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Income Inequality

7 min read

Part of Markets and money.

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Every episode (4)

Who argued it

Roger L. Martin · Daniel Markovits · Jonathan Rothwell · Edward Conard

Meritocracy · Economic Policy · Shareholder Value · Education · Labor Markets · Public Choice Theory · Occupational Licensing · Economic Growth

Background

Framing the concept

Bob Zadek opened a 2019 episode by comparing income equality to the goal of Procrustes, the figure from Greek mythology who stretched or amputated his victims to make everyone the same height. Zadek called Procrustes’ goal “height equality—a rather absurd concept, but no more absurd than income equality or its converse, income inequality,” and said that undoing inequality is “as sensible as undoing height differences among humans.” He attributed the subject to what he called “envy” and “greed—pretty ugly motivations.” Jonathan Rothwell on Market Egalitarianism (2019)

In a 2021 episode, Zadek returned to the framing, saying that income inequality “to me mean[s] somebody earns more than somebody else,” and that the fact a doctor earns more than a middle-class factory or office worker “is neither bad nor good.” He called income inequality “not a defect; it’s a feature,” and said that once it is identified as a problem, “inevitably you jump to, ‘Okay, we have a problem. Well, what’s the fix?’ The fix is redistribution.” Questioning Biden’s Inequality Narrative (2021)

Natural versus political inequality

Jonathan Rothwell, identified by Zadek as Gallup’s principal economist and author of A Republic of Equals: A Manifesto for a Just Society, told Zadek that some income inequality is natural, but that the United States stands out among democracies as having “an extreme amount of income inequality.” He said that in poor countries with authoritarian or corrupt governments the richest 1% may control 20% to 30% of income in a given year, that in European democracies and countries like Japan and Korea the figure is usually under 10%, and that in the United States it is 20%. Jonathan Rothwell on Market Egalitarianism (2019)

The episode description states that Rothwell attributes a significant portion of American income inequality to political interference and market exclusion—such as occupational licensing and zoning laws—rather than to natural differences in talent or merit. Jonathan Rothwell on Market Egalitarianism (2019)

Conard on talent and redistribution

Ed Conard, introduced as an economist and author, told Zadek that he wanted to give the other side of the argument its due. He said there is an argument that “the talents of mankind belong to mankind, not to the lucky recipients,” and that the question becomes how much more a talented person must be allowed to earn so that everyone gets the maximum value from that talent. He compared this to the idea that “we all kind of own the oil, we all kind of own the land, we all kind of own the air.” Questioning Biden’s Inequality Narrative (2021)

Conard said that if someone works harder or takes more risk successfully and builds a business, “I don’t think anybody has any problem with that person earning more money.” He distinguished this from money obtained by stealing, by luck, or through crony capitalism, which he said people would say the person does not deserve. He described a trade-off between taxing a person more and motivating that person to take more risk and work harder, and said that even the most liberal economists he has debated agree that an investor or innovator must put about $5 of value into other people’s pockets to put a dollar in their own. Questioning Biden’s Inequality Narrative (2021)

Conard cited tax rates on that dollar: 23% at the corporate level, 20% at the individual level for capital gains, plus roughly 10% in California state taxes, which he said gets to 50%, and then a 50% estate tax at death. He said the question is how much more that dollar can be taxed versus whether an additional $5 of value will be created. Questioning Biden’s Inequality Narrative (2021)

Productivity and middle-class incomes

Conard told Zadek that the United States has created more of the $5 with less talent than other high-wage economies like Europe and Japan. Using academic test scores as a measure of talent, he said the United States has about half as much talent per capita and about twice as many low scores per capita as Northern Europe, which he called the second richest place in the world. With that, he said, the United States has generated incomes 30% higher on average and about 30% higher in the middle class than the richest countries in Europe, and about 70% higher than Southern Europe. Questioning Biden’s Inequality Narrative (2021)

Conard said the United States produces five times as many billion-dollar startups as Europe, the second highest place, with half the talent per capita and economies of about the same size. He framed the choice as “do you want higher incomes for the middle class or do you want more equality,” and said that everywhere more equality has been tried, countries have ended up with substantially lower incomes because they could not motivate their talent to do the work required to produce the $5. Questioning Biden’s Inequality Narrative (2021)

Martin on democratic capitalism

Roger L. Martin, in a 2021 episode, corrected Zadek’s characterization of his book. Martin said his concern is that democratic capitalism continue to prosper against what he called “totalitarian capitalism” in China. He said the swing voter—the family around the 51st percentile of income—must say capitalism is working for them enough that they do not say “let’s try something else,” and that polls show they are saying that to a greater extent than ever before. When More is Not Better (2021)

Martin said the stagnation of median incomes is worse than the Great Depression, lasting much longer with a less good recovery. He said all the increase in American income inequality is the 99th percentile going gangbusters over the 50th, not the poor getting poorer, and that on the current course it will take a century to double the median income of an American worker, compared with 30 years historically. When More is Not Better (2021)

Judis on fairness and stability

John Judis told Zadek that he does not identify equality with complete leveling. He raised fairness, asking whether it is fair for someone who inherits millions and does not have to work for it to be compared with someone born to modest circumstances without the opportunity to support a family decently. He called the inheritance tax, which he said Andrew Carnegie championed, a good idea, and said it is an attempt to create equality by birth. Is Socialism Still a Dirty Word? (2021)

Judis also raised stability, citing the understanding of the economy that arose in the 1930s through John Maynard Keynes. He said radical inequality of income, as in the 1920s and again particularly in the 1980s and 1990s, produces too much saving, insufficient consumption, and instability, recessions and the like. He said CEO salaries went from about 16 times the average worker 50 years ago to now 160 times, though he said he was not going to tell Zadek those numbers are exact. Is Socialism Still a Dirty Word? (2021)

Across episodes

The topic recurs across the 2017, 2019, 2021-01-31, 2021-02-21 and 2021-05-11 episodes. The episodes show no development: Zadek’s framing of inequality as a neutral fact is consistent from 2019 through 2021, while guests Rothwell, Conard, Martin and Judis each offer distinct accounts of which inequality is bad and why.

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