Why More Equal Societies Almost Always Do Better
entertainment.timesonline.co.uk
The Sunday Times review of the book
"The Spirit Level: Why More Equal Societies Almost Always Do Better" by Richard Wilkinson and Kate Pickett
entertainment.timesonline.co.uk
London in 1900 had a much lower crime rate than London today, despite being far more unequal. ( http://www.parliament.uk/commons/lib/research/rp99/rp99-111.... )
Crime is the default state when you combine low class people with lax law enforcement (and by low class, I mean the cultural attributes of the lower classes. A rich drug dealer is still low class. A grad student living on ramen is not low class). In general, the countries with more low class people will be more unequal. But if you just give the low class people McMansions with pools, they do not become any less violent ( http://www.nytimes.com/2008/08/09/us/09housing.html ). Conversely, if you take an unequal society with a huge lower class, and just get rid of the middle and upper classes, you get Zimbabwe.
Edit: If you're going to downvote a well reasoned argument that provides supporting evidence, you better post your own counter argument.
The paradox of lax law enforcement is that in the long run you have a much higher rate of imprisonment because lax law enforcement creates more criminals. Conversely, Singapore, with its ultra-strict enforcement has very low crime.
In terms of policing, America is like the awful parent who alternates between allowing their kid to drink and get in trouble, and then every once in a while throws a fit and beats the kid. The recipe for good law enforcement is consistency and nipping problems in the bud. If you've ever studied American law enforcement, you'll find it operates in the exact opposite manner.
The crime rate differential between the U.S. and Europe goes back a long time. If you really want to understand it, I highly recommend this book: http://books.google.com/books?id=NGBLAAAAMAAJ&printsec=f... Written in 1920, it barely needs any updating today. And what is the primary causes of the difference in crime rate? President Taft sums it up the best: "It is not much to say, that the administration of criminal law in this country is a disgrace to our civilization, and that the presence of crime and fraud, which is greatly in excess of that in the European countries, is due largely to the failure of the law and its administration to bring criminals to justice."
A day in the life of Tom Boy Super Market consists partly of stopping people from robbing the place blind. “There’s so many days when I don’t do nothing,” Jitu says. “My main job is to run the office and I don’t have to be here, but I have to come anyway. You don’t want to have, like, one person here, and then half the store is gone. We have to have so many people. They don’t have to do nothing, but they have to be here.”
In the short term, possibly. What they forget is the extent to which technical innovation is driven by economic inequality.
The UK already tried this experiment in the middle of the 20th century. That's why there's no Silicon Valley there. At the time companies like Intel and Apple and Microsoft were being founded in the US, the highest tax rate in Britain was 98%. It wasn't worth trying to start a startup, and people didn't.
Further, you don't need a high tax rate. Slovakia is currently the country with the least wealth disparity and is a happy, healthy EU country with a U.S.* / European-like tax rate. The individual income tax rate in Slovakia is a flat 19%.
I don't think anyone is talking about "punish the winners" but about providing true equal opportunity. No one is talking about making everyone finish at the same point, but truly having the same starting line. What Slovakia and the rest of Europe get for their taxes includes universal healthcare and a free (or very low cost) university system -- and those two things alone can go a long way toward a more equitable, and happier, society.
* U.S. tax rates appear lower but when you combine federal, state, local and property taxes, it is similar to most European nations.
http://www.luxembourgforict.lu/en/success-stories/skype/inde...
And while I agree entirely that equality of opportunity is the right sort to aim for, the article we're commenting on was in fact advocating not merely equality of opportunity, but equality of result.
And I disagree about the article. Think about it: most people are roughly the same. If they really have similar starting points, they'll generally have similar ending points. Again, Slovakia doesn't "soak the rich". It's about providing the mechanisms to avoid the rich getting richer and poor getting poorer. It's about providing the tools for true economic and social mobility. That used to be the American dream; now it's only a dream since the reality is quite different.
I don't think most people are the same. And that is a topic I know a lot about, since I am in the business of trying to identify the exceptional ones. I think the distribution of ambition follows a power law, like the distribution of any talent. So if you give people equal opportunity, you'll have a power law distribution of wealth.
