Addressing the causes of inequality

Equality,”

wrote Balzac, “may be a right, but no power on earth can convert it into a fact.”

Just ask any schoolchild who has watched some classmates breeze four grades ahead in the math curriculum as others struggle to complete their daily assignments. Life is rife with inequality: some people are good looking and others plain, some clever and others slow, some soar to popularity while others long to be noticed.

No wonder we are so preoccupied with inequality, and no wonder our conversations about policy solutions leave off many of the inequalities that most worry us. The world is full of problems, but public policy recognizes only those for which there’s a reasonable chance the government might attempt a solution. Any other “problem” is simply a sad fact, and will remain so.

If we want to have a public discussion about inequality, the first thing we have to do is define which sorts of inequality meet the definition of a “problem”. We then need to decide which of these problems should be solved. Not every problem qualifies.

We will begin by excluding the “sad facts”: the large swathes of inequality that the government probably won’t attempt to solve, because the possible solutions would be politically impossible or morally abhorrent. The government isn’t going to find you friends, nor can it get you a loving spouse or a better singing voice. On the other hand, the government is pretty good at moving money around, so we tend to spend a lot of time talking about income inequality.

Yet, even income inequality turns out to be surprisingly ill-defined. It is a melting pot into which we throw wealth inequality, wage inequality, inequality of opportunity, inequality of political power and often rigidity of socioeconomic class. Frequently, we also toss in the absolute, rather than relative, difficulties of a life in poverty. Yet, no matter how hard we stir, these things cannot all be made into a single issue called “inequality”.

So, which ones should we try to fix, and how?

I would cross income inequality itself off the list of priorities. Far greater concerns include: absolute suffering among those with low incomes; a socioeconomic structure that seems to be ossifying into a hierarchy of professional classes; and a decline in income mobility, which is to say, in equality of opportunity. It doesn’t really matter whether Bill Gates has some incomprehensible sum of money at his disposal. It does matter a great deal whether there are Americans in desperate want. And of course, it matters whether anyone with the aptitude and motivation can become the next Bill Gates, or only a handful of privileged people who are already well off.

I also submit that the importance of the issue is inversely proportionate to the ease of solution. The government is very good at taxing income of some Americans and writing cheques to others. (Whether you think it should do this is, of course, a different question.) It is very bad at preparing someone to live a solid and fulfilling life of work and community, which is one reason we mostly leave that job to parents.

The government is also not well suited to creating a lot of satisfying and remunerative jobs. It can contribute to productivity and help companies to flourish, for example, through basic research and by maintaining a competent legal and regulatory system. And it can directly create a few jobs providing government services; these have been, for many communities at many times, a stepping stone to the middle class.

But there are limits to how many jobs the government can create without choking off the productive economy that funds the government (not least, the current financial limits imposed by state budgets already deeply overstrained by financial promises made to previous generations of workers). For the most part, the best the government can do is to avoid stepping on the creation of satisfying and remunerative jobs; no nation on earth seems to have figured out how to generate “good jobs” for everyone.

All this means is that there is no silver bullet for the government to guarantee full employment and solve structural inequality. The government can do something—but it remains to be seen exactly what, and how much.

Source: Mintepaper, 11-05-2016