Friday, March 23, 2012

Budget Committee Inequality Report: Relative Inequality vs. Well Being

I'm going go through the rest of this report section by section.

This section is mostly an attempt to change the conversation. The problem with inequality is that there is a feeling that people are becoming increasingly unable to compete with the elite. The problem is that the price of goods being bought is diverging. Ryan tries to make it sound like it is absolute gains that are the problem and that the diverging costs mitigate it. But the reason that people are feeling pressured is that it is becoming ever harder to buy a house that will get one's children into a good school system, to get kids engaged in enough activities to get into top schools (how many parents try to send their kids on study abroad to get into a good college? how many feel they can't compete because they can't afford to do this?), and that the uncertainty of retirement and health care means that it is impossible to take any risks, even if there is a chance they might pay off.

Ryan's attempt to change the conversation to absolute well being just shows how out of touch he is. Movements like Occupy Wall Street, and the general chatter that comes up on blogs and the news, are attempting to send a message to our lawmakers about social anxiety. The fact that the family now has a Playstation doesn't make up for the fact that they now feel they are locked out of competition for better social position. This doesn't show up in income quintiles, it impacts someone in the 91st percentile as much as it does someone in the 9th. The problem is that there is a feeling, a feeling backed up by much of the data, that it is increasingly hard for two people of equal abilities to compete with each other for limited spots, such as in college admissions or for good jobs.

How is a poorer family with a equally good test scores supposed to compete with another when the richer family can send their kid to learn French in France for a study abroad, their kid has to work at McDonalds while the richer kid can spend their time in volunteer work and unpaid internships, and the richer kid can get into better schools before university? However unequal things may have been in reality before, the trend towards looking at extracurricular activities, as opposed to standardized tests and grades, has given everyone an increasing sense that money plays a greater role in determining life chances than ever. How can the kid that has to work to help maintain his family hope to compete with someone that doesn't and can focus into getting into a good college? How can someone that has to work a second job to make ends meet find the time to go to college to get skills? How can someone with a family to support take the risk of giving up health insurance to start a business and become an entrepreneur?

These questions are why inequality matters, it has nothing to do with how many Xboxs a family now has. All of Ryan's discussion just shows he doesn't get it, the problem is that people feel locked out of the elite in a way they didn't 40 years ago, the divergence in costs between the goods purchased by lower income households and the goods purchased by upper income households is one of the causes of the increasing salience of inequality, not something that mitigates its problems.

The rest of the section doesn't deserve much discussion. No one is disputing that some portion of the increase in inequality is due to structural changes such as increased awards to skills and technology. These changes are global in nature. However, the change in inequality regarding the one percent and the rest is pretty much unique to America and the easiest explanations all involve political changes in our economic structure and an increasing ability of existing elites to exclude those that are not like them and don't buy into their self-serving ideology (more on this another time). It is the portion not explained by international trends which is of interest to those discussing inequality, not the part of it that is.

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