In fact, it's a bit like the film industry. Yes, most films in the cinemas of the world are American films. And most of these are fun amusement despite being idiotic. But I wouldn't make the statement that the fact that "Angels & Demons" is an American film is an indicator that America is on the right track, and that's exactly what you seem to be saying: Twitter and Facebook are American companies, so America is on the right track. I know you're a Web 2.0 VC, and you see the world through such goggles, but I don't think it's a standard indicator of a functional, healthy society.
As for your second statement, sure, Bratislava has its millionaires. Wealth distribution is always power law to some extent (but not because of people, but because certain talent aspects are always more heavily rewarded depending on the culture, time period, etc). What I'm talking about is exacerbating that. A good example is the Ivy League system, which takes very bright kids and very rich kids and mixes them up and gives them both the same degree. Again, it's about mechanisms that make the rich richer and poor poorer and eliminating those to whatever degree possible.
And if you don't think it was disruptive and tectonic shifting, you're kidding yourself.
As can the vast majority of Americans.
And, you're ignoring the parts of sweden where "certain folks" can't even visit.
> Again, Slovakia doesn't "soak the rich".
The US equality advocates argue against flat taxes like Slovakia's. They argue for "soak the rich".
Perhaps their efforts are actually contributing to inequality....
About the flat tax, that is definitely interesting. I think most tax systems are horribly broken. Buffet recently complained that he paid less in taxes than his housecleaner. I think he's a great man for saying that, and it's truly atrocious. Something has to be done.
Actually, they're not as big as you might think. The problem is that outsiders can't tell the difference between bad and poor.
There's a rather interesting "crime map" of Chicago that shows that violent crime is incredibly concentrated. (An interesting fraction of the total murders occurred within the equivalent of a couple of blocks) In other words, "bad areas" are mostly just poor.
Buffet lobbies for a tax that puts money in his pocket. He's arranged so his estate will not pay that tax.
He also lobbies for accounting changes that make companies that rely on stock options seem less attractive to investors.
No one is stopping him from paying more tax....
Buffet strikes me as a pull-up-the-rope-behind-him kind of guy.
And there are no such places in Bratislava. There is essentially no violent crime. There's no fear. It's a big difference, and every American I know who has moved to Europe talks about the difference.
Yes, outsiders. Let me guess, you lived in a nice area of Oakland. What makes you think that you know anything useful about the poor areas of Oakland? (I lived in them when I was a kid.)
As for Buffet, who do you think will spend $50 billion in a more socially productive way: United States Government or the Bill and Melinda Gates foundation?
There's Richmond, Hunter's Point / Bayview, West Oakland, parts of Hayward and... ?
In the US, half the election was about "families making less than $200K a year will not get a tax increase".
This is because the "winners" are overwhelmingly well-connected, often sociopathic financiers and management types rather than technological innovators. Even in the case of the latter, I would argue that no one has ever personally created a billion dollars' worth of value, perhaps with the exception of certain great inventors (many of whom, such as Nikola Tesla and Philo Farnsworth, died penniless.) Thus, just about every great fortune is a result of the workers not owning the means of production. It was the company's employees who generated most of the value, and yet the profit largely ends up in a handful of pockets.
Most wealth is in the hands of MBA/frat boy types, and well deserves to be weighed down with draconian taxes. It is a shame that there is anywhere for these parasites to flee to.
I simply disagree with PG, in that I do not believe that most wealth inequality is explained by differences in actual productivity. In every society I know of, the wealthiest people are largely the least productive in any real sense - they obtain wealth by skimming the output of others.
According to the government and my tax rate, I'm a winner. Most people I know that went to grad school are winners. As an example, the income cutoff for being unable to deduct interest on student loans is ~$140K for a joint filing.
So the only way you can deduct your interest from your student loans is if you didn't actually do well in applying your education and getting a well paying job. I.e. punish the winners.
This example isn't about billionaires. It's about people that make only a small amount more than the median salary. They're punished like this all the time, and it's bad for society.
