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48 responses to “How much inequality is acceptable?”

  1. Ambigulous

    Good post, Brian

    There is no need for “the poor to be with us always”, and it’s encouraging to see that a few economists and social policy analysts still want to see some of those poor lifted up out of the mire.

    This could be another BBQ-stopper, but there’s surely a bias in the MSM, chasing advertising revenue as they must, trying to increase circulation and penetration (sorry) in the wealthy demographics…

    My modest suggestions (at risk of Mark informing us that my list is ill constructed – - take a deep breath – - here goes):

    * analyse the ‘trickle down theory’ – Robert Reich says it’s a myth, is that so for Australia? (I’m no economist)

    * shame the Canberra Press Gallery into ceasing to use their derogatory, sneering, oh-so-superior term “ordinary Australians”

    * persuade a few journalists to take poverty seriously and map out the dimensions of it across the nation, analyse ‘pockets’ in urbamn or rural or regional areas….

    * put pollies on the spot as to their policies for alleviating poverty and giving individuals and families an even break, for once

    * ask ALP spokespeople if they would mind very much, dropping their standard phrase “working Australians”; could they speak as readily on behalf of the unemployed, now and again, do we need an UNemployed Workers Union again? [but this time not a CPA front, please]

    * and could a few city folk get out in rural & regional areas, look around, and maybe a few could re-think their automatic sneering at “iggerant hicks” in poverty?

    * think about the statement, cliche though it may be, that “having a job is the best way of escaping poverty”: could this be basically true, EVEN THOUGH Peter Costello utters it?? I wonder….

    Well, that’s just for starters, Brian. Good on you for your post.

    cheerio

  2. GregM

    You might find it useful to read up on the Gini co-efficient which is a widely used tool for measuring and comparing income inequality in countries. http://en.wikipedia.org/wiki/Gini_coefficient

  3. John Greenfield

    Brian

    Your post does not make sense. Like far too many posts on LP you are also too fond of the passive voice. Acceptable to whom? I am surprised that our resident Miss Hathaway has not pointed this out already.

  4. Andrew Leigh

    Nice post. Incidentally, I think the question you ask in the title is a great one. My thesis chair – who has been working on inequality for 35 years – was going to use something similar as a title for his latest book. But he changed it when he realised that he couldn’t answer the question.

    I got the impression from your post that you weren’t sure about the answer either. For example, Australia’s gini coefficient now is about 0.312 (source – Excel file). So what’s ideal? 0.2? 0.3? 0.4? I struggle to answer this question, but I think it’s pretty damn important.

  5. Jobby

    Your post does not make sense

    The (very) rich are getting richer, the (relatively) poor are becoming entrenched in relative poverty. What’s not to understand?

    I find your comment most disingenuous. Use of the passive voice (which might be an annoyance, but hardly hampers the meaning) and other such pedantry aside, if you take issue with something raised in a post, why not address it directly?

  6. Andrew Reynolds

    Brian,
    I note that you do not give the figures for Australia – I trust this is just as the figures are not well published. A look at the ABS data, though, makes the position clearer – “Over the period from 1994-95, there was a 22% increase in the average real incomes of both low income people and middle income people and 19% for high income people.” link. If the effect you are writing about is happening here with the super-top end pay it is clearly not having an adverse effect on the poor – the rich are getting richer, as are the poor.
    The question on absolute vs. relative poverty, though, is an interesting one. Should there be government policies directed at reducing relative poverty, rather than absolute? Personally, I would probably argue against such policies. I see these sorts of policies as part of the politics of envy and populism, rather than founded on a rational basis.
    The policy prescriptions given by Stilwell, as you have quoted above (the third quote) seem to me to be designed to be counter-productive. A land tax, in particular, will just make housing more expensive for all and thus not increase availability for anyone. The rest of the policies seem designed to push capital offshore, and IO am not sure how that will help the absolute poverty. They will reduce relative poverty as they will have the effect of making us all poorer.

