25 December 2007

A Little Callousness for the Holiday Season

"This is not to deny that income inequality is rising: it is. But measures
of income inequality are misleading because an individual's income
is, at best, a rough proxy for his or her real economic wellbeing.
Because we can save, draw down savings, or run up debt, our
income may tell us little about how we're faring."

This passage is from a recent article in The Economist entitled "The New (Improved) Gilded Age" and it is interesting from a number of perspectives. The first is that the folks over at The Economist start out by conceding the basic point - over the past three decades income inequality has increased sharply in the U.S. and it continues to do so. So, it is nice to have that settled.

The second interesting point is that the authors attempt a bit of slight of hand insofar as they do not mention the truly troubling matter - increasing inequality of wealth. For many, many people in the U.S. there are little or no "savings" to draw down during hard times. Arguably the mal-distribution of wealth in the U.S. says even more about "how we're faring" than does income distribution.

Third, living off of credit is a dangerous strategy in the short term and an easy route to bankruptcy in the medium term. (Of course the recent bankruptcy "reform" worked out to the benefit of creditors who already act in many duplictous ways.) One might well find (this is speculation) that the current mortgage disaster in the U.S. has been generated in considerable part by people trying to finance inordinate consumption by speculating on the equity in their homes (a "creative" form of debt).

So, it seems to me that The Economist essay is pretty much worthless. The authors were writing in reply to Paul Krugman who has, in turn, offered this retort - "Inequality Denial." Krugman basically counters the claims, pressed in The Economist essay, that consumption inequality is not as bad as it might seem. He seems pretty persuasive to me on all counts - especially on the point that it is possible to both recognize that many (but I would hold, hardly all) of the poor are better off than their counterparts were a century ago and find current patterns of ecconomic inequality wholly deplorable.

So, here is a very practical challenge to the folks at The Economist - you can have your choice between the divergent packages of goods you attribute to the weathy and the poor in your essay. You can, in other words:

Drive your used Hyundai Elantra to shop for groceries at Wal-Mart, bringing them home to an IKEA Energisk B18 W (assuming similar accoutrements throughout the suitably matching apartment) ... of course you must do your purchasing of food and everything else on a budget set by the median income for a faimly of four ....


Drive your new Jaguar XJ to shop for groceries at Whole Foods, bringing them home to a Sub-Zero PRO 48 (assuming similar accoutrements throughout the matching house), ... and you have a very loose budget constraint for food and all other goods because you are among the decile of the U.S. income distribution ...

It is your choice folks! Notice that I've been generous, since our "poor" do not approximate the median income. And their consumption is therefore even more constrained than what I sketch here. And if you really believe that "in America the relatively poor suffer no painful indignities"* explain why you choose (as you will) the 'nicer' of the packages which on your account are different only in "well nigh undetectable" ways.

If you don't like that prospect, try taking a job at WalMart. Or think about how the "relatively poor" have fared in the wake of say, Hurricane Katrina. And think about what happens to the relatively poor when, with little or no wealth, their precarious income streams are threatened or cut by man-made disasters like the Hurricane or the mortgage let-down, to say nothing of mere plant closings or layoffs. Then talk about indiginities and who suffers them.
P.S.: Thanks to Mark Woods at Woods' Lot for posting the two essays.

* (Added a bit later) Perhaps the folks at The Economist might explain to the people descibed in this story about dental hygiene among the poor in rural Kentucky that they are suffering no real or imagined indignity. If anything this sort of situation is less excusable now than it might have been in 1907.

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Anonymous improbable said...

I think you and the Economist are talking past each other.

You're saying that being poor still isn't great, being rich is much nicer. Sure.

They're saying that the numerical ratio of incomes isn't a good indicator of relative material wealth, essentially because of diminishing returns. Each doubling of income above subsistence returns less improvement in living than the last. Having ten times a labourer's wage today doesn't buy you nearly the same contrast that it did in 1900.

25 December, 2007 20:09  
Blogger Jim Johnson said...

You are correct about what each are saying. But my main point is that their argument, such as it is, basically amounts to “bullshit” in the technical (Harry Frankfurt) sense of the term. They are trying to divert attention from inexcusable realities by saying “but if we only look at another indicator and take a very, very long term view, things are not so bad.” I simply don’t by that. We do not live in the very, very long term (you will have heard Keynes’s appropriate quip). That is among the points Krugman makes in his retort. But in the end the attempt change the subject is just a shoddy excuse for not having a real clue about the actual problem.

