On the radio this week we will discuss inequality which is a really hot issue though I think large parts of the public discussion, at times, miss the point. I generate a bar chart for the income distribution for the US and ND in 2019 with the 5 year ACS data set. This is mostly for comparison sake in terms of how the US and ND compare in the percentage in different categories. Now I am not pretending I have “answers” in the sense that I address and solve questions related to distributions and the issues they present. However I am going to predict some discussion points from radio callers.
If we reallocated so everyone was equal would that be the same in 1 year?
I get asked this a great deal and the answer is I have no real idea, but the real answer is probably not. Some individuals will take risks that pay off and some will take risks that do not pay off. Reallocations will occur as a result. I think this is not the right question to ask though.
Is there a “best” distribution?
You need to specify what we are actually measuring to determine what is best. Is it overall well-being? Is it maximizing long run growth? This is not a trivial part of the exercise. We need to know what the end goal is before we can actually answer what is “best”? I think this is even more important when we talk about something about the income distribution.
State of the Debate
Most of the discussion I see in these situations tries to say that a particular distribution is good or bad, as if such normative evaluations really apply in these situations. It would be great if they did, but the fact remains such evaluations are inherently subjective. What is missing is how we get to the destination and this inherently involves policy.
More often than not these debates focus on “how much income/wealth is held by the top x%”? The top 1% hold so much compared to the bottom 1% and is that “right”? Like I said, this is the wrong question. The better way to think about this is whether or not policy decisions by government, such as the tax code, make this outcome likely to occur, or recur. That is the really problematic situation. Inequalities are going to exist, but if they exist as a result of, or augmented by, economic policy decision, that is the real problem. This is not an argument for redistributive tax policy, nor does it recommend government spending programs towards certain groups. Realistically I think it recommends broader policy questions such as Simpson-Bowles be the approach with an eye to these types of implications.