way that there are still incentives to mass produce the new technology for the rest of the public?

[/ QUOTE ] I can think of a lot of different ways to decrease relative inequality without toppling incentives; most industrialized democracies have used some of them at one point in time. The reason that Japan, Germany, Sweden, Norway (et al) have less relative inequality than the U.S. is not a big mystery but a clear consequence of the rules of the game and government programs.

Over the past 50 years growth and inequality (measured by the Gini) amongst advanced capitalistic nations has been negatively correlated, not positively; correlation is of course not causation, but this is something to keep in mind before you just assume that more equality necessarily leads to less growth.