That was dissappointing

Prof. Kenworthy responds to Wilkinson’s essay on inequality and mostly punts. He goes after the idea that consumption inequality should matter and not income inequality. His argument basically boils down to the idea that he doesn’t think we measure consumption well. He’s right about consumption surveys missing outliers like the very very rich because they use random sampling. Also, we don’t include walks on the beach and leisure time in consumption statistics ((Wilkinson actually addresses this issue, if I remember correctly, in his recent policy paper regarding inequality. He shows data that suggests richer folks have less leisure time these days than poor.)). So, like always, we need better data.

Kenworthy’s reply doesn’t address Wilkinson’s main point about the importance of considering underlying mechanisms. He does list some bad things that could, might be, maybe be related to income inequality, but he doesn’t give any reason — besides listing them in a article about inequality — to make us think they are related to inequality.

And in a strange twist, he ends his comment saying the real problem is “poverty” and not income inequality at all:

Imagine an America in which high-quality public services raise the consumption floor to a high level: most citizens can put their kids in high-quality child care followed by good public schooling and affordable access to a good college; they have access to good health care throughout life; they can get to or near work on clean and efficient public transportation or roads with limited congestion; they enjoy clean and safe neighborhoods, parks, roads, museums, libraries, and other public spaces; they have low-cost access to information, communication, and entertainment via reliable high-speed broadband; they have four weeks of paid vacation each year, an additional week or so of paid sickness leave, and a year of paid family leave to care for a child or other needy relative. Even if the degree of income inequality were no less than today and we still had CEOs, financiers, and entertainers raking in tens or hundreds of millions of dollars in a single year, that society would be markedly less unequal than our current one.

I put poverty in scare quotes because its clear he’s not talking about Dickensian/sub-Saharan African poverty, but a relative sort. Its true that I like it better, and apparently so does Kenworthy, when the folks in my community consume at a similar level of quantity and quality as me, but that they don’t isn’t necessarily, in such a rich society, a sign that they aren’t able to do so. People that aren’t me have weird tastes and that drives them to do weird stuff that I wouldn’t do. They’re not poor because of it, just weird. And any case, what does “poverty” or poverty have to do with inequality?

6 thoughts on “That was dissappointing”

  1. Thanks for the link Mike. If prices are falling then real incomes are rising, I’m not sure I understand why that’s a substitution effect. The point is that if the stuff people buy is cheaper (in general) then people are richer.

    Is your point that “autonomy” increasing goods are getting more expensive? Perhaps you need to do a Broda and Romalis and build a price index but weight for autonomy-increasingness. Is there some objective measure of autonomy-increasingness? You might be on to something; education and health care have gotten more expensive (but have their autonomy-increasing components?).

  2. Yeah, thanks for pointing that out. I removed that section – I’m willing to concede the price-index for poor versus rich argument (though I should visit that someday critically), since the other points I want to bring up still stand.

  3. Yeah, I’ve never heard the autonomy point articulated very well. Also, its relationship to income inequality isn’t obvious to me.

    Your use of finance to show increased riskiness of households is interesting, too. I need to look at what you did more closely, but I was under the impression that all risk models are consumption models at base. Risk, or at least the kind households care about, is just the covariance of consumption with the discount factor. Households may be taking on higher default risk so they can smooth consumption further. So that sort of risk might not translate into the kind of risk households care about.

    I don’t know the Merton model, but I suspect even there higher default risk isn’t always bad. Start-ups have high default risk, but we think giving them resources is a good idea.

    Forgetting models, though, isn’t important to keep in mind there’s two parties to this increased debt of households? I assume banks know they’re leveraging up their customers.

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