  7. Kim

    There probably are a few sub-questions that need sorting out before we can answer the main question. Ie:

    * How much inequality is necessary to reward effort and provide incentive?
    * How much inequality do we consciously want to see as a society?
    * How do we compensate for the inequality that does exist?
    * How much chance do people have of moving up? (Intergenerationally or personally)

    No doubt others can think of more.

    I lived in the States for seven years. It’s not just inequality that’s an issue (though there’s heaps of that to go around as people have said, and the middle class income stalling is a big reason why the Republicans are on the nose) but absolute poverty. If you walk down Boundary St or Brunswick St in Brisbane folks will ask you for money. Go to any city in America (try LA or SF where I lived) and see what you get. You can have all the gated communities you like, but even attempting to close your eye to poverty has an extremely deleterious effect on people both individually and socially.

    Great post, Brian.

  8. John Greenfield

    Jobby

    YOU clearly have no idea about these issues. Again THE issue is ‘acceptable to whom.’ Andrew Leigh poses the same question in a more scientific language.

  9. Paul Norton

    Two other issues to be considered:

    1. The more egalitarian a society’s distribution of wealth and income, the greater the improvement in the absolute position of the least well-off that can be achieved for a given increment of economic growth, assuming that this is distributed in proportion to the pre-existing distribution of wealth. This has to be set against any increase in the rate of economic growth which may (or may not) be generated by the incentives produced by greater inequality.

    2. If physical and ecological limits increasingly constrain overall economic growth in coming decades (and especially if we must make the transition to a steady-state economy), redistribution will become increasingly important as a means of overcoming absolute poverty.

  10. Kim

    John Greenfield, either contribute to the conversation substantively, or go away, please.

  11. Brian

    You’ve got me in one, Andrew L. I don’t know the answer.

    Some of the most interesting stuff, which I didn’t bring out in the post, was Nic Gruen’s discussion of the economist James Heckman’s ideas on non-cognitive skills. In short, he’s saying that personality, communications and relationships skills are very important as to what people are paid as against their technical skill. Gruen is saying, I think, that people who have these skills do better as contractors or negotiating for themselves rather than being part of collective agreements.

    But there are also clear implications for child raising, early intervention programs and early childhood education.

    Andrew R I was aware that when the Australian figures according to percentages didn’t fit the story he changed tack and said the absolute increase in income is what mattered.

    I wasn’t supporting Stilwell’s prescriptions for policy, merely putting them forward.

    On the politics of envy, populism and rationality, clearly this issue relates to all that stuff on happiness. We can say that people shouldn’t feel envious, but that doesn’t help. I don’t take appeals to reason as necessarily ending arguments, because we live in a sea of emotion and have toi lerarn to swim in it without losing ourselves.

    Paul and Kim, good points/questions. I recall my daughter when she was working in a pub in London and living on site. She used to ring from a public phone box and had to typically go to about 6 before she found one that worked, stepping around the street sleepers on the way.

    JG I learnt to use the passive voice in the public service. It’s not bad if you want to take yourself out of the argument a bit. In short, I adopted the style on purpose.

  12. John Greenfield

    Brian

    Nice try. I’ll pay it this time. So Kimeeeeeeeeee, what’s your excuse, toots?

  13. derrida derider

    Well, as someone who’s dabbled in this area for some years I’m on Saunders’ side in this particular argument. All the evidence we have (consumption patterns, measures of financial hardship, measures of broader disadvantage) suggest that self-identifed current income in ABS surveys is a damn poor guide to individual economic status.

    One good point Saunders makes is not just that this “relative to median income” poverty line tends to overstate poverty levels (it does, though IMO not quite as much as Saunders thinks – that’s a long story), but that it identifies the wrong people as being in poverty – eg elderly retirees who own their own home and have investments rather than young single people renting.