[note: if you don't get paid well because you are a struggling musician, or social worker, my analogy of using your college degree well is not relevant. It's a careerist analogy]
Skype was written by three programmers from Estonia-- a country with a flat-tax and much less economic equality.
Paul's argument, if I understand it, is that innovation is critical. To get it, we need to reward those who chase it, and socialistic systems with their concomitant heavily graduated tax systems don't give the necessary incentives for that to happen.
My argument: I can't imagine someone saying, "I'm not interested in innovating because if I get rich, I'll have to pay 10% more in that upper bracket to do things like make sure I don't step over the destitute and crazy on my way to lunch."
Estonia has less economic equality than Sweden, but much more than America. Switzerland has tremendous economic equality; it's contribution: the web. Finland: Linux. I could go on.
America has a great spirit of innovation and entrepreneurialism. But if to get that you have to sacrifice healthcare and education, it's not worth it.
I'm interested in this - do you have any numbers to back this up?
Inequality of outcome leads to inequality of opportunity because the conditions people grow up in are conditional on the income of their parents. This is especially strong in the US due to things like minimum wage being below living wage so low-income parents work several jobs and have less time to interact with their children, school funding being based on local taxes, and colleges' need-based financial aid not keeping pace with tuition increases, to name a few effects.
So people from a low-income background have the deck stacked against them. It's not that no one can make it, but it's much more difficult. And that means that the nation as a whole is not tapping into the full talent pool. People who could have started startups are instead stuck in low-wage jobs because of their background, and that's going to have a negative effect on the economy because it's not tapping into the full potential of the workforce.
No one pays more than a job is "worth", so a minimum wage simply means that jobs that are worth less don't exist.
Folks learn to become valuable. Working is one way for them to do so. But, if they never get that first job, they never learn.
If you think that folks should have more money than their labor is worth, give them your money (or tax money). Pricing them out of the labor market is bad for everyone.
In other words, raising minimum wage doesn't mean Bob won't get a job, it just means Betty won't get a second yacht.
McDonalds doesn't sell hamburgers at a loss. As its costs increase, the price where it maximizes its profits is affected.
> In other words, raising minimum wage doesn't mean Bob won't get a job
That's simply wrong. Things that can't be produced profitably aren't produced voluntarily. There are lots of goods that aren't produced because they can't be produced profitably. The folks who would have been employed producing them are either unemployed or doing something else, displacing someone else from that job.
Of course, good people are welcome to pay folks more than the value of their labor, price things below cost, or set their prices for reasons other than profit maximization. If their economic theories are correct, everything will work out well for them and they'll have significant economic advantages over folks who do otherwise. Those advantages will cause economic harm to said other folks.
Yet, good people don't actually act on their convictions. Instead, they try to coerce others to act on those convictions. Curious.
If for good x to be produced profitably, it needs for the human labor component to work for less than livable wage, then it shouldn't be produced. Period.
There are a great many examples of differences in minimum wage (even within the U.S., the minimum wage has gone up and down) and I assure you, an Armageddon of unemployment does not ensue when the minimum wage is raised.
Your "good people don't act on their convictions" argument is plain silly, anamax. Listen, there are rules for everything. If we don't "coerce" businesses not to put toxins in kids toys and lead in drinking water, they will. If we don't say, "you can't economically rape your employees," they will. Look at what happened in the late 19th century: company town, company stores, child labor. We keep learning; we keep forgetting. It makes me sick.
"In 1998, for example, the richest 1 per cent of Americans took home 14 per cent of total income, while in Sweden the figure was only about 6 per cent. Wealth concentration is another matter, however. The richest 1 per cent of Americans owned about 21 per cent of all wealth in 2000. Some European nations have higher concentrations than that. In Sweden—despite that nation’s egalitarian reputation—the figure is 21 per cent, exactly the same as for the Americans. And if we take account of the massive moving of wealth offshore and off-book permitted by Sweden’s tax authorities, the richest 1 per cent of Swedes are proportionately twice as well off as their American peers."
