This is one of those fashionable bugaboos that, for the past 15 years or so, commentators, politicians and scholars have proclaimed as one of the nation’s gravest problems. It isn’t. Poverty is a serious problem, but inequality is not–and the two are different, although they’re routinely confused. The problem of poverty is more than a momentary period of low income. It involves persisting low income and an inability to “get into the mainstream” as a result of meager work skills, family breakdown, disability or bad luck. This sort of poverty is a plague.
By contrast, inequality is the gap between the rich and the poor. Although obviously connected to poverty, it’s affected by much more than poverty. For example, inequality increases if the rich simply get richer faster than everyone else. And many noneconomic factors alter inequality. Since 1979 only about a third of the increase in income inequality reflects the faster-growing wages and salaries of the well-off, estimates economist Gary Burtless of the Brookings Institution. Other influences include the fact that well-paid men and women marry each other (raising their household income), more divorces (this lowers household incomes) and more immigration (it increases the number of low-income households, because many immigrants are poor).
On the whole, Americans care less about inequality–the precise gap between the rich and the poor–than about opportunity and achievement: are people getting ahead? Indeed, we’ve conducted a massive social experiment over the past quarter century on the choice between these goals. During this period economic inequality has steadily increased. In 1974 the richest fifth of U.S. households had 43.1 percent of personal income, and the poorest fifth only 4.4 percent. By 1999 the gap had widened to 49 percent and 3.6 percent. If Americans couldn’t abide rising inequality, we’d now be demonstrating in the streets.
Of course, protests remain on hold. Although inequality has risen, the economy has also experienced a phenomenal expansion that began in late 1982 and, so far, has been interrupted only by the mild recession of 1990-91. In this period, most people’s incomes and living standards have increased. Polls have shown gains in confidence. Despite some envy of the fortunes made from the recent technology boom, the resentment hasn’t detracted from a widespread sense of well-being.
Confirmation of this insensitivity toward inequality–though not poverty–now comes in a study by economists from Harvard and the London School of Economics. They wanted to know whether Americans and Europeans see inequality differently. To find out, they examined people’s evaluation of their own happiness from the mid-1970s to the mid-1990s, a period when inequality rose in Europe as well as the United States.
Interestingly, Americans judged themselves happier than Europeans, even though there is more inequality here and European governments spend more to reduce it. From 1975 to 1994, about 32 percent of Americans rated themselves “very happy,” 56 percent “pretty happy” and 12 percent “not too happy.” In Europe from 1975 to 1992, only 26 percent of respondents said they were “very satisfied,” 54 percent said “fairly satisfied” and 20 percent said “not very” or “not at all satisfied.”
What the economists tried to discover is whether rising economic inequality was responsible for some of the difference. The study adjusted for other factors that affect happiness–such as age, sex, income, unemployment and crime–to isolate the effect of growing inequality. In Europe, it did matter. Among the poor and “those who define themselves [politically as] leftist,” unhappiness rose. In the United States, there was little increase except among “rich leftists.” (People’s responses were coded by income and political views.)
By and large, Americans see the United States as a more “mobile society than Europe,” write Alberto Alesina and Rafael Di Tella from Harvard and Robert MacCulloch from the LSE. Americans think they “have more opportunities to move up (or down)” than Europeans, who are more fatalistic about their place on the economic ladder. Americans don’t get so upset by rising inequality because they don’t feel it dooms them. (Incidentally, none of these economists is American born. Alesina hails from Italy, Di Tella from Argentina and MacCulloch from New Zealand.)
The United States is a middle-class nation, and most Americans want it to stay that way. No one wants a society starkly split into “haves” and “have-nots.” The obsession with “rising inequality” plays to these fears without addressing them. It is mostly a moral self-indulgence: a way of demonstrating superior “caring.” It implies that the rich are somehow responsible for the plight of the poor and that extra redistribution might easily reverse the curse of rising inequality. This is an illusion. Perhaps some programs can relieve the worst suffering. But if there were easy solutions for poverty’s bedrock causes–family breakdown, negligent or incompetent parents, poor schools and skills, drug addiction–we would have already found them. Reducing inequality matters only if we reduce poverty.
Let’s go back to Gates for proof. Suppose he takes a big hit in the stock market; his wealth drops more than mine. Indeed, suppose a protracted economic and market decline reduces the wealth of the very rich (who own more stock than anyone else) more than that of the middle-class or poor. There would be less economic inequality. Would anyone be better off? Would anyone feel better? Not likely.
