Sunday, January 10, 2010

Simon Lund: uest contributor on inequaltiy

Here you have an entry from a guest contributor (and great former student!). I hope he continues to contributing in the future.

The debate is terribly important for Latin America as well:

In a recent article for The American Prospect, Professor Dalton Conley opines that it is wrong to target inequality and to seek links that don’t exist between inequality and negative social outcomes. It is better, he says, to focus on increasing opportunities, especially for the very poorest.

There are two issues here: the first is whether wealth and income inequalities negatively affect social outcomes such as prison populations, health, trust, etc. The second is whether policy-makers should aim to improve outcomes or opportunities. Prof. Conley opts for the latter. To deal with the second point first: like all proponents of this argument (that equalising opportunities is always preferable to equalising outcomes) he ignores the fact that the two are inextricably linked. Individuals born into rich households (an outcome) will always have more opportunities, which in turn produce more favourable outcomes. So, the decision to send one’s child to private school (an outcome) may well produce higher exam grades (an outcome) and the possibility of a place at one of the country’s better universities (an opportunity). Once this has been achieved (and has become an outcome) the individual will have the chance to choose a rewarding career (an opportunity) earning a high salary (an outcome). As this example demonstrates, although outcomes most certainly flow from opportunities, opportunities also flow from outcomes and the difference between the two is simply a temporal one. Therefore, for politicians to simply declare they are “on the side of aspiration” will not increase opportunities, let alone produce better outcomes. However, investing in free, high quality pre-school childcare for all children (an outcome) regardless of social class, as occurs in Scandinavia, will improve cognitive performance and life chances (opportunities) across the board.

Regarding the first point about inequality and social outcomes, the evidence gathered by Richard Wilkinson and Kate Pickett in their 2009 work The Spirit Level points very clearly to the fact that more equal societies such as Sweden, Germany and Japan experience more favourable social outcomes than more unequal societies such as the UK, US and Portugal. And if it is income alone that concerns us, then we should recall that per capita incomes in Scandinavia, Denmark and the Netherlands exceed those of the US.

I will finish by rebutting two statements made by Prof. Conley in his article. The first is that income inequality saw its most dramatic rise under President Carter. Not true. According to the US Census Bureau, the US Gini coefficient (for households) rose from 40 to 41.2 on Carter’s watch; and from 41.2 to 43.8 on Reagan’s. The second statement is that during a recession inequality matters less because “families are too worried about their own finances to be concerned how the Joneses are doing.” This is wrong-headed. Firstly, rising incomes at the top at a time of wage compression for middle- and low-earners only serves to highlight disparities that were previously hidden by growth (or borrowing), and can give rise to what A.O.Hirschman called the ‘Tunnel Effect’. Secondly, as Gillian Tett said this week, socially cohesive countries such as Japan will find it easier and more politically acceptable to pay down the government debt accrued during a recession because of their ability to spread the pain among the whole population. This is why Moody’s, the rating agency, is trying to create a rating for social cohesion and stability. In a much talked about op-ed piece, Jim Manzi has said something similar regarding social cohesion and growth. Whether times are good or bad, it would seem that there are definite advantages to being a more equal country.

Simon Lund

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