Income Inequality: Who Cares?

Income Inequality: Who Cares?Massachusetts Senator Elizabeth Warren has just been awarded a post of significant policy importance in what will soon be the Democratic Minority Leadership. She is the leading political exponent of the “income inequality” wars, and as a potential (though so far reluctant) Democratic presidential candidate in 2016, can be expected to drive the issue unmercifully for the next two years.

Ammunition for the war is supplied periodically by French economist Thomas Piketty, who has written a book on the subject (the Amazon link is here), showing that the share of income going to the top 1 percent of the U.S. population went from 9% in 1976 to 20% in 2011. Democrats like Warren and her Rhode Island colleague Sheldon Whtehouse have cited numbers produced by the Congressional Budget Office showing that the income of the top 1% ballooned by more than 250% between 1979 and 2007.  There are those who challenge numbers like these (most recently former Senator Phil Gramm (an academic economist, and his former aide Mike Solon in the Wall Street Journal), and I think they deserve to be heard, but for my purposes today, let’s accept as established the fact that the rich have been getting richer than the middle class and poor.)

The question is, why should anyone care?

It is not an original insight with me, but surely focusing on income, as these studies and numbers do, misses the whole point of what income is for: it is so we can consume, so that we can buy the things that make life worth living (not to mention possible). In that respect, it is plain as plain that the gap between rich and poor is smaller today than at any time in history, and that it is getting measurably smaller day-by-day. Further, there is no reason to think that the trend will change (unless the redistributionist impulses that so obviously motivate people like the man inhabiting the White House strangle the golden goose on the nest).

Let me make my point by discussing past and present consumption of the three primary needs of the human animal: food, clothing, and shelter.

In 1750, a rich person (Louis XIV, say) ate very well – to gluttonous excess, even. He could have truffles and paté de foie gras, washed down with St. Émilion or Dom Pérignon (unless his mother had taught him better) three times a day if he wanted.

By contrast, the poor man and his wife and kids in 1750 ate beans, rice, potatoes, maize, soy, and the like. Or they didn’t. Starvation was routine.

The inequalities prevailing at that time approach infinity, but there were still things that Louis couldn’t get. His gardeners might have been able to produce strawberries and oranges out of season, but a good burrito chili verde was beyond the reach of the cooks at Versailles. And those strawberries were phenomenally expensive (though Louis could afford it).

Today, things are different. Bill Gates can still eat like Louis, and he can even get the burrito, but the average person can have just about anything Louis could get, and at far less cost. Comparing the poor person then with the poor person today, the cost in terms of fraction of income expended for food has plummeted with the advance in agricultural techniques and efficiencies in distribution.

When it comes to food, just how much more can a virtually unlimited income buy than the income of the average person? Not that much.

Inequality in food consumption: massively reduced, to the point of elimination (or to the point where obesity is the real problem, at least in the U.S.).

How about clothing? Imelda Marcos may have had 2,000 pairs of shoes, but she could only wear one pair at a time. Today’s inner-city teenager is as well-shod as she was.

But it was not always so. Marie Antoinette may have had as many shoes as Imelda, but the French peasant had only his sabots, if he had any shoes at all.

And so it goes with every other article of clothing. Teenagers today may choose to wear distressed jeans, but it is a choice. The poor today have access to fabrics, colors, and a range of designs that would have choked even the Bourbon monarchs.

Once again: clothing inequality massively reduced, to the point of elimination.

Housing. I mentioned Versailles earlier, and there was certainly a gap between the royal palace and the hovel in which the peasant and his family lived. But Louis couldn’t keep the damn place heated in winter, had no running water, and used the chamber pot at night. Even the poor today have heated homes without drafts and leaks, and convenient indoor plumbing some might even have a water softener for Pete’s sake. Warren Buffett could build himself a Versailles today (and it might be better-heated), but in terms of providing adequate shelter, it wouldn’t be measurably better than a bungalow on the South Side of Chicago.

There is still, in the United States, a significant portion of the population ill-housed, in terms of reliable heating, cooling, and plumbing, but nothing like Bourbon France. And as between the top and the middle, once more, inequality has been massively reduced if not eliminated.

So, for two of the Big Three of Necessaries, we have reached the point where marginal increases in income cannot reasonably produce increases in consumptive satisfaction. In the third case, there is still room for improvement, but it is coming.

Communications and transportation go beyond the Big Three, but they are and were nonetheless important (and go a long way towards explaining the progress between Then and Now), so let’s take a peek at them.

