Tim Harford: Why Inequality Matters

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There is an excellent commentary on inequality by Tim Harford, who writes the “Undercover Economist” blog for FT. It’s good to see this troubling issue continue to get attention, and this is a balanced argument for why this must be a priority for us going forward.

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As Harford notes:

In a well-functioning market, people only earn high incomes if they create enough economic value to justify those incomes. But even if we could be convinced that this was true, we do not have to let the matter drop….

I set out two reasons why we might care about inequality: an unfair process or a harmful outcome. But what really should concern us is that the two reasons are not actually distinct after all. The harmful outcome and the unfair process feed each other. The more unequal a society becomes, the greater the incentive for the rich to pull up the ladder behind them.

At the very top of the scale, plutocrats can shape the conversation by buying up newspapers and television channels or funding political campaigns. The merely prosperous scramble desperately to get their children into the right neighbourhood, nursery, school, university and internship – we know how big the gap has grown between winners and also-rans.

Miles Corak, another contributor to the JEP debate, is an expert on intergenerational income mobility, the question of whether rich parents have rich children. The painful truth is that in the most unequal developed nations – the UK and the US – the intergenerational transmission of income is stronger. In more equal societies such as Denmark, the tendency of privilege to breed privilege is much lower.

This is what sticks in the throat about the rise in inequality: the knowledge that the more unequal our societies become, the more we all become prisoners of that inequality. The well-off feel that they must strain to prevent their children from slipping down the income ladder. The poor see the best schools, colleges, even art clubs and ballet classes, disappearing behind a wall of fees or unaffordable housing.

The idea of a free, market-based society is that everyone can reach his or her potential. Somewhere, we lost our way.

I agree completely and believe that more than Obamacare or privacy debates, this is really a life and death issue for the American democratic experiment (and let’s not forget that, in global terms, this country is a young one and not necessarily destined to survive). Anyone who, like me, was born in Latin America knows how the inequality movie ends, and that fate, the wealth and power of the US in the hands of 100 or 1,000 families, would be a tragic outcome to this noble place.

FT subscribers can read the full piece here:

http://www.ft.com/intl/cms/s/0/4dc7ab46-0424-11e3-a8d6-00144feab7de.html#axzz2cKBTCRvE

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