Good thing he has a second job.

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Debate: What Kind of Inequality Matters?

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Inequality has emerged as a contentious issue since the financial crisis, and it figures prominently in the presidential campaigns of both political parties. Bloomberg View columnists Megan McArdle and Noah Smith try to make sense of it and figure out what, if anything, should be done.

Megan: What sort of inequality should we care about? Wealth inequality, income inequality, inequality of opportunity, inequality of mobility -- these tend to get lumped together. No amount of fair opportunity will produce similar outcomes for two different people. This tends to get ignored, because it's inconvenient for both sides. 

So what kinds of inequality should we talk about? And what kinds should make us shrug and say, "Yeah, well, life's rough sometimes"? 

Noah: We -- policy advisers, writers, the government -- should care about what people care about. If people are upset that women soccer players get paid less than men, we should try to do something about it. If people are upset that most of the income gains over the past three decades have gone to people at the upper end of the distribution, then we should try to do something about that. Popular sentiment should be our guide here.

But there's generally a trade-off involved -- make your society less unequal, and you might distort it in ways that also make everyone poorer. We have to balance those kinds of considerations. I'm just saying, if people care about some kind of inequality, we shouldn't ignore it.

Megan: There's a lot to agree with in that, but let me suggest a few problems. First, what does it mean to say "We should care if people are upset"? Some people ARE upset that woman soccer players make less than male soccer players. Those people probably spend a lot more time thinking about it, and being upset by it, than the vast majority of people who don't care -- and wouldn't think about it even if you told them they ought to.

Probably in 1900 most people didn't care about the grotesque inequality between whites and blacks, but we say they should have done something anyway. As an empirical description, the majority didn't care, and we didn't do much about it.

The other question I'd ask is whether the vast majority of folks really do care about inequality very much. I don't think they care about it in the way that upper-middle-class elites do. For them, it's always about the upper 1 percent. But most people don't care whether Warren Buffett is rich. They care that they feel shut out of their local economy.

Noah: First of all, let me say that most black people certainly DID care a great deal in 1900 about racial inequality. And if a policy is causing a minority a huge amount of pain, I'd say we need to deal with that.

But telling people not to care about inequality just makes the whole job harder. Telling people to "just deal with it" makes them shut up, but it doesn't make them stop caring.

Megan: In my circles, and in my reading, virtually no one is saying we shouldn't care about inequality. Most articles on inequality are about how terrible it is, and so is most of the conversation I hear.

But let me lay my priors on the table:

1) I don't particularly care about income inequality, and I especially don't care about the 1 percent. The 1 percent makes life a little harder for folks like me, because in a flatter income distribution, I'd be more competitive for things like bigger houses. But this isn't a very large social problem.

2) I do care a lot about what you might call socioeconomic hollowing out -- that is, the distance between the bottom and the middle and upper-middle class. I think that's just enormously destructive in a number of ways, starting with broad social cohesion and labor mobility.

3) I am as uninterested in wealth inequality as I am in income inequality. I think the evidence that the very wealthy disproportionately affect politics and policy with their wealth is pretty slight, and I don't think it has much to do with the problems faced by folks lower in the income distribution, either. Redistributing the Walton family fortune would do little to nothing to make people better off in the long run, or even the short run.

4) I care hugely about inequality of opportunity and mobility.

5) And I also care a great deal about something that's not income inequality, but often gets lumped into it: the basic condition of the worst-off in our society.

Noah: What you care about might not be the same as what other people care about. Just because you're not worried about the 1 percent doesn't mean that Americans as a whole think the same.

One thing I care about a lot is inequality of social status. I don't like seeing some people lord it over others. My first real encounters with status disparities based on income or wealth didn't come until I moved to New York in 2012. It was really jarring to see rich people segregate themselves from poor people, refuse to date poor people, and get way more attention and respect than poor people. That increased the degree to which I cared about economic inequality. Now would government redistribution fix that? Maybe.

Megan: This is a really interesting point. I grew up in New York City in the 1970s, when it was much more equal. And yet there were still these vast disparities in status. Does income inequality actually drive status inequality? Or is it a proxy for other things? I doubt the head of General Electric today is more powerful and respected than the head of GE in 1955, even though the current head makes a whole lot more money.
QuickTake Income Inequality

Noah: So what should we do about inequality? Heavy tax-based redistribution is not going to have a huge effect on status inequality. I still favor some amount of redistribution, because I don't want to see people on the bottom of the distribution in hardship. I want them to be in good health, have quality shelter and have all the nutritious food they need, as well as be able to get around their cities on public transit.

In general, massive redistribution isn't going to fix the problem of status inequality. But I am appalled by the vastly greater status given to rich people in America, especially in places like New York. I want to make working-class and lower-class people feel good about themselves, in addition to having the aforementioned material security. But I don't know how to do this.

Megan: I am also aesthetically disquieted by what New York has become. Sadly, I also have no good solutions to the sort of inequality I do worry about -- the social distance between the credentialed caste and everyone else. I am convinced this does enormous damage to our society.

Everyone likes to harken back to the golden era of the 1950s. We don't really know why that ended, but one possibility is that it was simply a very fragile temporary state that couldn't last. So wherever we start looking for answers, we should make sure that we're not looking at a brief golden moment just before the whole thing collapsed of its own internal contradictions.

Noah: I agree that world conditions change, and we need to be prepared for that. That also illustrates a weakness of redistribution as a strategy for fighting inequality. But as gross domestic product increases and our society gets more wealth, we should probably worry less about the costs of redistribution. So we might as well try it.

And in the meantime, we should think about other ways to transform our society, not back into a 1950s society, but into a new, egalitarian culture that is better than anything we have seen in the past or present.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the authors of this story:
Megan McArdle at mmcardle3@bloomberg.net
Noah Smith at nsmith150@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net