With the United States’s electoral season in high-swing, income inequality is sure to be a hot topic not only in academic circles, but also on the political stage. In his recent article, Ten Observations About Income Inequality, Dan Shaviro uses his trademark incisive style to pack some important insights into a quick read. For those who have thought a lot about income inequality, as well as for those who haven’t, it’s definitely worth taking a look at Shaviro’s new draft article.
Observers of the recent, important discussions regarding income inequality know that there is an empirical debate about how much income inequality in the United States has changed in recent decades. Thomas Piketty, Emmanuel Saez, and Gabriel Zucman have famously used U.S. tax returns to identify great increases in income inequality in recent decades, resulting in a concentration of income in the top 1%. However, recent work by Gerald Auten and David Splinter (which was later disputed by, among others, Piketty, Saez, and Zucman) argues that high-end income inequality is actually lower than we previously thought, and that government transfers and tax progressivity have yielded real rises in income for all income groups.
Shaviro’s article takes a step back from this empirical debate to probe what we mean when we talk about income inequality. For instance, Shaviro notes that attempts to offer one, discrete measure of inequality (for instance, through the Gini coefficient) fail to capture different types of inequality or explore why we should care about some types of inequality versus others. Very disproportionate income by the highest income individuals (whether the top 1%, or some other grouping) might pose particular problems in terms of control of the political system and threats to democracy. On the other hand, there are good reasons we might care in particular about the income of the least well-off. Perseverating about income inequality at the high-end would fail to capture these concerns.
Shaviro also notes that conventional economic approaches to inequality may fail to capture important realities of how people actually experience inequality. In this regard, the traditional economic concept of declining marginal utility of income is supposed to explain why we might want to take from people who have more and redistribute to people who have less: declining marginal utility of income suggests that those with lower income will value the income to a greater extent. But, as Shaviro observes, the sterile theory of declining marginal utility of income fails to account for interpersonal realities, like the high social costs of others having more than you. Oftentimes, these concepts would move in the same direction. But the concept of declining marginal utility of income doesn’t capture the irrational pain that people experience when they end up with slightly less than others they compare themselves to, even if they have relatively high income. What this means in terms of policy prescriptions is not always clear—but it does underscore that bare facts about inequality can only start a conversation about how income differences affect society. Likewise, Shaviro identifies important, practical considerations—like sharing within families, and changes in income over time, that make much more complicated attempts to measure income inequality across a society.
Perhaps the observation of Shaviro’s that I found most compelling was how general discussions of income inequality often fail to examine the extent to which mobility is part of the story. Shaviro suggests that we should probably feel differently about a society that has high income inequality, but high likelihood of mobility relative to income group at birth, relative to a society that has income inequality paired with little to no mobility. Building on this insight, we should probably feel even worse about a combination of high income inequality and low economic mobility if the income inequality and lack of mobility correlates greatly with immutable characteristics such as race. The nature of the problem here would not just be economic, but rather deeply social and political.
At bottom, Shaviro’s article, while short, manages to push readers to think deeply about what, exactly, the problem is with income inequality. As Shaviro acknowledges at the end of the piece, there certainly is not only one answer to this question. And many have engaged with it through many different lenses over the years. Shaviro’s take is worth a read both because it helpfully summarizes important considerations from this discussion (like interpersonal realities) and because it crystalizes others that have received less attention (like how the prospect of mobility should affect how we feel about inequality). As a result, Shaviro’s short piece is both a useful primer for newcomers to this important topic, as well as engaging read for careful students of it.
