Two points on inequality

I've stayed out of the inequality - minimum wage business, largely because it strikes me as mostly political posturing rather than serious policy or economics.

A few small points from the blogosphere struck me as interesting enough to pass on, and indicative of that conclusion.


David Henderson, "Minimium Wage not Well Targeted at Reducing Poverty" makes that rather obvious point. How much would raising the minimum wage change the US Gini coefficient, even if it had no employment effects? Not much, obviously, if you think about it just for a moment, and even less when you look at who actually works at minimum wage jobs. Quoting  Joseph J. Sabia and Richard V. Burkhauser,

• Only 11.3 percent of workers who would gain from the increase live in households officially defined as poor.
• A whopping 63.2 percent of workers who would gain were second or even third earners living in households with incomes equal to twice the poverty line or more.
•  Some 42.3 percent of workers who would gain were second or even third earners who live in households that have incomes equal to three times the poverty line or more.

That brings minimum wage hikes into the land of answers in search of a question. If you seriously want to make a dent in the US Gini coefficient, and spend a year of your Presidency doing it, fiddling with miniumum wages is just an insignificant policy. We might as well fight about raising taxi fares.

John Goodman "In defense of inequality" takes the goal of less inequality within the US seriously. OK, if inequality in the US is the problem, what is the logical consequence?  John notes we now tax wealthy people who want to leave but

...when a wealthy person expatriates, the distribution of income and wealth becomes more equal. Should we reverse course and encourage the John Templetons of this world to get out of town. If equality is a serious goal, we should at least relax the penalties. 

At the other end of the income ladder, consider poor immigrants. Every time one comes to our shore, the distribution of income [within the US] becomes more unequal. But the same could be said if the immigrant is rich. Any immigrant who isn’t earning close to the average income is going to make the distribution less equal as a result of his immigration. If equality is a serious goal, we definitely need a different immigration policy.

This strikes me as a longstanding sore spot in the redistributionist agenda. If you worry about inequality, why worry only about inequality within the US, and not across national borders? Of course, if you worry about cross country inequality and want to address it with redistribution, the US as a whole, even poor people here, should be sending boats full of money (and goods) to, say, Bangladesh. But I agree with John

...before we rush out and change all these laws let’s stop and reconsider. If inequality is a bad thing, there must be victims. Yet if penniless immigrants come to our shore, knowing that their arrival makes the distribution of income more unequal than it was and knowing that they will be at the bottom of the income ladder initially, then it’s hard to argue they are being victimized.

John again:

Then there is federal aid to the students at Harvard. Granted, many of them may be poor right now. But if they were smart enough to get into Harvard, their lifetime expected earnings are way above average. And what’s true of Harvard is true of Yale, Princeton, etc. In fact, an argument can be made that all aid to college students everywhere contributes to inequality. If equality is a goal, at least there should be a lot less of it.

Yes. Our government does a huge amount of redistribution and a whole lot of it goes to very well off people.

Lotteries and gambling by their nature create inequality.

it’s hard to think of an institution that causes more inequality than the lottery, even though lotteries are a favorite source of funds for Democratic legislatures and Democratic governors. 

The natural conclusion is that significantly reducing pretax within-US income inequality isn't really the goal of people advocating higher minimum wages. I'm not clear what the goal is (except maybe to get us all to fight about something other than each week's ACA horror story.)

The biggest piece of the day was Ari Fleisher in the Wall Street Journal: "How to fight income inequality: Get Married" 

"Marriage inequality" should be at the center of any discussion of why some Americans prosper and others don't....among families headed by two married parents in 2012, just 7.5% lived in poverty. By contrast, when families are headed by a single mother the poverty level jumps to 33.9%... among white married couples, the poverty rate in 2009 was just 3.2%; for white nonmarried families, the rate was 22%. Among black married couples, the poverty rate was only 7%, but the rate for non-married black families was 35.6%.

(See original for sources.) One may object about correlation and causation here, but the fact that non-marriage and poverty go hand in hand is surely worth thinking about. And it's doubly tragic for children. 

... the number of children raised in female-headed families is growing throughout America.... 28.6% of children born to a white mother were out of wedlock. For Hispanics, the figure was 52.5% and for African-Americans 72.3%. In 1964, when the war on poverty began, almost everyone was born in a family with two married parents: only 7% were not. 

For children, the problem begins the day they are born, and no government can redistribute enough money to fix it. 

 The problem is not teenagers. This is a choice made by adults.

 The majority of women who have children outside of marriage today are adult women in their 20s. (Teenagers under 18 represent less than 8% of out-of-wedlock births.)

Ari concludes

One of the differences between the haves and the have-nots is that the haves tend to marry and give birth, in that order. .... A better and more compassionate policy to fight income inequality would be helping the poor realize that the most important decision they can make is to stay in school, get married and have children—in that order.

This is the elephant in the room, and interesting that one is not allowed to mention it in polite society.

The debate on the apparent ineffectiveness of the war on poverty comes down to this: Did single parenthood among poor people increase of its own, for mysterious social reasons, and only massive money from the government is keeping people from otherwise inevitable destitution? Or did the vast increase in the welfare state contribute to the pathology that now it needs to fix?

Goodman was pretty clearly of the latter view. Fleisher leans to the former, but really fell short on why this happened, and "helping the poor to realize" is pretty hopeless as a policy prescription. They poor are smart, and huge single parenthood rates do not happen because people are just too dumb to realize the consequences, which the see all around them.

From the left, I hear nothing but deafening silence on this correlation.

Meanwhile, the Bureau of Labor Statistics reminds us again of why pretax income distributions widened:

Inequality comes from lack of marriage and education. It is not obviously a problem per se, but it is a symptom of social and economic dysfunction. Single-parenthood rates over 50% are a sign of a society in deep trouble.

Raising the minimum wage is then less than a band-aid for the symptoms of a heart-attack sized problem. But why then is the minimum wage so high on the chattering-class agenda?