Wednesday, June 30, 2010

Inequality and Iniquity

I see that Matt Singer has posted on Left in The West about an Yglesias article regarding the inequality of wealth and how that leads to situations like our current financial collapse.  Matt offers:
But what I found interesting was an explanation that inequality appears to be correlated to debt, which in turn may trigger economic collapse.
 Once again, we confuse correlation with causation.  While it is true that poor people are more likely to be stretched by their borrowing, it is a chicken or egg argument.  Do poor people have to borrow?  Well if you have to borrow to pay for essentials, i.e. for food or shelter, you are probably never going to recover, and will end up even poorer.  On the other hand, if you are borrowing to finance a new television, or furniture, that is a choice not a necessity.  And if you choose to act irresponsibly, why should the rest of us have to rescue you?
Oh yeah, that's right, we already did that with the mortgage bailout.  But when we do this, we subsidize bad behavior.  There is no advantage to taking out more debt than you can afford.
The other problem that I have with the whole wealth inequality thing is that it is a distorted view of the situation.  As the TaxProf Blog noted when it commented on the Center on Budget and Policy Priorities:
A reason for the "wealth or income gap": Smart people keep on doing things that are smart and make them money while stupid people keep on doing things that are stupid and keep them from achieving.
People who get an education, stay off of drugs, apply themselves, and save and wisely invest their earnings do a lot better than people who drop out of school, become substance abusers, and buy fancy cars and houses that they can't afford, only to lose them.
We don't have an income gap. We have a stupid gap.
 Another distortion of the graph is that people can move between the differing quintiles. For instance, in 1979, I was a married college student with a baby on the way, living off of the $360 a month that the GI Bill paid, and student loans.  I would have been considered to be in the bottom 10% of all wage earners.  Today, I am in the top quintile of tax payers.  Why the change?  Sure, it was some luck, but most of the luck was the kind that I made.  I chose to go to school, get a job, stay off of drugs and stay married, paid my bills and avoided interaction with law enforcement.  It really wasn't that hard.
The problem is not that the rich have gotten wealthier, it's that the poor are starting out from a stagnant position.  Admittedly, that position includes access to many government programs that assist them in moving up if they want to take advantage of them.  But the disparity is more a recognition that hard work can now take you farther than it could 40 years ago. 
Is that really such a bad thing?

1 comment:

Max Bucks said...

Equality does not exist, except in mathematics.

The socialist idea that some people make too much money, or some people make too little, is absurd. If everyone had the same amount of everything, the world would stop spinning. And, besides, we are supposed to celebrate “difference,” right?

“The problem is not that the rich have gotten wealthier, it's that the poor are starting out from a stagnant position.”

Not exactly. The problem is the Matt Singers of the world are oppressing the poor with more stupid ideas than they have already.