Until about 1800, the richest person on earth could not go faster than a horse would take him. There was no doubt a gulf between Shank’s Mare and Louis’ carriage and six, but how much difference (in actual mobility) is there today between a Lamborghini Veneno at $3,900,000 and a Hyundai Sonata at around $20,000. LeBron James can afford the former, but the average wage-earner can get the latter with a little effort and financing. (You can get much cheaper cars, down to under $5,000, but you will need a shoehorn to get into them. I recently bought a used Subaru Outback for about $6,000, which would probably have cost significantly less if Cash For Clunkers hadn’t decimated the used car market.)

No matter how much he wanted to, it is unlikely that Louis could have visited China or San Francisco. Today, secretaries and shoe salesmen routinely vacation in Acapulco and Sri Lanka. (If they had more customers like Imelda, they could do so more frequently, but that raises other questions about economic development that go beyond the scope of today’s inquiry.)

Until about the same time, communications were limited to that same speed, though some primitive telegraph/semaphore systems were beginning to change that. But with electronic communication the explosion in speed, volume, and depth are almost incomprehensible.

Louis could have read far into the night, if he had chosen to, because he could afford candles, while Jacques on the farm (who was illiterate anyway) couldn’t. But Liliane Bettencourt, at $30 billion the world’s richest woman (assuming she wants to take time out from financing Nikolas Sarkozy’s ambitions), and I can both read as late as we want, because light is now so cheap. But she can’t read any more books than I can, because she has no more time than I have.

News of the world and of the children is a click away. Every book published and nearly every book ever published is now contained in a 2” by 5” by ¾” block, millions of them free and the others for nominal cost, in terms of percentage of earnings. The richest person in history had nothing like the access I have to the published wisdom, wit and whimsy of the world and the richest person today has very little more than I have.

And these advances in communication benefit the poor just as much (and perhaps more) than they do the rich. Most of the rich live in (or near) cities with easy access to doctors and hospitals. Smart phones with medical apps make diagnosis and treatment possible (if still less than universal) in darkest Africa, in highest Nepal, or in remotest Brazil.

Of course the rich can afford better medical treatment than the poor, but the distance between Louis’ doctors and no care at all for Jacques is infinitely greater than between ER treatment for Joe and the Mayo Clinic for Michael Bloomberg.

So much for the meat and potatoes. What about dessert?

There too inequality is disappearing. In 1750, what percentage of the world’s population could see the Mona Lisa or listen to the Bach b-minor Mass, or (if their tastes took them that way) enjoy the dramatic art of Molière, or catch a glimpse of the Hanging Gardens of Nineveh? I don’t know but I’m guessing under 1%.

What a difference there!

Every couple of weeks I enjoy the opera at the Met in New York, and visit London’s National Theater for plays old and new. I do so by driving that Subaru a few blocks to a movie theater where I watch live broadcasts in high definition. Not everyone in the world can do that, but the Met broadcasts now go to 64 countries in this format. That is millions of people who can see Shostakovich’s The Nose (if they want to) who will never set foot in New York. During his lifetime, Shakespeare’s plays were seen by at most a few thousand people. A few months ago his Macbeth was seen by millions in an NT Live broadcast, and every one of his plays is available in multiple original productions and creative, illuminating adaptations in libraries or on Netflix and its equivalents.

At a lower brow level, live streaming brings new and old movies (it’s Leonardo DiCaprio rather than Derek Jacobi) to people who never had access to them before. And those same people have access to live broadcasts of the workings of their governments, so they can see for themselves what their rulers are doing (or aren’t).

What I have written here pertains largely to the United States (and France), and to the narrowing of the gaps between the rich and the middle class. But the same phenomena are present in every country in the world, and affect the gaps between rich and poor as well. If we do not interrupt the forces producing this narrowing, there is every reason to believe that they will continue to operate, ameliorating the lot of every human being on the planet. These forces are at work in Sweden, in Japan, in Somalia, and even in the least economically free nation on the globe, Venezuela.

But there are dangers. I see an inverse correlation between efforts to stamp out inequality and the actual stamping out of inequality (in the terms I have used it here). As a wise man once wrote (hold on a sec while I Google it and remind myself of who………Got it! It was Milton Friedman), systems that emphasize Freedom produce more Equality than do those that emphasize Equality.

To recap: in all the ways that real people live in the real world, we are all much more equal today than we have ever been. Equality of income is unimportant. What counts is what we are able to consume. Is it barely conceivable that a socio-economic system that allows a large (and perhaps growing) gap in income is needed to produce the leveling of consumption that we should all desire? It is.

So enough with the ranting about inequality.

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