Friday, March 8, 2013

The Politics Of: Economic Inequality and Injustice

The above video is a stark look at "the numbers" around economic inequality in America. Cleverly it takes what people think it is, what people think it should be, and what it really is as three bench-marks. I'll save you some time: the top 1% of the country pretty much has, statistically speaking, everything. Here are the "money-shots."

If You Look At Real Socialism You Can Remove the Scare-Quotes
Allegedly Democrats and Republicans Alike Chose This Distribution
Wishful Thinking?
Off The Chart--And That 1% Guy? He Needs A Whole New Chart
So that's (maybe) a little sobering.

Economic Inequality
What we see above is defined as Economic Inequality and it's simply the mathematical distance between the richest and the poorest in a nation. This is calculated by the World Bank and is called the Gini Index. You can see a visualization of it here. The US is pretty far down the "inequality scale"--under (more unequal than) Iran and, erm Nigeria. But we're also under Italy and Greece so maybe the score isn't simply Good-to-Bad. Let's see some math.

Richard Wilkinson is a British researcher in economic and social inequality and his contention is that more equal is better. You can see his TED talk here. Here are some slides from it (taken from the Business Insider discussion of it). Here is how we stack up:
I've Been To Singapore. It Ain't That Bad

Here's some other stats:
No One In Mississippi Goes To School ...

Crazy Town

New Zealand and the UK Have Awesomely Bad Child Wellbeing!?

Clearly Canadians Need To Start Killing Each Other

So what have we learned? Well, I learned there's some sleight of hand here--intentional or not. Firstly, while income inequality may correlate across certain metrics, such as the Canadian murder rate or the state murder rate it does NOT correlate across the national murder rate: Singapore is hardly the murder-capital of the world. Nigeria, which scores higher than us on the Gini index has a MUCH higher murder rate than the US for a comparable time frame (17.7 per 100,000 vs 5.9 per 100,000).

Secondly, while his ski-slopes all point to America there are some notable outliers that need to be explained (Connecticut is highly unequal but people tend to stay in school). And really, putting Italy, Greece, and Spain in the "good citizen zones" above the lines looks a little naive now doesn't it?

So I'm not convinced. That isn't to say that income inequality is good--but I'm not sure that the effects of Bill Gates having that much more money than I do are what's responsible for my problems compared to, say, how much money I have period.

But let's not kid ourselves: while the causal relationship is not clear and there are certainly outliers, income inequality is, at the very least, a symptom of bad things coming (from Reuters):
Twenty-eight states saw all three metrics of socioeconomic well-being worsen. There, inequality and poverty rose and median income fell.
Economic Injustice
Economic Inequality is math. Economic Injustice is judgment.
What is economic injustice?

Googling around, it appears that Economic Injustice is the judgment that Economic Inequality is bad--and not just "bad for you" but actually unfair. Is that CEO working three-hundred-and-eighty times as hard as the average worker? Doesn't he have to be to justify his ginormous salary?
When a man tells you that he got rich through hard work, ask him: 'Whose?'
--Don Marquis
Maybe--maybe not.

If you were to swap out the average worker with the CEO of the company what would happen? Well, regardless of the average worker's ability to "do the job" from a technical perspective, for a company of any size (the ones making the big bucks) there would be an immediate catastrophe. CEOs come with a pedigree that, for example, inspires confidence. They come with connections and a track record. They have experience in upper management and have a much better big-picture view of the company than the average worker does.

Shareholder flight, upper-management revolt, and board-of-directors reordering would cripple the strategic positioning of the company overnight. For the average worker, without high-level executive experience the learning curve would be fatal.

If you are at all invested in large companies, whether or not that CEO is working some large integer number harder than the average guy? You want the CEO or someone like them. As there is a small pool of "guys you want" the price for them, set by markets (which is, you know, pretty fair) is very high.

For smaller companies the person making the big bucks is usually the founder/president. I have seen companies started and the people who make out? They're the ones who put real skin in the game--their money--their risk. The average founder of a company is usually taking much closer to 100% of the risk than the average worker--they are often not making that share of the profits.

So what is "fair?"

It's hard to say what, exactly, an even distribution of money in the US would look like. Unless you declared all material (cars, houses, etc.) shared you would have to stick to something like income flattening. Here is a thread where it's discussed: The number that makes the most sense to me is each tax payer getting something like 65k per year as income--possibly 128k per year if you flattened corporate tax rates.

I haven't verified these numbers--but if you think they sound dandy, consider this: 128k a year is a pretty darn good salary today because it's "high." If you (assuming you are highly educated and hard working) made that and so did the guy working the drive through at McDonald's you would wind up living a lot more like the guy working at McDonald's does today than he would wind up living like a real-world six-figure income earner.

What Do I Think?
I suspect that everything like this is a feedback loop and Income Inequality is both part symptom and part disease. When the middle class is hurting for whatever reason, inequality will go up. When inequality is very high there are concerns such as the very rich buying political power (it didn't work well in 2012 but trust me, we haven't seen the end of it) and generalized corruption at the lower levels of income as well. These are not good and will further contribute to inequality.

In short, income inequality is, in my opinion, not economic injustice--but it can lead to it. The trouble, of course, is that with complex and chaotic systems like this, taking any action has unintended consequences and those might be worse. We shouldn't dismiss concerns about the gap between the middle and upper-class or the rich and the poor as class warfare but neither should we wholesale adopt policies that are intended to artificially close it. The good news is that everyone can agree that we need a healthy middle class ... now, if only we could agree on how to get there.

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