Poverty and Inequality, Redux

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Kevin Hardwick of James Madison University, one of the site’s thoughtful commenters, called my attention to an op-ed in Politico making the case for a causal link between inequality and poverty. Its author is John Podesta, founder of the Center for American Progress, which hosted President Obama’s recent address on inequality, and soon-to-be White House staffer.  Podesta argues, modestly, that “we don’t know nearly enough about what inequality means for economic growth and stability,” but the name of his new organization—the Washington Center for Equitable Growth—suggests some conclusions. The op-ed does not prove them. Instead, it offers the same conceptual confusion—not only unproductive but counter-productive—I discussed in a recent post on this topic.

The argument I made there, briefly, was that poverty and inequality are separate phenomena and that the solutions to the former—like education—are likely to exacerbate the latter. Poverty is an objective condition characterized by human need, inequality a relative one that tells us nothing about how the parties being compared actually live.  It turns out, for example, that the Bay Area in California has among the highest Gini coefficients in the country. What follows is a testable hypothesis and hence is proffered with requisite diffidence, but given the amount of high-tech wealth in that region, might the inequality have less to do with a gap between rich and poor (though one surely exists there) than with a chasm between the haves, the have-mores and the have-tons?

That makes a difference, of course, because a gap between millionaires and billionaires need not concern us. A gap between rich and poor ought to only because poverty stands on one side and resources that might address it stand on the other. (Joseph Raz: “The wrong is poverty and its attendant suffering and degradation, not the inequality. But the inequality is an indication that there may be resources which can be used to remedy the situation.”[1]) Inequality, in other words, is not intrinsically unjust; indeed, the most generous effort to redress poverty would still leave inequality intact if not, again, intensifying it.

The exception, of course, would be some evidence that the existence of wealth causes poverty, which would be deducible only from a zero-sum conception of economics that was conclusively debunked in 1776. Podesta demonstrates no causal link, instead simply shelving these phenomena alongside one another for display:

Ninety-five percent of income gains since 2009 have gone to the top 1 percent of earners. In 2012, the top 10 percent took home more than 50 percent of the nation’s income—a record high. After a brief period in the late 1990s during which incomes rose across the board, median wages stagnated during the 2000s, and have remained depressed during the economic recovery.

The first sentence reflects the distorted uses to which statistics can be put: The bulk of gains are always going to have gone to the top since one gets to be the top in the first place by getting a large amount of gains. The second is based on the zero-sum fallacy, the notion, as the Friedmans put it, of a fixed pie in which one person’s larger slice must mean a smaller portion for somebody else. It is only the third sentence that describes an objective problem.

Next Podesta makes his move: “These trends are aided and abetted by a dominant narrative defining how the economy grows. … Economic growth is driven by the wealthy few, who make investments, build businesses, and create jobs….”  Now, it is obviously true—one doubts Podesta denies it—that a good number of those to whom economic rewards accrue do create jobs and wealth that others reap. But he is also assailing a man of straw. The relevant claim is not that inequality causes growth (although other things that cause inequality might also cause growth) any more than that it causes poverty.  The issue is that inequality and poverty are separate phenomena. One supplies little information about the other.

The only information, again, that the degree of wealth supplies is the extent to which resources are available for relieving—alleviating, in Theodore J. Lowi’s formulation, not eliminating—poverty. Those who prefer that this relief be generous ought to be the first to line up behind policies that assure the financing for it. Society is morally bound to address poverty. How best to do so is open to robust dispute, but inequality, of itself, is simply an irrelevant datum in this debate.

[1] Raz, Morality of Freedom, (Oxford: Clarendon Press, 1986), 229.