    Also, relative poverty and inequality are not the same and raise different issues. The former is about how a minority fare relative to the bulk of the population, while the latter is about how the bulk are faring relative to both top and bottom. That massive appropriation of funds by the richest in the US raises different issues depending whether it comes at middle class expense, at the poorest’s expense, or at nobody’s expense. Note that if it’s the last then there are still potential problems for the workings of democracy – just not problems for anyone’s material living standards).

  14. Paul Burns

    Ambigulous,
    I’m assuming the Unemployed Workers’ Union you’re referring to was the one in the 1930s involved in the Union Street Siege and various other radical/violent actions.
    There was an Unemployed Workers’ Union functioning in the 80s.We had a branch in Armidale and worked in co-operation with UNE’s SRC. Most of the members were students. We got hold of SS guidelines for Unemployment benefits through FOI and distributed it widely, held severalk small demos outside the SS and set up a wwekly soup-kitchen in the Armidale Mall where we gave away free food and coffee. We had to shut the soup kitchen down becausae the local shop-keepers complained we were taking away business from them. Actually we were just putting our Socialist principles into action. So far as I know this UWU was not a Communist front. I believe there were branches in Sydney, though we never met any of the Sydney people.
    It functioned for about 2 years and had quite a bit of community support and respect.
    Unfortunately, it came to grief when it was taken over by the Australian Marijuana Party who stacked an AGM. Theie policy was that the only way to cope with unemployment was to get and stay really really stoned. Consequently, the majority of the membership left, knowning that philosophy would go down like a lead balloon in Armidale. Ther branch folded very soon after.
    And yes, it probably is time to strartr one again. But how?

  15. The Hippocratic Economist

    From a policy perspective, governments shouldn’t be targetting inequality directly, they should be looking to see if there are market failures that make it impossible for people to move up in the income distribution. Or, to put that in English (rather than economics) outcomes will always differ, but we can aim to provide something like equality of opportunity. Give everyone a decent chance in life, and then leave the rest up to personal responsibility (and genetic fortune).

    I thought the Saunders article in the Fin was revealing. He cited data that show that not many people remain in poverty in the long term, and that people can smooth their consumption over their lifetime. For example, you borrow to buy a house in your prime income earning years so you don’t hav to pay for it in retirement. You can buy insurance to protect your income in the event that you have an accident. You live like a pauper as a student so you can have a higher income later. Basically what he was saying is that people’s income changes over their life time and that the market has devloped means of accomodating that to allow people to stay out of absolute poverty, even if they have a period of low income. So short spells of ‘poverty’ are probably not a problem worthy of policy attention.

    There are, however, a small group of people who are stuck in poverty, with little chance of social mobility. Typically, they are people with low education, maybe poor english, disabilities, living in rural and remote areas, you know the characteristics that lead to disadvantage. Government can provide some redress to some of these problems (things like early-childhood intervention for kids getting lost in the education system, serious english classes for new arrivals, education and training opportunities for adults, perhaps some assistance for people who want to move from the country to the city for work). Get that right, and people will be less likely to get stuck in poverty.

    As for more progressive income taxes, death duties etc. I’m opposed to higher taxes for anybody. We should be reducing taxes on low income earners (or increasing the trax-free threshold) to make it more rewarding for them to go to work. Raising taxes on high income earners may make some people feel better, but it won’t make any poor people any better off. It will just mean that a few tax lawyers will make a few more bucks, and a few rich (and probably very smart) dudes will move to New York, which will be a loss to Australia in general.

  16. Sacha

    To me, reducing absolute poverty (as opposed to relative poverty) is the goal.

  17. Kim

    In practice, though, how could those two goals be separated?

  18. Razor

    When Obesity is seen as a disease of the poor, I don’t think poverty is really a crushing burden in Australia.

  19. Jobby

    To me, reducing absolute poverty (as opposed to relative poverty) is the goal.

    The definition of absolute poverty shifts as conceptions of relative poverty alter, so it’s arguable that the two are pretty much indivisible.

  20. John Greenfield

    The poor WILL always be with us. There are far too many people whose careers and moral identity relies on a large and ever-increasing number of impoverished.

