Stumbling and Mumbling

Worklessness rises

The government looks like missing its target to cut the number of children living in households where no-one works.
In the 2004 Spending Review, New Labour set a target - reaffirmed earlier this year - of cutting the proportion of children living in workless households to 14.9% by Q2 2008. However, figures released today (pdf) show that the proportion has risen in the last 12 months, to 15.9%.
1.8 million children live in households where no-one works.
The problem here is deeper than a mere passing embarrassment for some politico about the missing of yet another target. There's good evidence (pdf) that children in workless households suffer in later life:

We find that experiences of life...with jobless  parents during childhood are usually associated with negative outcomes of children as young adults: lower educational attainments, higher risks of [economic] inactivity and early birth, and higher chances of experiencing psychological distress.

The question is: what (if anything) can be done about this, given that existing policies are not working as effectively as hoped?   

Fabians discredit the Left

The lame-brained left strikes again:

A new Fabian poll shows the British public's appetite for fairness and equality: they believe public sector workers should earn more, and are unhappy with the high salaries of those at the top end....They would slash salaries for professional Premiership footballers to around £62,000 a year closely to their currently monthly salary.
Editorial Director Tom Hampson said: "This research shows how the British public feels the gap between the richest and poorest workers should be narrower."
The Fabian/YouGov research showed that the British public felt that the lowest paid workers deserved more money...
"Our polling shows that the public thinks it is reasonable for Gordon Brown to be at the top of the earnings league above J K Rowling, managing directors of FTSE-100 companies and, especially, Premiership footballers, like Wayne Rooney, " said Hampson,

This contrives to misunderstand markets, fairness, freedom, efficiency, knowledge and democracy - everything that matters in political economy.
In an efficient economy, wages are set by supply and demand, not desert. If wages were set according to majority opinion about desert, all our best footballers would emigrate, leaving most teams even more unwatchable than they currently are. And there'd be a glut of unemployed nurses as more people trained for the job.
Having wages bear no relation to desert is the price we must pay for economic efficiency. It's also the price we must pay for freedom. It's just tyrannical for the majority to intervene in every consenting market act between adults. No intelligent defender of free markets has ever claimed that wages reflect desert.
Nor should they. To know who deserves what requires a godlike knowledge of others' hearts that's just not available to mere humans. Our concepts of desert often owe more to prejudice than hard knowledge: footballers are over-rated lumps (the BBC illustrate their report with a picture of Frank Lampard - who says it has no editorial judgment?) whilst nurses are angels. But this is often wrong; some footballers are meritorious  and some nurses are useless slatterns who give their patients MRSA.
Worse still, to think desert is a matter of majority opinion is to misperceive what democracy is for. The point of democracy is not to allow people to meddle in others' affairs, but to empower them, to give them control over their own lives.
None of this is to deny that there's a case for redistribution. There is. We should tax the divine Cesc (pbuh) not because he doesn't deserve his high salary, but because it's freakish good luck to be born with his talent, looks, hard work and courage (swoon). And that's the sort of luck we would choose to pool.
The Fabian Society's feeble effort merely discredits the Left.

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.

The tangible harm of inequality

The Economist's blog asks egalitarians to point to some "tangible harm" from income inequality.
In some senses, the question is silly. To see why, imagine a slave society in which the slaves are reasonably content. It would be hard to point to a tangible harm, but something would be wrong.
This just shows that the "tangible harm" criterion is psychologically, economically and philosophically naive. Psychologically so, beecause people adapt to their circumstances, so "losers" don't feel too bad. Economically, because a gain foregone should count as much as a tangible cost; in a slave society no-one can see that freedom creates prosperity better than slavery, but this fact should surely count in our judgment. And philosophically, because inequality matters for more than consequentialist reasons. Justice matters too.
Anyhow, let's address the question. Aside from the ill-health which the Economist mentions - as if death were not tangible enough - I'd cite five other possible harms:
1. Crime. Basic economics says the relatively poor commit more crime than the relatively rich. This is because their opportunities to make money honestly are more limited, and the cost of being imprisonment - foregone earnings - is lower. Empirical work corroborates this. Is it really a coincidence that unequal countries (south America) have more crime than egalitarian ones (Japan, Korea, Scandinavia).
2. Lower social mobility. Societies with higher income inequality have lower social mobility. Politics in the US and the national media in the UK are now largely hereditary occupations. Many of you might think this unhealthy.
3. Slower growth. There are some reasons to think inequality can retard growth, say, by reducing social capital and therefore investment, or by creating credit constraints that prevent potential entrepreneurs.
4. Bad customer service and job dissatisfaction. The inequalities that matter are not merely of income, but of power. Some people have it, some don't. And in companies, these inequalities breed slovenliness and inefficiency. Cloke and Goldsmith put it thus:

Through years of experience, employees learn that it is safer to suppress their innate capacity to solve problems and wait instead for commands from above. They lose their initiative and ability to see how things can be improved. They learn not to care and to accept things as they are. They justify making mistakes and are allowed to be irresponsible and pass the blame to others for their mistakes. They become mindlessly obedient, fatalistic, intransigent and hostile.

