I just do not know where to begin..

A colleague of mine on the SC faculty recommended a book by Richard Wilkinson and Kate Pictkett called "The Spirit Level, Why Greater Equality Makes Societies Stronger" so on the trip to Chicago and Ann Arbor I read it.   The premise of the book is that economic inequality in societies makes for less unity, poorer health and a wealth of other societal maladies.

The book is divided into two parts.  I suspect the last three chapters, which make standard left of center arguments on reducing carbon usage in developed societies and (although they make a head fake to an alternative) increasing taxation on the wealthy is always a good idea, were written before the first ones.  I will admit that I was at least intrigued whether the authors could come up with a reasonable argument on their premise.   The rest of the book (which is actually the first thirteen chapters) is a dreadful use of spurious correlations.  The authors caution us repeatedly that the data is so carefully constructed and checked with all the chi squares a person could muster.   But all that careful statistical work and curve fitting is for naught, when you examine the premises carefully, it looks like a lot of data fitting to prove a point.

The authors suggest that income inequality is smaller in places like Sweden, Norway, and Japan and in states like Vermont and New Hampshire and therefore those countries and those states are healthier with better achievements in all sorts of societal indicators.   They counterfactuals are for places like the US (surprise!) whose income inequality has grown significantly in the last 30 years (based on a measure which looks like a rough Gini Coefficient) and whose societal health based on measures of morbidity, education and crime are poor compared to their shining examples.   But their positive examples have one thing in common.    Two quick facts - Blacks and Hispanics make up just 2.5% of the population in Vermont.   The number of immigrants in Japan amounts to a bit less than 2% and as many sources suggest a good portion of those are of Japanese descent.

Lest anyone have a doubt about my feelings on immigration (and if they do they have not been reading this blog) I understand the key opportunities that immigration offers for the country.  Over the weekend Intel published data that 70% of the winners of their talent competition were children of foreign born parents.  Immigration presents problems for any society including potential changes in health, income and education statistics.  But the long term trend, if we continue to offer the opportunities of the American system, far outweigh the momentary costs.

The book reminded me a lot of Malthus' An Essay on the Principle of Population.   Indeed it has a lot of the same flaws.  Malthus' argument was that population would outrun innovation.   But his book, meant to influence Parliament's consideration of a poor law, missed two major points.  First, it did not anticipate the development of the steel plow. (That might have been hard because its' first edition predated the steel plow by about three decades.)   When the plow was put into use, crop yields skyrocketed and Malthus' original premise was disproven.   As Julian Simon pointed out repeatedly, Malthusians of all types consistently under-estimate the power of innovation and as importantly the ability of humans to overcome bad circumstances, if given the opportunity.

The second flaw of Malthus was data driven.  According to some accounts Malthus based his theory on population trends in the US.  (Remember his book was first published in 1798.)   Some suggest that Benjamin Franklin actually gave him the data.   Malthus, I am sure using the same kind of heartfelt correlations used in the Spirit Level, missed the fact that a major force in US population growth during the period under study was fueled by immigration.  The chart at the right is for growth in immigration from 1820 to 2009.   Notice the two big sets of spikes - notice from about 1900 to 1930 there is an almost continuous spike in immigration. (Save for a drop caused by WWI).  The downward trend which began before 1930 was caused by public policies that were designed to harass immigrants (The Palmer Raids were on example of these policies.)  The second spike begins in the 1980s.   Think about how historians from the left describe both periods.   The first is described as an era of unbridled capitalism.  Not surprisingly, so is the second.  Both had significant trends toward a reduction of economic equality in society as a whole.  The rich, indeed, did seem to get richer.  But as those immigrants, many of whom came with little education, were assimilated, those differences became smaller.

The 1980s spike is different for two reasons.   First, it is larger in terms of total numbers.  There is not good data on whether the population was less well educated than the first but there is at least pretty good speculation that it was.    But second, government intervened in a number of horrible ways in the second.  Some are pointed out in the Spirit Level like increased levels of incarceration and decline in educational effectiveness. But many others, which would be in the playbook of the authors as positives, are ignored.  One conclusion is that those policies adopted during the second period of may be inhibiting the very opportunities that brought many of those immigrants to our shores.

Besides immigration there is another trend, which coincidentally works with immigration.  In both periods the originators of technological innovations were rewarded immensely by the market system.  But very quickly the distribution of rewards, at least in the first period, moved down the income ladder.  The reality of the middle part of the twentieth century was not that we brought down the super rich of the roaring twenties by taxing them but by bringing up the lower and middle class.   One need only look at the creature comforts (larger houses, more appliances) that those innovations brought to the entire society over a fairly short period.

There are differences in the second period.  First, there are a lot more lawyers and financial types involved.   It is unclear whether all those "symbol manipulators" were rewarded for contributing to the new economy or were simply rent seekers that put a drag on growth.   Second, the expansion of government during the second period may represent an excess burden which is hard to calculate.  Some of the best laid statutes may actually be impeding the dispersion of wealth that happened in the middle of the twentieth century.

There is finally a very silly chapter in the book on the consumption of envy.  The authors try to make the case that consumption during the last period was brought about by envy.  People were duped into keeping up with the Joneses and forced into higher and higher levels of debt.  They bought all those Hummers when they would have preferred a Prius.   I thought Galbraithian arguments had been laughed out of polite conversation years ago.  But evidently they are staging a revival, at least in this book.   Indeed, savings during the "evil" period went down in the US (although there is a legitimate argument that some of the statistics were a bit bogus - for example the Japanese calculations on savings include some things which the US do not) but even if the data is true, what is the cause?   Did the meltdown come from envy - keeping up with the Joneses - or from a series of flawed public policies which encouraged over consumption of purchased housing?  The book never once mentions the change in the way capital gains were counted for housing, nor the expansions of leverage in Fannie Mae and Freddie Mac, nor the pressures from such shining congressional lights (lites?) as Barney Frank and Chris Dodd for expansions in the application of the Community Redevelopment Act.

As I said, I just do not know where to begin.   But from my perspective, the combination of Malthus and Galbraith in one book was just a bit much.