  21. Brian

    I’ve got to fly, but a couple of comments.

    dd some of the rich dudes in the US and here for that matter are rich because they are using cheap developing world labour, often at several removes.

    It’s true that the whole situation is very complex and it’s questionable whether the criterion for poverty as half the median has much utility. Saunders article was interesting in that all the arguments he put forward were entirely rational, but his purpose is clearly ideological in that with him it always leads to smaller government.

    I think we need to balance any rational arguments with a good dose of vicariuos immersion in the raw experience of many working as well as non-working Australians. In the Wynhausen book, for example, she takes us into the work at the Egg Plant at the provincial centre of Greendale. These workers may have food on the table and a roof over their heads, but the work is far from emancipating. And it’s nowhere near the worst job around.

    I think there is a rational argument for paying premium wages to do really shit jobs, many of which destroy you physically as well as, if I may use the term, spiritually, but I don’t expect to see it any time soon.

    Then there was the woman who was the face on the bus in Mark’s post about Swan’s book. If Stilwell’s point is that life is edgier and unacceptably uncertain for a too large a portion of our population I think I’m with him.

  22. Andrew Reynolds

    Razor,
    You should also add lung cancer to the list of diseases of the poor – and with cigarettes at the price they are I think that reinforces your argument.
    .
    Sacha,
    To me at least, absolute poverty is when malnutrition, lack of housing or lack of clothing results from the situation you are in rather than your own choices. A person in sub-Saharan Africa scratching a life from depleted soil, for example, is probably in absolute poverty.
    I would doubt that there is a lot of absolute poverty in Australia – although I am certain there is some.

  23. Robert Merkel

    There is of course John Rawls’ difference principle, which states (and I paraphrase, possibly quite poorly) that the inequality is justified only as it improves the lot of the worst-off in society.

    I’m not convinced it’s a good idea (what if optimising the minimum leaves 90% of the population substantially and significantly worse off than they would otherwise be?), but it’s a useful perspective to think about in these debates.

  24. John Greenfield

    Robert Merkel

    You don’t need some luvvie lightweight like John Rawls. Go to the far right, racist, neoconservative, neoliberal, economic rationalist, Islamophobic source: it’s called Pareto efficiency. You people would post much more intelligent social analysis if you had even Microeconomics 101 under your belts.

    And dump the intellectual dullard John Rawls. Go for the real deal; Robert Nozick. Nozick will expand your mind, while Rawls keeps it embalmed.

  25. GregM

    The definition of absolute poverty shifts as conceptions of relative poverty alter, so it’s arguable that the two are pretty much indivisible.

    Utter bollocks.

    Absolute poverty is when you live on less than $2 per day, as much of the world’s population does, and where there is a fair chance you’ll not have enough to eat today, where a simple illness easily treated in the rich world will kill you, where the clothes you wear would be counted as rags by just about everyone in the rich world and where home for you, if it is not in an unsanitary shack, is under the starry canopy.

    Relative poverty as is being discussed on this thread is that you have less than your neighbour but still have enough to eat, and indeed grow fat, access to life saving medicines when you need them, wear clothes that may be shabby but are not rags and however humble your housing it is far above being a shack, has hot and cold running water and sanitation and electricity to run your colour TV and your DVD player.

    No sensible person could argue that absolute poverty and relative poverty are indivisible.

  26. Razor

    Yes, John. It is also interesting to review the impact of “Sin” taxes on the “poor”. My understanding is that they not only pay a relatively higher portion of their income, relative to the rich, on taxes on alcohol, tobacco and gambling, but they also pay a greater absolute amount of “sin” taxes than the rich. If they chooses to waste their money on those pursuits, so be it. The recent calls for a sin tax on fast foods would have probably exacerbated the burden for them. Wonderful stuff, this social engineering.

  27. GregM

    There is of course John Rawls’ difference principle, which states (and I paraphrase, possibly quite poorly) that the inequality is justified only as it improves the lot of the worst-off in society.