5. Inner-city blight. Another consequence of inequalities in power is that poor areas become bad areas, with urban decay, poor schools and crime, because the poor lack the power to get the state to provide proper policing and schools.
So, there are almost certainly tangible harms from inequality. The more awkward question for egalitarians is: would there be more harm done by reducing inequality?

Luck and inequality

Tim asks why differences in ability are less unjust than differences in inherited wealth. Like him, I don't see much distinction. Having the right genes is as much a matter of luck as having rich parents. And even if ability is not genetic, it's still a matter of luck whether you grow up in an environment that fosters ability or suppresses it.
Indeed, I'd argue that it's luck that causes most differences in incomes across people. On top of the luck of having the right genes or early environment, there are (at least) four other types of luck:
1. The luck of being born at the right time. Teddy Sheringham has made vastly more money from football than Tom Finney. This has nothing to do with Teddy's ability, but everything to do with the luck of being born when footballers are well-paid. The same's true for vast numbers of skilled professionals and businessmen; they're lucky to be alive at a time when such skills are rewarded.
2. The luck of being born in the right place. Why am I in the richest 1% of the world's population? It's not because I'm in the cleverest or hardest-working 1%. It's because I'm English rather than Ethiopian. Herbert Simon has claimed that 90% of income in advanced economies is due to social capital, as distinct from individual abilities.
3. The luck of others' tastes and abilities. I make money as an economics journalist because others have a (queer) taste to read about economics, whilst few have the ability to do a comparable job. Almost all those who got rich by their "ability" are in the same position - they're lucky that others' tastes and skills are such that their  skills are scarce but in demand.
4. The luck of chance meetings. Harry Markowitz says it was a "chance conversation" that led him to do the PhD dissertation than won him a Nobel prize. How many others owe their success to the happy accident of meeting an inspiring teacher, bumping into a man who becomes a great business partner, finding a job interviewer who likes the cut of your gib?
I reckon it's luck, then, that explains almost all differences in income.
The question is: should luck be pooled or not? Right libertarians have good (if not compelling) reasons to say not. But if they claim much more than this, they are just inviting ridicule.

Obstacles to equality

Tom Miller bewails the fact that New Labour has not done enough to increase equality, and calls upon the party to be more amibitious. But I'm not sure social democrats can do much to increase equality, for at least 5 reasons:
1. The median voter problem. There may be a good economic reason why people on £50,000 a year get tax credits - the alternative is even higher marginal withdrawal rates on the lower-paid - but there's also an electoral reason. Redistribution has to benefit the floating voter. And this blunts its potential to help the poor.
2. Big government cannot easily redistribute income. If the state's taking 40% of income, it cannot easily do so solely from the rich. The upshot is that some taxes - VAT and duties - bear upon the poor. The poorest fifth pay 29.4% of their disposable income in indirect taxes. The richest fifth pay only 13.7% (table 16A of this pdf).
3. As we've seen with the hostility to Liam Donaldson's proposals on organ donation, the state is seen  not as the representative of legitimate interests, but as a hostile enemy force. Redistributive policies will therefore be seen not as promoting valuable goals, but as an iron fist seizing our money.
Far from challenging this mindset, New Labour's cliqueish hierarchical illiberalism actually promotes it.
4. There's no culture of equality. The poor are regarded no longer as the noble working class, but as "chavs", an underclass responsible for their own condition. So there's little call for redistribution towards them.
The pernicious social democratic policy of "improving opportunity for all" might be partly responsible for this. In giving a few escape routes from poverty, it encourages the view that the poor are poor because of a lack of intelligence or drive. Worse, it encourages the rich to believe their fortune is the result of their own effort.
Again, New Labour has done nothing to challenge this view. Quite the opposite.
5. In a globalized economy, some of the rich are footloose - albeit not as many or as much so as they pretend. Higher marginal income tax might therefore increase equality only in the mathematical sense of driving the rich away. There are solutions to this, but no-one's interested in them.
For these reasons, I suspect it's almost impossible for the Labour party to achieve an equality acceptable to people like Tom.
And herein lies a paradox. Many Labour supporters like to pretend that they are practical hard-headed realists whilst Marxists are not. But could the opposite be true? Could it be that Marxists are the realistic ones, as they (we) correctly see the enormous barriers to redistribution through orthodox routes?

Inequality: skill or luck?

Inequalities are due more to differences in individuals' skills than to luck in careers. That's the message of this new study (pdf) of US incomes:

Differences in initial conditions are more important than are shocks received over the remaining lifetime as a source of variation in realized lifetime utility, lifetime earnings and lifetime wealth. We find that between 62 to 73% of the variation in lifetime utility and between 60 to 71% of the variation in lifetime earnings is due to variation in initial conditions [at age 20].

