Does Inequality Matter?

Why is inequality a problem?

It’s not if (a) there is mobility; (b) everybody is getting better; (c) the gains at the top are “fair”

On the first, there is mobility. There is some debate, of course. Most recently: Winship vs. Krueger. Winship delivers a fairly decisive smackdown to Krueger, in my opinion (of course, i'm confirming my bias).

But it was a specific claim about declining upward mobility that set off my bad-numbers detector. As detailed in another essay I wrote for National Review Online, the president’s assertion that upward mobility from poverty to the middle class has fallen markedly was based on a model built on a foundation of untenable assumptions. He claimed that upward mobility fell from 50 percent to 40 percent between midcentury and 1980. When I subjected the claim to real-world data, I found no change in mobility over the period, consistent with the consensus from previous academic research.

On the second, everyone is getting better? This is less certain. It depends whether you buy the income stagnation hypothesis: sceptics note statistical artefacts caused by high immigration, break up of households, technological change, and overestimations of inflation may distort the picture. But even if you accept this, the problem is not inequality but stagnation at a certain level of income, and that is a very specific problem.

On the third, people getting better at the top unduly: lots of people have. They work in finance and banking, and they benefited from a cozy relationship with the U.S. federal government and bad public policy. Once again, this is a particular problem that exists aside from inequality.

So why is ‘inequality’ in the aggregate, a problem: I can see why facets of it are problems on their own, but that is somewhat different from saying ‘inequality’ is a problem.