In print | Published November 19, 2009

Soren Larson’s most recent column fails to effectively answer the question of whether reducing income inequality will make society better off. As students of economics, we want to address some inaccuracies and omissions in Larson’s discussion and to present a case for increasing equality through progressive economic policy. Standard economic theory and extensive empirical evidence show a clear relationship between lowering inequality and increasing social well-being.

Inequality encompasses both relative inequality, a comparison of the incomes of the poor to the rich, and absolute deprivation, a comparison of the lowest incomes to the cost of a minimal standard of living. Larson’s assertion that relative inequality renders absolute deprivation irrelevant is an oversimplification; absolute deprivation and relative inequality cannot be decoupled. We care about the differences between the poorest and wealthiest, in terms of quality of life, because they are wide in absolute terms. Put differently, since there is declining marginal utility of income and wealth, aggregate utility could be increased greatly by transferring wealth from the richest to the poorest. So, reducing the equality gap in a society where absolute deprivation is high would improve the welfare of the most deprived without endangering the fortunes of the wealthy.

From here, we show that pursuing income equality improves societal well-being. Larson ignores the fact that policies aimed at reducing inequality likewise reduce poverty. Certainly, the concrete disadvantages of poverty include poorer access to health care, fewer opportunities for social mobility, worse educational opportunities and higher chances of incarceration. Larson takes the finding that poorer Americans are less “concerned” about inequality than their European counterparts to mean that poor Americans will not benefit from a reduction in inequality (i.e. more income). This is not true.

And what of the wealthy? High relative inequality has a well-documented effect of increasing crime rates, a tangible negative consequence of inequality (Choe, 2008). Also, assuming the wealthy care about ethical responsibilities, reducing inequality is likely to feed into the positive side of their personal utility functions. Most Americans approve of reducing income inequality and realize its concomitant benefits. Most economists do too. Smaller gaps in income inequality enhance cohesion, solidarity, public goods provision, social support and social capital (Deaton, 2003). Thus, we view decreasing inequality as unequivocally good.

One can argue that income inequality in America is offset by increased opportunities for social mobility. But, according to Pew Charitable Trust’s Economic Mobility Project (EMP) mobility has stagnated over the past generation as income inequality has risen. Furthermore, opportunities for economic mobility have accrued disproportionately to certain groups. The EMP indicates that African Americans and women were much less likely to enjoy social mobility than white Americans and men. For example, 69 percent of African American children born to middle-income parents did not make more than their parents’ income, while 68 percent of white children born to middle-income parents did earn more than their parents’ income. Once we recognize that some Americans do not enjoy as many opportunities for social advancement, social policies that seek to lower income inequality are particularly valuable.

We also feel compelled to address Larson’s argument on “progressive social policy” and wealth inequality. Here, Larson attempts to place readers in a double bind by creating a false dichotomy: If you value increasing equality of earnings then you cannot support many progressive social policies. To this, we have several responses.

First, Larson misrepresents the relevant economic literature, selectively choosing work in order to prove his point. To be fair, measuring the effects of immigration has generated a lot of controversy. But generally, economists have concluded that immigration has no effect on the wages and employment levels of initial workers. These new workers often take jobs not filled by the original workforce, and industries and employers adapt to take advantage of local economies, viewing labor as one of many inputs (Card, 2005). Borjas, whom Larson cites, is really the lone wolf in the field and has been frequently discredited.

Second, Larson fails to break down the data on inequality of incomes according to gender. It makes intuitive sense that women entering the workforce and earning higher wages would significantly reduce the earnings gap across individuals. It’s important to remember that the workforce is not monolithic: Workers have varying education levels and different skill sets. New entrants may not (and often do not) perfectly substitute for longer established workers. Put simply, the trade-offs Larson presents need not occur.

While varying objections to this article have been raised, the misuse of the economic discipline motivated our response. In underscoring the benefits of equality, we also hope to dispel the notion that economics inherently conflicts with socially progressive views.

Rachel Bell ’10
Lynn Conell-Price ’10
Jamie Hansen-Lewis ’10
Stephan Lefebvre ’11
Robin Lipp ’10

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