Money Inequality: What Are You Talking about?

Reading the comments section at someone else's post, Matt comes up with an insight:

Briefly, we learn that [blogger] Jason [Kuznicki] and the freed-markets commentariat use wealth as a proxy for quality of life, while the left-progressive commentariat uses wealth as a proxy for power. No wonder they’re talking past each other!

That's one to remember. It might help you keep frustrating discussions short. But maybe quality of life is a little too broad. Let me explain.

Andrew Hammel links to an L.A. Times piece by Don Lee describing/praising redistribution, German style. According to the article, the great virtue of the German system is that even families with modest incomes can live well due to access to lots of subsidized stuff, like a well-run transport infrastructure and near-free healthcare and higher education.

Whatever your views on the wisdom of this approach, it makes you wonder about the utility of international inequality comparisons. According to the article, Germany is higher than the U.S. on forms of redistribution that don't go into the usual redistribution statistics - namely stuff that is available for free or at below-market prices for everyone irrespective of outcome. Poorer people tend to benefit more from this than richer ones.* As a consequence, measured financial inequality, even if measured after taxes, understates actual inequality if low-inequality countries do more redistribution-by-financing nonexcludable goods (stuff available for everyone).

That is, if by "actual inequality" you mean inequality in the quality of consumption. For example, if your city's got a great public transport system, the advantage in consumption of owning a fancy car is greatly diminished. But, irrespective of that, the owner of the fancy car still gets to signal that s/he is a person who can afford a fancy car. And perhaps that's what you actually care about: inequality in (ability to signal) status.

This highlights, I think, a weakness in the above distinction between quality of life and power. After all, isn't power - rougly, the ability to get what you want - a dimension of the quality of life (the more power, the more quality of life)? The real difference here seems to be between quality of consumption and status. Status is different from consumption because it's a positional good and hence strictly zero sum: If you get to be president, it means I don't. If I have the fanciest car in the neighbourhood, then you don't.

You can go further than that, though. After all, what we get out of status, or lack thereof, is enjoyment, or lack thereof. That is, insofar as status is interesting, it is because it confers a kind of consumption value. It all ultimately boils down to the currency of utility; are you surprised? You could say that some kinds of utility derived from being able to take the fancy car are "direct" (more comfort, less time spent on travelling, etc.), while those that work via status signaling are "indirect".

You could then rephrase the differences in the connotations that people hear when they hear "money inequality" as follows: it makes one bunch of people think mostly of differences in direct utility and others mostly of indirect utility. You could then say that, descriptively, lefties tend to argue that indirect utility is a large chunk of utility while righties and libertarians tend to see it as a small part.** Normatively, lefties would like to see the positive correlation between direct and indirect utility shrink, while libertarians would not. (With conservatives, I guess it depends on whom you ask.)

And of course the left see the utility of money and indeed pretty much anything as decreasing more quickly than libertarians and conservatives do. Standard arguments from the undesirability of money inequality qua power inequalitiy via negative externalities - rich chemical factory owner buys off legislators, can keep on polluting - boil down to this, I think.

On an unrelated note, here is a video called The Empire Farts Back.

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* I say "tend to" because this tendency is in part offset by the apparent countervailing tendency to subsidize stuff the educated care for more, such as libraries and opera houses.

** I wonder whether that's in part explained by research-by-introspection plus the false consensus fallacy. I have a hunch that libertarians tend to be less socially attuned and hence not care so much how they do relative to others. If they generalize from their feelings to "everybody's", they're bound to arrive at the conclusion that indirect utility ain't all that important.