And, income inequality doesn't always predict poverty the one one might think.
"What about poverty, not the same thing as inequality? Because inequality is greater in America, relative poverty is by definition also higher. But absolute poverty rates look different. If we take absolute poverty to be living on the actual cash sum equivalent to half of median income for the original six nations of the EU, we see that many western European countries in 2000 had a higher percentage of poor citizens than the US; not only Mediterranean countries, but also Britain, Ireland, France, Belgium, the Netherlands, Finland and Sweden. Unemployment benefits in the US, often portrayed as derisory in the European media, are actually higher than in many European nations. Greece, Britain, Italy and Iceland spend less than the US on unemployment, measured per capita."
(Note that the US seems to have lower unemployment rates so higher per-capita spending combined with lower per-capita rates produces even higher per-unemployed-person spending. Yes, I realize that spending doesn't translate into benefits, that administration sucks up a lot of money, but that's a separable problem.)
http://www.prospect-magazine.co.uk/article_details.php?id=10...
Or, perhaps "doing well" and "equality" are both caused by something else.
Which way do smart people move?
Note also that the benefits and costs may be on entirely different dimensions. It's not uncommon for folks to stay because of friends and family yet consider moving because of "opportunity".
I think that that example captures something interesting. The benefits from moving are typically far more speculative than the benefits of staying put.
I do think that folks who move are somewhat different, albeit not different enough to argue that their choices are useless in determining what non-movers actually prefer.
However, I put in the "smart people" question because people aren't fungible.
Note that the headline claim is that "more equal societies do better", suggesting that "do better" depends on "more equal". Maybe that's true, but it's not the only factor. A less equal society that attracts more productive people could easily do better than more equal societies which lose said people.
The question can easily come down to envy vs greed - do you care what other people have or do you care what you have. Me, I care about what I have.
I find it interesting that the envy-driven folks go to such lengths to argue that equality has no costs. That would be a very surprising result, as everything else seems to have tradeoffs. (In engineer-speak, "good, fast, cheap, pick two",)
That's not to say that the benefits of a particular level of equality don't exceed the costs, but to point out that "it's all good" usually indicates a position that isn't as strong as asserted.
The "equality" spoken of certainly isn't a zero sum game. I don't think that you wind up with US like polarization -- which drives its innovation -- in a more "equal" society. That's why a lot of the European efforts to duplicate a Silicon Valley sort of culture seem to fail. It's just not part of the social fabric.
I think it's exactly that sort of zero-to-rich mobility that makes the US attractive for people on both ends of the social spectrum, but is also connected to it lagging behind other developed nations nearer to the median.
A less equal society that attracts more productive people could easily do better than more equal societies which lose said people.
That assumes, amongst other things, that productive people will flock to where they are best paid regardless of other factors, and that more unequal societies will pay them best, and that the impact of such migrations is an overriding factor in the overall productivity of a nation. For you that's probably common sense, in my experience it's utter BS. That's why studies like the OP are necessary.
> more unequal societies will pay them best
Nope. I just assumed that more unequal societies that do pay them better would have a better chance of attracting them.
All other factors are never the same, but it seems absurd to think that productive people place no weight on being paid better. After all, non-productive people place weight on being paid better.
> That's why studies like the OP are necessary.
I don't see how such studies can find anything non-trivial.
Note that there are specialization and globalization effects. For example, suppose that country A attracts the inventors and is unequal and country B is equal and attracts the drones. (This isn't far-fetched - there's little benefit to being a "tall-poppy" in B and being a drone in A really sucks.) If country B builds the stuff that country A invents, both benefit and have a better standard of living than either by itself.
Suppose further that concentrating inventors has some effect on their productivity.
Note that A could easily end up worse off than B, despite being crucial to B's success.
1) were well informed,
2) had equal opportunity to go to any country in the world (geographical distance, need for immigrant labour, language issues, already established colonies),
3) had health and quality of life as first priority (as opposed to raw moneymaking potential).
Can we please drop the Oprah-Winfrey view of the world? Please?
