Income Equality and Economic Mobility

In his most recent New York Times column, Tyler Cowen writes about two competing goals concerning economic distribution:

Income equality is about bridging the gap between the rich and the poor, while economic mobility is about elevating the poor as rapidly as possible. Finding ways to increase economic mobility should be our greater concern.

I agree completely.  In fact, I find it hard to understand how anyone can be concerned with income equality rather than economic mobility.

First, it seems clear that people should be concerned with economic mobility.  If one is concerned about the poor, the relevant normative question is not how much poorer than the rich they are, but how high their standard of living is.  If the only choice is increasing a poor person’s income by $100 while also increasing a rich person’s by $1000, one should do it.  Otherwise, you do not really care about the poor.

One argument against this view is that the poor person might be worse off, because his relative wealth is less.  He now feels poorer, even though he is richer, because he now has even less than the rich than he did before.

But this is problematic.  To begin with, most people are not so focused on the rich.  In fact, if they are focused on other people’s incomes, it tends to be people in their own income bracket.  Thus, if the rich get richer, that is much less important to them than their getting richer.

But discussing people’s subjective evaluation of these matters misses something tremendously important.  Wealth is so much more than people’s relative evaluations.  Wealth is about being able to provide to oneself and one’s family health care, education, safety, and slew of other things that are largely objective and should not be evaluated subjectively.  If wealth allows a poor person to cure his sick child, then he will prefer that situation to the alternative, even if that situation provides even greater benefits to the rich.

Another argument for income equality is that it would make for less political inequality.  The idea is that richer people have more power in the political process and therefore income equality would promote political equality.  But this argument is problematic.  The rich do not behave as a class, so even if they had more influence, it would not be used for their general benefit.  In fact, many of the rich favor redistribution from the rich to the poor — and therefore political inequality may help or at least not harm the poor.  Moreover, the left does not categorically oppose all political inequality.  There are many sources of political inequality, including organizations such as labor unions, that the left supports.  Thus, political inequality needs to be balanced against other goods.  If one was worried about income inequality causing political inequality, the better way would be to limit government power or to employ campaign finance.

If income mobility is obviously the relevant concern, then why is there so much focus on income inequality?  I plan to address this is a future post.