Inequality

I was very dismissive about what kind of insights economists can make into inequality. I stick by that in a general sense and I think it's important to notice whats missing in our discussion of efficiency in markets and the aggregate economy.

However, recently I've come across two very interesting projects that try to look at equality. Below is a except from a piece about the economist Samuel Bowles (I saw this post on a blog called "Economist's View"). The second project I heard about on the Brian Lehrer Show (wnyc.org). He interviewed and epidemiologist named Kate Pickett who authored a book called The Spirit Level: Why Greater Equality Makes Stronger Societies. She basically makes an economic argument for more equality. She was on the the February 1st show which is readily available on ITunes.


Feb 04, 2010

Inequality and "Guard Labor"

This is from a profile of Samuel Bowles:

Born Poor?, by: Corey Pein: ...Bowles’ most recent paper ... examines how wealth is transferred from parents to children in hunter-gatherer societies versus agricultural societies. That might seem distant... But everyone can relate to his chosen subject: inequality. ...

Bowles’ course was set in 1968, when he was an assistant professor at Harvard, and the Rev. Dr. Martin Luther King Jr. came to his department looking for advice on the next stage of his social justice campaign.

“We were just elated that we could use economics, which we had so painstakingly learned, to answer questions that Dr. King thought were important,” Bowles tells SFR. “We were also extremely angry that we were totally unable to answer the questions on the basis of having gotten a PhD at Harvard.”

King’s assassination that year cut short the equality movement. ...

Most economists in 1968 thought of inequality as “somebody else’s problem,” Bowles tells SFR. “I actually was denied the right to teach a graduate course in inequality because it was said not to be economics.” It wasn’t always thus.

“The founders of the discipline of economics, almost to a man—and they were only men—thought that the problem of distribution between classes—they used the word classes—was the key to understanding why nations grew or not,” Bowles says. What Bowles sees as the essence of his profession [is] problems of wealth distribution...

Isn’t inequality merely the price of America being No. 1?

“That’s almost certainly false,” Bowles tells SFR. “Prior to about 20 years ago, most economists thought that inequality just greased the wheels of progress. Overwhelmingly now, people who study it empirically think that it’s sand in the wheels.” ... Bowles offers a key reason why this is so. “Inequality breeds conflict, and conflict breeds wasted resources,” he says.

In short, in a very unequal society, the people at the top have to spend a lot of time and energy keeping the lower classes obedient and productive.

Inequality leads to an excess of what Bowles calls “guard labor.” In a 2007 paper on the subject, he and co-author Arjun Jayadev, an assistant professor at the University of Massachusetts, make an astonishing claim: Roughly 1 in 4 Americans is employed to keep fellow citizens in line and protect private wealth from would-be Robin Hoods.




Guard Labor versus Inequaltiy (Gini) across States
The job descriptions of guard labor range from “imposing work discipline”—think of the corporate IT spies who keep desk jockeys from slacking off online—to enforcing laws... The greater the inequalities in a society, the more guard labor it requires, Bowles finds. ...

The problem, Bowles argues, is that too much guard labor sustains “illegitimate inequalities,” creating a drag on the economy. All of the people in guard labor jobs could be doing something more productive with their time—perhaps starting their own businesses...

Liberals tend to think of inequality as a matter of class and race—and that’s true, he says. But individual success hinges on a big X factor: “There’s a lot of luck involved,” Bowles says.

No politician’s promise can remove that element of unpredictability. Which means the smart policy, in Bowles’ view, is for the government to care for people who suffer misfortune through no fault of their own. ... “The whole idea of social security,” Bowles says, “is to insure the unlucky by having the lucky pay a little extra.” ... [more here]

With progressive taxes the lucky do pay a little extra, and that allows society to provide social insurance to the unlucky.

There are many additional ways to justify progressive taxation, e.g. the principle of equal marginal sacrifice, and if the guard labor hypothesis is correct, it provides yet another rationale for a progressive tax code.