Monday, January 20, 2020

What is Income Inequality?

What is the opposite of income inequality? It certainly can’t be absolute equality of income. Without being more specific, how can the term mean anything?

For years we have heard about goals like clean water and clean air. The US has been moving in the right directions. According to the EPA, “Since 1970, implementation of the Clean Air Act and technological advances from American Innovators have dramatically improved air quality in the U.S.  Cleaner air provides important public health benefits.” Follow the link to find a graph of nine measured pollutants, excluding CO2. It shows a downward trend since 1990 for all, excluding unusual events like dust storms and wildfires. Overall, pollutants have dropped significantly despite the fact that “Americans drove more miles and population and energy use increased.”

All the pollution levels dropped below a line labeled “Most Recent National Standard” as of five years ago. Note that there is a standard that defines an acceptable level of particles in the air. Totally pure air is not a practical or realistic goal.

Similarly, the 1974 Safe Drinking Water Act “resulted in major changes in the way drinking water is managed and treated in the United States, and it achieved substantial measurable benefits in risk reduction and public health protection.”

On a side note, these facts do not seem to sway Americans influenced by media reports designed to stimulate concerns about hypothetical risks related to drinking water. A survey from 4 years ago showed that 56% of Americans “were concerned or very concerned about their tap water, 77% were regular users of bottled water, and 43% used some type of home treatment device.” The water industry and regulators have their work cut out for them figuring out how to promote acceptance and confidence in public drinking water supplies “and to maintain the public’s support for needed improvements.”

Once again there are measurable standards. Customers of public water systems receive a report from their water utility every year showing how the water supply measures up to various standards. Again, absolute purity is unachievable.

The same is true for lakes and rivers. “Human health ambient water quality criteria represent specific levels of chemicals or conditions in a water body that are not expected to cause adverse effects to human health.” 

Applying this to income inequality leaves critical thinkers puzzled.

The news media emphasizes stories about the shrinking middle class. “A graph from Reason, however, shows that about 50 years ago, 53 percent of people were middle-income, making between $35,000 and $100,000 per year. Although that statistic has since fallen to 42 percent, the reason [behind the change] is that many people moved into upper-income brackets. The share making more than $100,000 rose from 8 percent to almost 28 percent. (These numbers are inflation-adjusted.)” It’s shrinking, but not in the direction the news media and politicians imply.

Stories about income inequality don’t mention this information. Instead they attempt to stir up envy toward the super-rich, at least some of the super-rich. Notice that the emphasis is always on bankers, CEOs and hedge fund managers, not on sports stars, celebrities, Internet influencers or software developers. We are supposed to be irate that some people are rich, undeserving jerks, but others deserve wealth because they entertain us. Often the people who report these stories are rich themselves.

Furthermore, the evidence that income inequality negatively effects economic growth or social mobility is based on correlation, and, as every student of statistics knows, correlation does not mean causation. Whether or not income inequality is a drag on economic growth remains debatable.

But beyond that, it makes no sense to get upset about income inequality until it is defined and a goal it set. Anything that can’t be measured can’t be said to improve (or get worse). With no goal, there is no definition of victory. (This can also be said about so many other vaguely defined points of contention such as diversity, sustainability, and social justice.)

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