Accpetable equality

In a comment here, Tim asks: what is the right level of inequality?
For me, there isn't one, in the sense of there being a right level of the Gini coefficient. What matters is not so much how much inequality there is, but its origin.
Put it this way. Imagine a bunch of people of roughly equal wealth. Some choose to go the a casino, some gambling heavily, some lightly, whilst some stay home. And the end of the night, there'll be perhaps large inequality among them. But this won't bother me.
However, capitalist inequality is not like this, in (at least) three senses:
1. Some people lack the assets  to gain access to the games that pay best returns. If you're born poor or - thanks to bad schooling, bad homes or bad genes - have inadequate  human capital, your chances of success are limited.
Worse still, you can't choose games that give a decent pay-off to what qualities you have. You can't move to societies in which rewards to physical strength are high relative to intellectual strength, or to societies in which there are no capital constraints upon potential entrepreneurs, as these barely exist. And you can't insure, pre-birth, against having a bad starting position.
2. You're forced to enter the casino and gamble. Because there are inadequate mechanisms for insuring against industrial or occupational risks, some people are trapped into bad gambles: think of miners in the 1980s or unskilled workers generally in the 1990s.
3. Capitalism isn't a fair game. Some people are better than others at using company and state power to extract rents, at others' expense; I'm more bothered by the supermarket boss earning £25,000 who exploits and tyrannizes his employees than I am by Rio Ferdinand earning £100,000 a week, useless tit as he is.
It's not just bosses and state apparatchiks who have this power.
For example, hedge fund managers and equity investors who suffer losses can expect central banks to help them out. Poorer people don't get such a helping hand, despite being less responsible for their losses.  And inequalities in power help shape the meeja's and political agenda: just look how inheritance tax arouse much more popular anger than high marginal tax rates upon the working poor.
One weakness of the statist left is its preoccupation with the pattern of inequality rather than its causes.

Comments

[rekniht]

I have read you r blog for a while and enjoy it alot. While I disagree about half the time, your posts are always thought-provoking. I have two questions. First, what is a 'meeja' ? Is it a word in another language of some british slang that i don't understand (I'm american.) From the most popular google hits, it appears to be a person's name. Second, from this and past posts, you seem to place a large (some would say excessive) value on insurance. Why is it not just a developed product for managing risk when there exists another who would provide it. Why does it raise to the status of positive right and how does its absence create a moral obligation to provide / rectify the situation?

[Freddie Sirmans]

Just browsing the internet, your blog is very, very interesting.

[Maynard Handley]

You leave one extraordinarily tricky issue.

"If you're born poor or - thanks to bad schooling, bad homes or bad genes - have inadequate human capital, your chances of success are limited."

OK, this sounds reasonable. Now let's pose the question: if you have inadequate schooling (or, more generally, "inadequate" culture) and/or you have bad genes, what does the rest of society owe you and your kids if you choose to perpetuate this situation? Especially if you choose to have more kids than the national average (so we can't even fall back on weasel arguments about everyone being allowed at least that many kids)?
I'm not going to pretend I know the answer. We all, if we are honest, appreciate the nature of the problem, and we are all aware of the problematic historical precedents should the state actively get involved in this area, along with all the issues you can imagine surrounding the definition of "bad" genes or culture.

My point is that this is a real problem, it is one that I don't see discussed much.

[ortega]

Yeah, life (not capitalism) is not fair, nor just. Thank God!

[Bruce]

Rekniht: "meeja" is a jokey way of saying "media" in the UK, as it is often (mis)pronounced that way.

[Cecilieaux]

"One weakness of the statist left is its preoccupation with the pattern of inequality rather than its causes."

And the causes are ...?

[James Kroeger]

It's one thing to talk about unequal distributions of income or money-wealth but quite another to talk about unequal distributions of REAL wealth.

The tangible reason why we have rich and poor is because there are simply not enough of the most desirable goods/services out there for everyone to experience them. Given this scarcity, someone has got to be rich. If we had never known scarcity, if there had always been enough of the most desirable goods and services out there for everyone to experience them, then we would never have arrived at the concepts of 'rich' or 'poor.' Scarcity is the reason why it is impossible for true Equality of Economic Experience to ever be achieved. It is why the rich 'will always be with us.'

The Economist's blog:

The more awkward question for egalitarians is: would there be more harm done by reducing inequality?

This is actually a very good question; one that every economist should be able to answer. Unfortunately, most cannot.

Even if society were to institute a steeply progressive income tax, it would not deprive the wealthy in any tangible way because they would still have all the money they'd need in order to obtain the scarcest goods/services/experiences produced by the economy. Because we have a market economy, prices would simply drop to a level that the wealthy would be able to afford. They'd still be able to enjoy the same 'lifestyle'; they'd just be paying fewer dollars for it. It is actually not possible to deprive the wealthy of their claim to the scarcest goods/services/experiences as long as they still have more money to dispose of than everyone else.

So the answer to the question asked by The Economist is no. In fact, no tangible harm whatsoever would be visited upon the wealthy if [disposable income] inequality were reduced by a steeply progressive income tax. The purchasing power of the disposable incomes of The Rich would be maintained, even while they are being reduced in nominal terms by higher tax rates over a period of time. All of society---including the wealthy---would benefit from the public wealth that the government would be able to produce with the 'excess earnings' of the wealthy. The cost of these great benefits to the wealthy in real terms: nothing.

[Higgs]

Inequality has nothing whatsoever to do with wealth. The poor, given that they have food and shelter, are not going to improve their equality by being given goods from those wealthier than themselves.

[Christopher G D Tipper]

"One weakness of the statist left is its preoccupation with the pattern of inequality."

There the full-stop is in the right place. What you are talking about would be true of any society, capitalist or otherwise. To paraphrase Churchill, capitalism is the worst of systems except for the others that have been tried from time-to-time. If you want to see some real oppression, go to China.

And while I'm at it, what exactly is human capital? Are you talking about brain-surgery here?