If you couldn't get rich and become unequal, a lot fewer people would be out there creating more value for others and driving the economy.
A more equal society = a lower growth economy. And having a strong economy matters because it gives your country power, control, and influence, which from the most basic point of view, enable its citizens to be protected and survive.
We should measure a society by how the poorest live and by the heights achieved. If the problems of the poor are about obesity and not hunger, we're doing really well.
If you have a society where the capable have an incentive to create, and do, you're doing well. If they're considering making a tax shelter or moving, you have problems.
That creative force is what makes it so people on the bottom worry about obesity and not hunger. Incentives for unequal distribution of goods raise the general level of wealth.
A public policy should care a lot more about general wellbeing than emotional wellbeing.
That's just a guess though. I don't know why poor people eat junk. Perception of cheapness might be a big part of it. Decadent flavors and bright, colorful packaging also help, I'm sure.
The food topic is really just a metaphor. I could give a similar example with education. If you the problem is the dropout rate of school, and not that your kids need to work on your farm to make ends meet, you're doing OK.
Clearly my standard is a bit extreme in western contexts, but not so much with respect to the rest of the world or recent history.
Do you see any rich hacker belittling the little poor startup guys? I think it is more like the rich, successful hackesr is seen as a community resource. They constantly day in and day out give advices to startup newbies on what to do and how to avoid their mistakes.
It is as if each hackers are expected to face obstacles, learn, and then eventually win.
Maybe the inequality problem is more of a cultural thing. Maybe it is about how we deal with inequality? It is kinda like comparing the immigrants to native Americans.
You know, the Vietnamese are famous for their nail saloon and their beef noodles. The Italians specialize in Italian foods. Indian specialize in computer programming.(Note, not all indians want to be programmer, etc) Certainly the field of computer programming and the arts of nail were there long before those immigrants came to America.
Do people rise up to the challenge and overcome poverty or do people hold your head low and envy the rich?
Edit: I just realize that I am just trying to rationalize away the inequality. However, I am still very worried about the potential solutions to this problem.(Assuming it is indeed, correct.)
I know the effect of the mininum wage laws that was supposed to help the poor have a damaging effect on upward social mobility of the working class.
I am very worried that this capped wage proposal would have undersirable unintended consequences.
Perhap the solution to the inequality problem is to lower barrier of entry to the poor such as reducing government red-tape and regulations allowing people to start up business easier, as well reducing labor regulations to open up jobs that were not previously availiable due to labor cartelization via unions and occupational licensure.
"He studied economic history at the London School of Economics before training in epidemiology and is Professor Emeritus at the University of Nottingham Medical School and Honorary Professor at University College London."
The other:
"Kate Pickett is a Senior Lecturer at the University of York and a National Institute for Health Research Career Scientist. She studied physical anthropology at Cambridge, nutritional sciences at Cornell and epidemiology at Berkeley before spending four years as an Assistant Professor at the University of Chicago."
Their board http://www.equalitytrust.org.uk/about/board :
http://en.wikipedia.org/wiki/Molly_Scott_Cato (Phd)
http://www.shef.ac.uk/geography/staff/dorling_danny/ - Danny Dorling was educated at The University of Newcastle upon Tyne in Geography, Mathematics and Statistics leading to a PhD in the Visualization of Spatial Social Structure
http://www.penguin.co.uk/nf/Author/AuthorPage/0,,1000074828,... - gained a BA in Oriental Studies at Oxford, received a Harvard MBA before returning to Scotland to manage the family paper mill business, transforming it into a more open company, for which he was given the ‘Scottish Business Achievement Award’ in 1998. His St Andrews PhD was on the subject of employee ownership
http://www.uel.ac.uk/ssmcs/staff/rustin-michael.htm
Not saying the book is right, but I'll be damned if we have to teach correlation/causation to these people.
edited: The Wikipedia article on "Correlation does not imply causation" cites a "a widely-studied example, (where) numerous epidemiological studies showed". Just a friendly reminder :)
How many useful and accurate predictions do you see coming out of economics? Or out of nutrition for that matter?
