Income inequality and ethical philosophy

On today’s Slate Political Gabfest (direct link, and the general Slate podcast page) there is a discussion of income inequality, and, while interesting, it’s also fairly frustrating. It’s interesting because it’s a complex issue that lots of people seem to care about.

And it’s frustrating because income inequality is irrelevant to pretty much everything that actually matters.

This is related to the complexity, at least in part. How do you measure income inequality? Do you only count pre-tax or post-tax income? Do total assets matter, or is it just yearly earnings? It wouldn’t surprise if the whole vexing issue remains unresolved, and unresolvable, for the foreseeable future, if only because a case can be made for any of a number of “correct” ways to even define the quantity of interest.

But the irrelevancy goes much deeper than this, for what I would have hoped are obvious reasons, namely that income inequality per se isn’t inherently good or bad.

When people cross the US-Mexico border looking for work on farms in the US, income inequality almost certainly goes up. Would people leave their families and travel thousands of miles for what seem to many American citizens to be awful jobs if these jobs weren’t an enormous improvement over their options at home? The well being of everyone already in the US stays constant (or arguably improves) when people come here to work, and the lives of the people coming here to work clearly improve, at least monetarily, yet income inequality goes up. Hence, greater income inequality is not necessarily bad.

Now consider an extreme (and less topical) example in the other direction. Income inequality was essentially zero in the stone age, because no one had much of anything. If going this far back doesn’t convince you, pick a more recent example. Sort the wikipedia table of income inequality by your measure of choice and note, for example, that income inequality is substantially lower in Kazakhstan than it is in New Zealand. I don’t have anything in particular against Kazakhstan, but I’d much rather live in New Zealand. The fact of the matter is that if everyone is poor, or if everyone is wealthy, income inequality is low. But one of those two  scenarios is clearly, unambiguously preferable to the other.

The problem, mathematically speaking, is that income inequality – a difference or ratio of incomes – isn’t pegged to any absolute location on the income scale. This gets hinted at and skirted around in discussion of this issue, but it rarely gets talked about directly. And it’s crucially important.

It hadn’t occurred to me before this morning, but this all maps (imperfectly) onto two schools of thought in ethical philosophy, namely utilitarianism and Kantian ethics. A quick disclaimer: It’s been a long time since I read about either of these in detail, so please forgive me (and correct me in the comments) if I get anything wrong.

It occurred to me today that the argument for income inequality being bad per se is at least partially, if indirectly, utilitarian. Income inequality is bad because the top X% of people have Y% of the money, which, by definition, means that the bottom (100-X)% of people only have (100-Y)% of it. Which is to say, in part, that the bottom (100-X)% are less happy than they might be otherwise, reducing overall utility, etc., etc…

This is a bad argument, even if you are a utilitarian, and it’s directly related to the reasons described above: Income inequality is ambiguous with respect to the overall absolute level of wealth, so to the extent that wealth is happiness/utility, inequality doesn’t even measure what the utilitarian wants to be able to measure.

We can make this more concrete by putting it in the context of the financial system meltdown, which is one of the main reasons that this is a hot topic right now. What is morally wrong with the events of the subprime meltdown, the failure of giant investment banks, and the subsequent government bailouts? Is it that income inequality increased? Or is it that many, many people have been treated as a means to an end rather than as individuals with inherent moral worth? The latter all too often gets short shrift, but it seems to be the crux of the matter.

The financial instruments developed to exploit subprime mortgages at the heart of the meltdown weren’t morally reprehensible because they changed income inequality. They were morally reprehensible because information was withheld and people were knowingly deceived.

Similarly, the bailouts aren’t morally questionable because wealthy bankers and CEOs got to stay wealthy while the huddled masses stayed poor(er), but, rather, because the taxpayers footing the bill had no say in the matter. The moral problem here is that the people paying for the bailouts were (and continue to be) used as a means to a dubious (in my opinion) ends.

The problem here isn’t the fact that people got rich or stayed rich when we might have expected them to lose their shirts, it’s how they got rich and how they didn’t get penalized when they should have.

And this isn’t restricted to the financial crisis, or to wealth and income, really. Policies and cultural norms – economic or otherwise – aren’t morally problematic if they change some (questionable, ambiguous) numbers, they’re morally problematic if they rely on the the suppression of moral agency.

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