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Is Inequality Necessarily Bad?

Mises Daily: Tuesday, May 27, 2003 by

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In my last piece, I argued that we may not be measuring inequality correctly and that, if we examine our ability to substitute the goods available to the poor for the goods available to the rich, we may find that the gap between rich and poor is shrinking.

But let's go ahead and grant that we are measuring inequality correctly and that it is growing, as most of the commonly-cited inequality indicators suggest. Many argue that the U.S., with its relatively skewed distribution of income, lags behind a number of countries with more equitable income distributions on a number of quality-of-life-indicators. It is usually at this point in the discussion that someone mentions Sweden—the welfare state par excellence.

Sweden ranks second in the U.N.'s Index of Human Development (compared to the United States' sixth place ranking). As Paul Krugman writes in the essay cited yesterday,[1] "life expectancy in Sweden is about three years higher than that of the US . . . (f)unctional illiteracy is much less common than in the U.S."  Furthermore, he accounts for Sweden's relatively low per-capita GDP by pointing out that

Swedes take longer vacations than Americans, so they work fewer hours per year . . . Real GDP per hour worked is 16 percent lower than in the United States, which makes Swedish productivity about the same as Canada's…very few people in Sweden experience the deep poverty that is all too common in the United States. One measure: in 1994 only 6 percent of Swedes lived on less than $11 per day, compared with 14 percent in the U.S.

Great points, all, and they certainly suggest that a redistributive welfare state need not be a poverty-stricken backwater. As one of my classmates noted recently, these figures "make us question (the U.S.'s) status as a first-world country."  While it is true that the Swedes enjoy higher life expectancy, longer vacations, and comparable productivity, Americans enjoy more material amenities, better manufacturing jobs, higher earnings, less hectic schedules, and more Big Macs with less effort.

Moreover, the wages of women relative to men are higher in the U.S. than in Sweden. As the table below shows, there are a number of other margins on which Sweden fails to compare favorably with the United States.

The United States and Sweden in the 1990's

 

U.S.

Sweden

Consumer Goods

 

 

Percentage of Households owning:

 

 

Clothes washer

90

72

Dishwasher

53

31

Microwave

86

37

Television

98

97

Clothes Dryer

82

18

VCR

83

48

PC

40

29

 

 

 

Automobiles per 100 people

57

41

 

 

 

Health Indicators

 

 

Crude Death rate (per 1000)

8.8

11.3

Suicide Rate (per 100,000)

11.8

14.7

Life Expectancy at Birth (1997)

76

78.2

Pace of Life (1 is fastest)

16

7

 

 

 

 

 

 

Education

 

 

Student/Teacher Ratio

16

11

Nobel Laureates

178

10

R&D Scientists & Engineers Per 1000 of labor force

7.6

2.6

Percentage of Mfg Labor force employed in high-tech industries

21

13.8

 

 

 

Output and Productivity

 

 

Per Capita GDP

$28,338 

$19,615 

Financial Wealth Per Capita

$64,402 

$9,258 

Earnings of Women relative to men (1980=100)

113

100

Minutes of work required to afford a Big Mac

8.1

13.3

Source: Cox & Alm, Table 5.2 (pp. 97–98).

 

 

And America's poor have traditionally enjoyed more creature comforts than their counterparts around the world—indeed, they enjoy more creature comforts than citizens of other countries who are presumably "richer." Robert Rector (1995) reports that, in the early 1980's, almost all poor households in the United States enjoyed what we think of as implements basic to sanitation; in fact, the American poor enjoyed these comforts in greater proportion than the average citizens of industrialized countries with more extensive welfare states.

Poor U.S. Households in the Early 1980's: Modern Amenities


 

Percentage  lacking indoor a flush toilet

Percentage lacking fixed shower or bath


U.S. Poor households

1.80%

2.70%


Other countries: All Households


United Kingdom

6%

4%


Italy

11%

11%


France

17%

17%


Belgium

19%

24%


Japan

54%

17%


Source: Rector, Robert. "How 'Poor' Are America's Poor?"  in Julian Simon ed. "The State of Humanity" (Cambridge Mass.: Blackwell Publishers, 1995), p. 240–56. Table 24.1


Poor Americans not only enjoyed more creature comforts than middle-class citizens of other countries, they also enjoyed more food. There are many who would dispute the claim that higher meat consumption translates to higher welfare, but the nutrients that we get from meat are necessary to sustain life. Again, the American poor enjoyed higher levels of meat consumption than middle-class citizens of countries with extensive welfare states. The following table should be interpreted as follows: the average citizen of West Germany enjoyed 75% of the meat consumption enjoyed by the average poor citizen of the United States.

Meat Consumption, 1977: US Poor versus World's Middle Class

U.S. Poor

100%

Average Person in . . .

West Germany

75%

France

70%

Italy

62%

Great Britain

57%

U.S.S.R.

56%

Mexico

39%

Japan

39%

Brazil

27%

Rector, table 24.5

 

The point that Krugman and others try to make—that an egalitarian mode of distribution, guided by the benevolent will of the state, is necessarily superior to more market-determined allocations on account of the fact that it supposedly leads to more desirable quality-of-life outcomes—is ambiguous at best, incorrect at worst.

To summarize, we can charitably conclude that it isn't altogether clear that increasing inequality has brought with it pronounced deleterious consequences. In spite of claims to the contrary, the United States (which still enjoys more freedom than almost every other country on Earth in spite of its own massive regulatory/welfare state) outperforms mixed-economy welfare states on a number of margins. As we will see tomorrow, even if we grant that inequality is unambiguously bad, it isn't clear that the state possesses the wherewithal to fix it.


Art Carden is a graduate student at Washington University in Saint Louis, and a visiting summer fellow at the Mises Institute.  See his archive and send him MAIL. This is part two in a series of the subject of inequality.

[1] Krugman, Paul. "For Richer."  The New York Times Magazine, October 20, 2002.