Notes From Babel

I’m not the only one concerned that we’re all worked up for nothing over income inequality

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I recently wrote about why, under a certain definition of the word, no one knows any truly “poor” Americans.  (Excepting perhaps homeless people, a different question altogether.)  If we’re not talking about real, brutal poverty, then we’re really just talking about something more like discomfort.  And even if we’re going to talk about ameliorating discomfort, are there any real solutions on the table that, after all the fanfare and the construction of a substantial new wing onto the federal bureaucracy, will have done much more than aimlessly shifted the discomfort around a bit?

Thus, all this raises the question, why does it seem so many people finger this so called “income inequality” as such a vexing problem?

I’m pleased to find that Tom Smith shares my bemusement.  Steve Bainbridge, too.  I’ll quote the part that so tickled me I nearly woke my wife:

And what is this business of asking people what they would say would be the optimal degree of economic inequality?  Oh, I don’t know, maybe twenty percent of the people have forty or fifty-three percent of the wealth?  And while we’re at it, why don’t we ask them what the optimal thrust to payload ratio is for a solid fuel booster placing an object in a geostationary orbit?  As if their opinion is worth something, that is.  People’s intuitions on both questions are utterly without value except as curiosities.  They only go to show how little most people know about each topic, an entirely rational ignorance on their part, as we don’t design rockets by popular survey any more than we should consult the masses on what the global distribution of wealth ought to be.  Who dreams these things up, anyway?

I think this response can be slightly modified to serve as a ready retort to virtually any top-down macroeconomic policy objective.  Economies reflect the values and abilities of the people who participate in them.  How have we come to get this exactly backwards, such that we would presume to engineer our society’s values and abilities through economic policy? If we thought this were possible, we must all be wondering why more folks don’t buy cat leashes.

Tom makes another point worth noting:

It is only the wealth immediately around me that annoys me.  And this means that as between unequal and even more unequal, I will be indifferent, if the people getting really, really rich are already so rich that I have no contact with them anyway.  If the guys with 100 foot yachts get to trade up to 200 foot yachts, I don’t care, because I had no contact with them to begin with.  So I think it is only local inequalities that trouble us.

I think this is right.  I listened to Michael Shermer on the radio a couple years ago talk about his book, The Mind of the Market (the book wasn’t as good as his interview), and about how people have a lot of strange and seemingly irrational attitudes about money.  For instance, they would go across town to save $50 on a $100 cell phone, but they wouldn’t for the same amount of savings on a $500 tv.  He mentioned that a study he or his people had done indicated people were happiest who tended to have a close knit group of friends who had similar values and, presumably, similar incomes.

I think there is a lot of wisdom in this fairly obvious truth.  If we’re constantly running a query against the database of the entire great wide world for folks who have more stuff than us, we’re going to get a lot of hits.  But for heaven’s sake, why would anyone do that?  Other than, of course, solitary misanthropic bloggers who need material to bloviate about and start blog wars over non-issues like income inequality.  There.  I answered my own question.

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Written by Tim Kowal

November 10, 2010 at 12:20 am

Posted in Economics

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