This article is a classic example of confusing correlation with causation. The author simply does not detail a chain of cause and effect. And the correlation she poses, does not explain such facts as why Baltimore was really safe in 1900, and is violent wreck today.
And if that were true, what explanation do you propose for that? I bet something that affects mental health and criminality rates can have an impact in IQ distribution.
Anyway, the study compared 20 different countries, and each state of the USA. Low IQ in the US wouldn't begin to explain their observations.
Communism in practice boiled down to a three-fold plan: Take the money from the rich and give it to the poor, let the government take over managing the money now that there's no rich people to do it, and give the goverment managers perks that turn them back into rich people in practice, if not on paper. This is what you might call the simple approach, "naive" in the sense that a simple algorithm is "naive".
It turns out to work absolutely terribly, of course, because it fails to take into account higher order effects. Of course with a first-order analysis, if you take all the money in the world and spread it out equally to all people, all people have the same amount of money! The problem is that the analysis can't just end there, for reasons well explored elsewhere.
Perhaps there are smarter ways to do this. It's hard to know. But I am fairly certain that whatever the smarter way is, it doesn't involve just taking money from one person and giving it to another. That has been shown to be all kinds of corrosive to society. (Somewhat ironic, as it is promoted as a cure.)
There are other approaches. We could take a long view of equality, listen to the Singulatarians (even, or perhaps especially, the "weak" Sigulatarians), realize that we're still in a transitional period of wealth generation and that breaking our economies now to spread wealth now may be a terrible idea, as opposed to letting the economies run with a bit of inequality now but attacking the problems (either of inequality or the secondary/related problems in the essay) with orders of magnitude more resources later. Perhaps later we can or should trade economic efficiency for wealth equality, but we can't afford that yet. The wealthiest country on the planet can't even afford that choice for its own citizens, let alone share with the rest of humanity. Maybe the "how" can only be answered in 30, 40, 50 years, and trying to do it now is as stupid as setting up an interstate highway system in 1870.
Or maybe we recognize that rather than tearing rich people down, we should be looking at how to bring poor people up without tearing anybody down. This is possible, but only if you have the correct view of the economy as a non-zero-sum game, which is unfortunately still "uncommon sense".
So, even if we do agree that equality is a desirable goal in and of itself, we are not constrained to take the stupid view of it and believe that we must go with Communism. We could try smarter things, and realize that instant success is not possible and any plan that promises it is therefore flawed. Of course, this is predicated on a willingness for large swathes of the population to think about second-order effects so the odds of this happening are pretty low.
I visited Ireland several years ago. I think it was Sligo where someone pointed out a local millionaire's house. It was just another house on the row, and the guy lived a quiet life and still went to the local pub. He didn't fear his neighbors, and his neighbors weren't stressed out by his wealth, including the chap who pointed all this out to me, who happened to be on the Dole!
I also note a marked difference between wait staff in Houston, Texas and Cincinnati, Ohio. Waitresses and waiters seem to be much more servile in Houston, whereas in Cincinnati, I was often simply asked what I wanted. Houston is markedly more affluent as a whole, however.
I too think that the problem lies in an underclass that feels "captive." If you are somehow inferior and underclass because of your race then how in heck are you going to escape? Also, the US has huge disparities in educational opportunities. There's some kind of feedback with those disparities and subcultures that devalue education. (Which seems to be spreading up the socioeconomic ladder!)
Looking at countries that have very good equality of opportunity in terms of relatively equal access to education, there does seem to be a higher level of social cohesiveness. (One example would be Japan, where the education system is highly standardized.)
I agree with your notion of bringing people up. I think that the best way of doing this is by raising the level of education. But I doubt that very much more than lip service and the opportunity to get more money from the government have resulted from most of those initiatives.
One example of such common knowledge: http://www.springerlink.com/content/w26530m1x3163184/
http://i263.photobucket.com/albums/ii139/tolsdogg_photo/life...
The introduction of capitalism had a small but negative impact on life expectancy.
If you were to compare life expectancy in communist countries to life expectancy in capitalist countries, I imagine the capitalists would win, though.