Pissing Down Your Leg

Thoughts on Economics and Economic Policy

When Is Inequality Acceptable?

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American has always, at least in some sense, been a land of the rich. We lionize those at the top and yearn to have their disposable income. We watch TV shows about where and how they live and believe that some day we will join them on a yacht going from the Cape to Nantucket. I certainly am not above these dreams and I know few people who are.

But when the rich own a larger and larger share of the wealth and “earn” a bigger and bigger fraction of total income, many of us feel that the country isn’t working. When health care seems to be reserved for fewer and fewer people and when good jobs for the bottom half of the income distribution are disappearing, something just isn’t right. After all, it doesn’t have to be this way. There are countries in Western Europe with similar levels of per capita GDP that have much lower levels of inequality than the U.S. Why can’t we be more like them?

While I will leave that answer for another day (I’m afraid it boils down to racism and other prejudices), today I want to focus on what my ideal country looks like. Because it doesn’t necessarily look all that different from the country we’re living in. A few tweaks here and there, and we could live in a much more acceptable place.

Greg Mankiw has another post worrying that we’re heading down the road to serfdom (where we presumably end up like Denmark or Norway, or, God forbid, France). His concern is that soon we will not allow people to buy more expensive health insurance if they so choose. While this seems to me like a completely unreasonable fear, it does help illustrate when inequality is acceptable and when it is not.

The current situation in health care is one in which inequality is leading to a broken country. Some 40+ million people do not have health insurance. My health insurance costs something like $19,000, a quarter of my salary. When inequality leads to a situation in which large sections of the population cannot buy something that is considered necessary by everybody, we have a problem. Imagine if we had 40 million people starving every day. Imagine if we had 40 million people who couldn’t afford transportation to get to a job. Imagine if we had 40 million homeless. This would be completely unacceptable, and having 40 million people without health insurance is unacceptable. It is so unacceptable that we make sure that these people have access to health care through emergency room visits. But this just adds costs to a system that is slowly bankrupting our country. Other countries are able to deliver higher quality care for all of their citizens at a little over half the per person cost compared to the U.S.

So when is inequality acceptable? I like to think about cars. I drive a 2004 Hyundai Elantra. I paid something like $16,000 for it. It drives quite well. It gets good gas mileage. And so far (knock on wood), it has been extremely reliable. But some people choose to buy BMWs, Mercedes, or even Porsches. These cars cost 3 to 6 times more than my car. They are faster and sexier. But from my point of view, they are completely unnecessary. They are simply a status symbol. I have no problem with the rich driving much fancier cars than I do (of course, the richest people I know drive hybrids: “I’m rich enough to be able to care about the environment”). I have no problem with the rich living in bigger houses or eating at fancier restaurants or taking nicer vacations to more exotic places. In short, I have no problem with the rich spending more on luxuries than I can.

But when those in the bottom half struggle with the necessities: food, shelter, transportation, health care, then we have a problem with inequality. When the poor can envy the rich their expensive playthings with a full belly from a warm home, then we will be in the country I want to live in. I find it sad, and more than a little pathetic, that while the U.S. is the largest economy in the world with one of the highest levels of GDP per capita, we are much farther away from living in that world than quite a few other countries.


Written by Liam C Malloy

June 6, 2011 at 10:57 am

Posted in Uncategorized

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