Of these conditions, it's human capital rather than identifiable ability or parental wealth that matters:

We find that a one standard deviation increase in initial wealth increases expected lifetime wealth by 3 to 4%. In contrast, a one standard deviation increase in learning ability or initial human capital increases expected lifetime wealth by 9 to 10% and 30 to 34%, respectively.

There's something here for everyone.
Neoliberals can claim inequalities are just because they reflect differences in skills. Their opponents can say this is true in the same way that it's true that differences in escapology skills explain who's in prison and who isn't. New Labour types can say it justifies its emphasis upon education as a way of reducing inequality. Others will wonder what causes differences in human capital and learning ability in the first place.

Soft girlies

The Fawcett Society celebrates the fact that the Wimbledon championship starting today will pay male and female champions equally.
Surreptitious Evil points to one flaw in this - people pay less to watch women's tennis. 
This new paper (pdf) by Marco Daniele Paserman adds another problem - that the women's game is just not as good as the men's, in the sense that women fall apart under pressure:

This paper uses data from nine tennis Grand Slam tournaments played between 2005 and 2007 to assess whether men and women respond differently to competitive pressure in a setting with large monetary rewards....The detailed point-by-point analysis reveals that, relative to men, women are substantially more likely to make unforced errors at crucial junctures of the match. Data on serve speed, on first serve percentages and on rally length suggest that women play a more conservative and less aggressive strategy as points become more important.

Social mobility: limits of education

Sir Peter Lampl wants schools to do more to improve social mobility; here's some research that suggests some possibilities.
But I'm not sure how much education can do to improve mobility.
Put it this way. Rich parents tend to transmit advantages to their children in all sorts of ways outside school: home tutoring; good genes; investment in activities and books; social networks;  a culture that values learning; and positive attitudes.
To offset these advantages - that is, to create genuine equality of opportunity - poor children must get better schooling than rich ones, perhaps much better.
But this is not feasible. For one thing, it's expensive to improve schools; the link between inputs and outputs in education is weak. And there'd be huge hostility to this; just look at the outrage prompted merely by cheap ways to equalize children's chances of going to good schools. And even if poor areas did have better schools, richer parents would game the system to get their children into them.
Instead, a better solution might be to increase equality of outcome - not just through more progressive taxation, but by flattening organizational hierarchies. International evidence suggests countries with less inequality of income have greater social mobility.
One reason for this is that greater equality amongst parents would tend to reduce inequalities in investments in children. Another reason is purely mathematical. The narrower is the gap between the top and bottom quartiles, the more likely are people to move between them.
Also, less inequality of income would reduce the problem of social immobility; if the bottom quartile is a tolerable place to be, it's less of a problem that people stay there.
Now, one might object that progressive taxation is costly. True. But so too is spending on the education of the poor.  I'm not at all sure that equality of opportunity is a cheaper form of equality, still less a desireable one.

Inequality and growth

Tyler Cowen says no intelligent left-winger could agree with this:

Redistribution of wealth has some role in maintaining a stable democracy and preventing starvation.  But the power of wealth redistribution to produce net value is quite limited.  The power of wealth creation to produce net value is extraordinary...We should be putting our resources, including our advocacy and our intellectual resources, into wealth creation as much as we can.

One reason we can't agree with it is that it might be a false dichotomy. There's some evidence that inequality is bad for growth, and so redistribution might help the wealth creation process. See for example this paper (whence the chart) or this pdf. There's also evidence that inequality is bad for growth in both rural India and China (pdf).
Of course, the evidence isn't all one way. This paper (pdf) finds a positive relationship between inequality and subsequent growth in US cities. And this pdf finds that any change in inequality (up or down) hurts growth. And this pdf finds that it's only inequality after redistribution that's bad for growth.
Nevertheless, it's worth considering the possible mechanisms through which inequality can hurt wealth creation, for example:
1. Poverty causes credit constraints. This stops the poor investing in businesses or education; the low aspirations caused by poverty can have the same effect.
2. Inequality can create the threat of redistribution which can blunt incentives to invest. Or it can lead to state interventions - such as the minimum wage - that harm wealth creation. The backlash against wealth-creating processes such as globalization, offshoring and private equity in the UK and US are founded in the view that they create inequality. If we had better redistribution mechanisms (say, a basic income) such backlashed would be reduced, and the wealth creation process enhanced.
3. Equality can encourage investment in infrastructure, such as transport or secure property rights, that helps growth - because such infrastructure is seen to benefit all, not just the rich.
There's something else I'd add. One reason why wealth creation is a good thing is that it fosters increased respect for liberty and autonomy - perhaps through Maslow's hierarchy of needs. But this also implies that a group of people who feel poor won't respect freedom so much. So perhaps more egalitarian societies are more likely to respect freedom. Are civil and social liberties really less secure in egalitarian northern Europe than in the more inegalitarian US?