Bing poor sucks; it is humiliating and debilitating even if this is not 1907. Two things seem relevant to me:

(1) None of the authors of that piece in The Economist (nor any reader of the journal) would opt for the first of the packages I offered.

(2) One thing that Katrina revealed is that there are large numbers of people in the U.S. today who are living in “third world” conditions. They may not be much better off than those who inhabited New Orleans in 1907. (And it is not just New Orleans or Urban “ghettos” where his is the case; see for instance this recent story in The Times about dental problems in Kentucky - http://www.nytimes.com/2007/12/24/us/24kentucky.html?_r=1&oref=slogin.)

In other words, the folks at The Economist are clueless about contemporary poverty in the U.S. and demonstrate an incredible level of hypocrisy and callousness in displaying their ignorance.

25 December, 2007 23:28  
Anonymous improbable said...

Thanks for the reply, Jim.

I read the article more as an attack on all those who say "new gilded age" on the basis of income figures. They are using the term to make an incorrect comparison with 1900, normally with the goal of pinning blame on Bill Gates & friends.

But I agree that poverty is a deadly serious problem. I've recently moved to the US from what I suppose counts as the third world, and am astonished how much there is. I read that Kentucky article with horror.

I believe there's more than money to poverty too, which adds to my feeling that the golden age stuff is a red herring. "Humiliating and debilitating" is about right. Trailing along with a friend who teaches in poor schools was an eye-opener, it seemed a topsy-turvey world in which they can afford cars and fancy cellphones but don't read books, and don't care, and I don't really have a clue what to do. In 1$/day countries it's easy to imagine that if only they had what is unaffordable, meals and books and chairs, that would help.

(I do know some economist readers who've chosen something like your second option. Not by working at walmart but by choosing to live in a poorer country, where the university doesn't pay them much. And some guardian readers who live very well indeed!)

26 December, 2007 00:51  
Blogger Jim Johnson said...

Point taken. Hypocrisy is not solely a trait of the right-leaning. There is planty among lefty types too!

Thanks for the comments.

26 December, 2007 11:05  
Anonymous Dawei from Beijing said...

While the Economist writers admittedly come off as insensitive assholes in their article, they, in my opinion, make a valid argument. Their central point is that contemporary purchasing power allows even lower income earners to enjoy a lifestyle of material abundance. On that note, I can sympathize with their discrediting of comparisons to The Great Depression or The Gilded Age.
With today's low cost products made in Asia, and mega retail outfits like Walmart, providing plenty of extremely cheap stuff, even a family living on 40k will have 2 TVs, a DVD player, a Nintendo Wii, a stocked fridge, etc, etc. Not to mention the fact that people can, yes, save, invest, and borrow generously if they choose to. I agree that in the area of heath care there is a real and urgent crisis that needs to be addressed, but this issue is not necessarily related to income. Even people who make upwards of 100K face problems with health care because they depend on a broken system that places all the burden on the employer. When professionals switch jobs, or quit, they're fucked just like everyone else.

Jim, your suggestion that it's an injustice that some people have to shop in a normal supermarket and drive a simple Honda while others can shop in Wholefoods and drive a BMW is to imply that nicer material things somehow equate with more "happiness" or a higher quality of life. This is a dubious notion. Krugman makes a similar point by quoting from the book Richistan as part of his rebuttal but he obviously didn't read the whole thing. In the end, the book concludes that the uber-rich folks are just as depressed, miserable, and insecure as everyone else, maybe more so. So what if some people can afford nicer brands, or apts in trendy places. Is that what it has come down to? Calling injustice because some people wear Prada sunglasses and some people wear a generic $10 pair? In the end they both have sunglasses that protect their eyes from the sun. One is more stylish, big deal.

Finally, I'm not suggesting that there are no desperately poor people in America, they exist. However, the Ninth Ward scenario is a far cry from the typical American family, and clearly not the demographic the Economist is discussing. Also, allow me to be a little bit un-PC here, but a lot of lower income families would do a lot better for themselves if they weren't the consumerist tools that they so obediently are. If people just saved their money and invested it wisely, their situation would improve dramatically. The fact that lower income people are the primary customers in malls across America, and are collectively charging up hundreds of millions of dollars a year on name brand clothes, iPODS, videogames, etc, on their credit cards, surely places some of the blame on them.

26 December, 2007 14:04  

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