13 Apr 2009

We are Unequal -- and Staying that Way

The provision of water is often put in the context of social equality, justice and rights. Put differently, water provision should not reflect differences in incomes as much as similarities in humanity. In this recent survey of the rich (!), the Economist gave some important context to the debate and facts on social mobility and inequality, i.e.,
Leaving aside the moral issues, does inequality have any economic benefits? In the 1970s it was argued that high taxes had reduced incentives and thus economic growth. Entrepreneurs had to be motivated to build businesses and create jobs. But extensive study by economists has found little correlation, in either direction, between inequality and economic growth rates across countries.

One argument advanced in America is that wide income disparities might encourage more people to want to go to college, thus creating a better-educated workforce. But Lawrence Mishel of the Economic Policy Institute points out that several societies that are more egalitarian than America have higher college enrolment rates.

There might also be an argument in favour of wealth disparities if social mobility was high and the sons and daughters of office cleaners could fairly easily rise to become chief executives. But America and Britain, which follow the Anglo-Saxon model, have the highest intergenerational correlations between the social status of fathers and sons; the lowest are found in egalitarian Norway and Denmark. Things are even worse for ethnic minorities; a black American born in the bottom quintile of the population (by income) has a 42% chance of staying there as an adult, compared with 17% for a white person.

As a result, talent is being neglected. Of American children with the highest test scores in eighth grade, only 29% of those from low-income families ended up going to college, compared with 74% of those from high-income families. Since the better-off can afford to keep their children in higher education and the poor cannot, breaking out of the cycle is hard.

Perhaps Americans put up with this system because they have unrealistic expectations of their chances of success. One study found that 2% of Americans described themselves as currently rich but 31% thought that they would become rich at some stage. In fact only 2-3% of those in the bottom half of the income distribution have a chance of becoming very well off (defined as having an annual income of more than $340,000). Just over half of those earning $75,000 a year think they will become very well off, but experience suggests that only 12-17% will make it.

Health outcomes too are decidedly unequal; the gap between the life expectancy of the top and bottom 10% respectively rose from 2.8 years to 4.5 between 1980 and 2000. That does not meet the definition of a fair society by John Rawls, a 20th-century philosopher, who described it as one in which a new entrant would be happy to be born even though he did not know his social position ahead of time.
I am an admirer of Rawls' version of social justice and his implications for policies. (My "some for free, pay for more" motto is NOT means-tested.)

We all "know" that the US has greater income disparities than the Europeans. What we have assumed is that such inequality is a price to pay for greater wealth generation (rewards to entrepreneurs, etc.) and that everyone has "their chance" to make it. Although we have well-known examples of rags to riches (Brittany Spears, Michael Jordan, et al.), the data indicate that these stories are more anecdotal than representative.

Where am I going with this? I guess that I am a supported of "spreading it around" through higher-quality education, access to health care, etc. Equal opportunity in those two areas would be a good place to start.

(The case with water policy is similar -- we need less of the policies that deliver cheap water to billionaires in Vegas and more of the policies that guarantee a certain flow to every HUMAN, avoid rationing, and "soak the rich" -- if the rich indeed soak their lawns...)

My first two reforms on education and health care, btw, are to instill competition (via vouchers) in education and make healthcare portable (move employer-provided insurance to the individual).

Bottom Line: A society shall be judged by the status of its least-prosperous.


  1. The healthcare situation in this country is too frightening to think about, but pain is a strong motivator. Not having insurance can become a death sentence to people over fifty but under 65 and ineligible for medicare. But mention universal healthcare like they have in Canada and Europe, and you are branded a "socialist" or "communist". The whole problem is the insurance industry, profiting on illness and injury so much that they will go to the wall defending their system. It is battle impossible to win, for precisely the reason outlined: haves and have nots. American healthcare costs are quadruple of India and Thailand, which have modern facilities and perform procedures (like knee replacements for $15,000 that cost $75,000 for the identical procedure and therapy in the states). To self insure in the US you would have to earn at least $200,000 a year, but to qualify for state assistance, you have to earn less than $17,000 (as of last year, this year they aren't accepting new enrollment due to budget cuts). Now that's a disparity the little guy just can't overcome. Just when people are losing their jobs and insurance if they were lucky enough to have benefits, the state cuts health programs. DZ says: "I guess that I am a supported of "spreading it around" through higher-quality education, access to health care, etc." Besides the typo, David means a little "socialism" mixed in with the Capitalism would be a good thing. Canada and Europe look at America and wonder what is wrong with our government. What's wrong is the Republican tax revolt that dominates all phases of politics. Taxes are much higher in Canada and Europe, but the disparity between haves and have nots, as far as healthcare goes, is small. And employers don't have this immense burden of financing a health insurance industry that has become a greedy pig. The employers in our area have seen a 12% increase in health insurance costs annually since the early 90's. A premium of $42 has risen to $520. And the coverage sucks. The health insurance companies have built huge corporate campuses and pay their CEOs outrageous salaries and bonuses akin to Wall Street investment bankers. If water is ever doled out the way healthcare is, those of us in the lower middle will surely die of thirst.

  2. @FMF -- we are already socialist (besides medicare, we also have progressive income taxes, "freeways," etc.)

    My main concern with healthcare is the missing link between doctor and patient. Putting TWO parties in between (employer and insurer) is a recipe for disaster. I'd get rid of one (employer), but we can do with insurance. Note that "employee pays" would cause massive upheaval -- we'd all shop MUCH harder if we had to pay the premia... (I am a fan of catastrophic insurance -- I pay all the expenses to $3500; they pay the rest.)

  3. I carried catastrophic (high deductible major medical) insurance when I was under 40, and it never paid for any of the broken bones from my crazy outdoor activities because in the 80's it was fairly cheap for X rays and casting and I never hit the high deductible. Now that I'm over 50 nobody will touch me for less than $550 a month for lousy coverage. (Really lousy--HMO no specialists, no dental, no vision, just primary care and all those stupid tests). I can better use the money to cover my own very infrequent trips to the doctor and always refuse the expensive tests they think people over 50 MUST have. I think a lot of medical care is just a waste of money, and they sure put on the hard sell. The best thing we can do is eat healthy (preferably home grown), whole foods, exercise, don't smoke (cigarettes), drink lots of water, and don't overdo the booze. I can do more for myself with prevention and lifestyle than any doctor, pharmaceutical, or insurance company. The only thing I'd avail myself of if the US did go for universal healthcare or I miraculously got a job with good insurance would be the knee replacements! The rest is just good "maintenance".


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