    Justified to whom?

  28. Paul Norton

    John Greenfield, it’s also (and more usually) called Pareto optimality.

    Pareto optimality is a situation which exists when economic resources and output have been allocated in such a way that no-one can be made better off without sacrificing the well-being of at least one person.

    It is discussed in detail (and criticisms enumerated) here.

  29. Jobby

    Utter bollocks.

    My mistake. I was thinking along the lines of the shifting of different corporate definitions of absolute poverty (i.e. World Bank at US$1 per day as opposed to the cited standard of US$2 a day, etc. etc.) which is needlessly overthinking a simple issue.

    The argument that absolute poverty at its most basic refers to lack of food, clothing, shelter and health care is pretty self-evident.

    There’s no need to be such a dick about it though. You might find you get along with people better if you drop the outraged namecalling.

  30. GregM

    There’s no need to be such a dick about it though. You might find you get along with people better if you drop the outraged namecalling.

    Sorry about that. I spent four years living in South East Asia, mostly in Cambodia, where the absolute poverty of many of its people affected me pretty strongly. I just can’t look at arguments about poverty in a rich country like Australia except through the prism of that experience.

    As I was writing I was also recalling the death of the mother of a friend of mine who caught a simple bacterial infection and was dead of cellulitis forty eight hours later for want of the thirty dollars for the antibiotics that would have saved her life. That really taught me what the difference between absolute and relative poverty really means.

  31. Jobby

    Sorry about that.

    No fuss.

    Obviously an emotive subject. The most in-your-face poverty I saw was an extended trip to Egypt; apart from the usually noted prevalence of street-beggars, the presence of a massive underclass living on the streets in Cairo was pretty astounding. The cities were so full of it that you became inured to the sight after barely a week. Rural areas seemed less poverty-striken, but probably only because the problem was less visible.

  32. David

    Justified to whom?

    Justified to Rawls, justified according to a community of rational, deliberative liberals, and justified to anyone else who finds his reasoning persuasive.

  33. Craig Mc

    My thesis chair – who has been working on inequality for 35 years – was going to use something similar as a title for his latest book.

    Dear god. This is beyond parody.

  34. GregM

    Justified to Rawls, justified according to a community of rational, deliberative liberals, and justified to anyone else who finds his reasoning persuasive.

    Seems like that’s devising universal principles on the basis of self-selected and unexamined criteria of wishes without scrutiny according to objective criteria. It seems very self-indulgent as well as dictatorial.

  35. David

    It’s because universal language is key to the discourse of liberals. When we speak in universal terms, we are talking about the kind of universal community we want to construct.

  36. Robert Merkel

    GregM: Rawls is proposing a normative definition of the optimal level of inequality of access (to a whole bunch of things, not just money). Nobody’s forcing you to accept it, and indeed I don’t accept it, myself.

    In computer science terms, Rawls is optimising for the worst-case. This often gives you lousy average-case performance.

    As to GregM’s disturbing story about friend’s mother dying through lack of cheap medication, I’d just like to argue that even this story actually illustrates the the relativity of poverty, particularly over time. 65 years ago, the richest person on Earth would have died in the same circumstance, as antibiotics didn’t exist. Now most people think that everybody should have access to such basic medical care.

  37. Brian

    This is the simplest explanation of Rawls’ difference principle I can find:

    The difference principle permits inequalities in the distribution of goods only if those inequalities benefit the worst-off members of society.

    It’s supposed to be a risk-minimisation strategy against the worst case scenario.

    I don’t think I’d accept it as a universal principle. It would depend on what’s on offer, ie. what’s being distributed, and the nature of the worst case scenario.

    There’s another explanation here.

    That’s enough from me tonight.

  38. wbb

    I’d just like to argue that even this story actually illustrates the the relativity of poverty, particularly over time

    Yes Rob, but when you do, you jump the shark.

    People need to remember that the terms relative and absolute in the context of the poverty debate are not intended to be used with their literal definitions. To do otherwise is to be seduced into harmful semantics.

    Absolute poverty is a term used to describe a level of poverty we decide to deem intolerable at a particular place and time.

    Relative poverty is the statistical measure of the gap b/w the rich and the poor.

    Of course they are different concepts. To disallow them as distinct categories is to fail Poverty 101.

    Absolute poverty is necessarily the first order issue; relative poverty is only an issue in rich countries where we have the luxury of being able to spend time on fine-tuning our social order.

  39. GregM

    I’d just like to argue that even this story actually illustrates the the relativity of poverty, particularly over time. 65 years ago, the richest person on Earth would have died in the same circumstance, as antibiotics didn’t exist. Now most people think that everybody should have access to such basic medical care.

    No it doesn’t. What it illustrates is the absurdity of the concept of relative poverty. By your reasoning Louis XIV, the Sun King, notwithstanding the gorgeous surroundings of Versailles, lived in poverty because he didn’t have access to antibiotics.

  40. Sacha

    By relative poverty, I mean measures such as X% of the mean/median income. By absolute poverty, I mean something such as (and it isn’t precise of course) the ability to sustain oneself in a healthy and hopefully thriving way.

    Absolute poverty for an individual is terrible. Much worse than relative poverty.

  41. melaleuca

    Good post, Brian. It is interesting how the issue of poverty has dropped off the agenda of a large chunk of the left, which is amply demonstrated by the very few posts on said topic on this forum.

    Australia has plenty of absolute poverty if you care to look for it. Here is an example on malnutrition from a medical paper abstract:

    “Malnutrition is very common among Indigenous children living in rural and remote communities. Hospitalisation in rural hospitals is often used to break the cycle of malnutrition and infection, but this intervention has never been evaluated.

    Hospitalisation was effective in re-establishing growth and defining organic contributors to malnutrition. This, however, occurred at the expense of the high readmission rate and nosocomial infection. The present study suggests that alternative models to nutritional rehabilitation in addition to a broad psychosocial and public health approach to prevention and management of malnutrition is required.”http://www.blackwell-synergy.com/doi/abs/10.1111/j.1440-1854.2004.00602.x?cookieSet=1&journalCode=ajr

    Since the Commonwealth closed down their dental program, we also have plenty of poor people, including the working poor, with a mouthful of swollen gums and rotten teeth. Thanks Mr Howard.

  42. David

    Like far too many posts on LP you are also too fond of the passive voice. Acceptable to whom?

    On point of fact, “is acceptable to xyz” is also using the passive voice. The voice is determined by the “is acceptable” part. Tacking an agent on the end won’t change it.

    Almost universally, style manuals suggest using the passive when the active would create the wrong emphasis. In this case, the agent is open-ended – it’s whoever contributes to a deliberation on a blog. It would be quite absurd to emphasise such an agent – eg. “Larvatus Prodeo bloggers accept how much inequality?” Clearly this is pointlessly stating information that is obvious.

    I know this and I don’t even have the amazing linguistic higher consciousness that only the multilingual posses. ;)

    If you are going to be a narky grammar snot, best you be right.

  43. David

    Whoops… I just realised “is acceptable” isn’t even in the passive voice…

  44. melaleuca

    David,

    If the Police Force offered to cover part of a student’s HECS fees in return for X number of years service, I reckon some uni graduates could be enticed.

  45. Mark

    I haven’t been reading this thread, so I’ve got no idea what the segue was that got us discussing this, but in Qld after the Fitzgerald Inquiry for some years, the gov’t made a degree mandatory (almost – I think you could demonstrate equivalence in some way). This incidentally started the explosion in university programmes in justice studies and criminology. But they didn’t get enough graduates to join, and the Police Union vociferously opposed the requirement, so it was junked.

  46. John Greenfield

    From a sociological perspective, the optimal level of inequality is that just before the population started taking an interest in Marxist ideas. To wit, Australia is cruising.

  47. David
  48. Mark

    Thanks, David, that makes sense.

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