How Unequal Should Our Incomes Be?

I think the top one-tenth of U.S. households should get about one-third of all income.  I may be unduly influenced by living in a household that is part of that top tenth, but here’s my reasoning.

Absolute income equality would be great, but it won’t work.  Per capita income in the U.S. is about $47,000, so if income were shared equally, every person would receive that amount, regardless of their age, whether they worked, and whether they are talented or hard-working.  Thus, a single parent with two children would have $141,000 to live on, while a couple with two children would have $188,000, and an empty-nester married couple like my wife and me would have $94,000.  These are not averages.  Every three-person household, for example, would get exactly the same amount, $141,000 — and that amount happens to be enough for everybody to live pretty well and for the vast majority of people to live much, much better than they do now.  And, as productivity increased and the economy grew, everybody would get more.

Most economists will tell you, however, that the economy would not grow under those conditions because incentives to work and innovate would disappear.  Though I suspect they’re probably right, these economists’ wisdom is based on a speculative assumption about a fixed human nature that a lot of world-class philosophers have contested.  And that would be a great discussion to rekindle if only somebody could figure out a workable, sustainable, and just mechanism for completely equalizing income without giving the government totalitarian powers.  So far as I know, nobody has figured out such a mechanism, and those who were trying to find a way have given up trying.

So, anything like absolute equality of income is impossible – or at least not practical enough to be worth thinking about for now.  Nor is it necessary.  During the period in American history when economic growth was strongest and when real wages, family incomes, and the general standard of living improved the most – from the 1940s into the 1970s – the top ten percent received one-third of all income in the U.S.  Historians refer to this era as “postwar prosperity.”  One-third was our share of the pie when the pie was growing at its best, and almost everybody benefited from that distribution.

Degrees of income inequality matter.  In a recent study, The Spirit Level: Why Greater Equality Makes Societies Stronger, two British social scientists have assembled data from nearly two dozen of the richest countries in the world.  The data shows how strongly levels of income inequality correlate with a variety of indicators of social well-being.  As a rule, more unequal societies have more homicides, violent crime, and prisoners; more mental illness (including drug and alcohol addiction), obesity, teenage births, and infant mortality; lower levels of trust, child well-being, children’s educational performance, and social mobility; and lower life expectancies.

The U.S. is by far the most unequal of these societies (with Portugal and the United Kingdom coming in second and third), and Japan, Finland, Norway, and Sweden have the most equal incomes.  In chapter after chapter, with only a few exceptions here and there and some nuances on some of the indicators, the U.S. is Number 1 in negative social indicators, followed by Portugal and the UK, and near the bottom in positive ones (including social mobility!).  Likewise, Japan and the Nordic countries uniformly have the most positive outcomes.

The Spirit Level authors, Richard Wilkinson and Kate Pickett, make the argument that we now know “how to make substantial improvements in the quality of life for the vast majority of the population” (p. xi): move toward greater equality of income.  For a variety of sometimes complicated but often simple reasons, greater equality of income improves social well-being across a society – including for the top fourth and probably even for our top tenth (though the data they are working with does not allow a firm conclusion by tenths).

So where does this leave my thesis that the top tenth should get one-third of all income?  It actually strengthens it, because right now we’re getting about half of all adjusted gross income in the United States, with the other 90 percent of people sharing the other half.  Our share used to be about one-third, from the 1940s to the 1970s during the most prosperous period in American history, but it has been increasing pretty steadily since about 1980.

My guess is that most people in the top tenth, like my wife and me, did not intend to grab such an outsized share.  We didn’t even know we were doing that, and we certainly didn’t intend for our share to correlate with increased violence, lower rates of child well-being, and lower life expectancies.  But guilt, like blame, looks back, not ahead.

If we top-tenners got one-third instead of one-half of all income, we’d still be doing very well, and there would be about $1.5 trillion more for the other 90 percent.  That’s a lot of money, and it means that we could live in a society where no one would be poor, especially not the nearly one-half of people who work full time for less than a livable wage.

What’s more, as a society we probably know a lot about how a substantial redistribution of income could be accomplished over time.   We can look at how we did it during the period of postwar prosperity, when there were strong labor, then civil rights, then women’s and other social movements; much more progressive income taxes; a growing social wage; actual enforcement of fair labor standards; and a steadily increasing minimum wage.

How to do that again in very different circumstances, both political and economic, is undoubtedly more difficult than I imagine.  But it is valuable to know just how unequal our incomes have become and how big a price in social well being all of us pay for that, some more than others.  It’s also good to have a clear goal for just how unequal our incomes should be.  I think that goal should be that old-fashioned postwar prosperity share of one-third for the top tenth.

Jack Metzgar

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15 Responses to How Unequal Should Our Incomes Be?

  1. Xavier Onassis says:

    You have to turn the question on its head in order to derive the correct answer.

    The following are statements of incontrovertible fact: only work creates wealth, so the total amount in the pool of wealth is a finite number – since the number of workers is finite and the hours they can sacrifice to working are finite, too. This means overpay has nowhere to come from but from underpay.

    So the question is, what justifies forcing one working person to take underpay in order to give another overpay? Is there any logic and sound reasoning whatsoever to justify unequal pay for equal sacrifice?

    The answer is NO.
    NO justification exists for unequal pay for equal sacrifice.
    It ought to be obvious that no one is or can ever be working longterm more than twice as long as the average person does. So it ought to be obvious that pay/income/wealth crosses the line into legal theft whenever it exceeds a factor of 2 to 1.

    The purpose of government is justice – James Madison

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  2. RD says:

    Income inequality is a major problem in this country. We must revise our trade and tax policies and build a better social safety net for American families. A much larger role by government is needed as well as a stronger non-profit sector.

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  3. Jack Metzgar says:

    Okay, I let myself open for personal attacks and frivolous theorizing about human nature, and I guess I’m not that good at irony. But the direct points I was trying to make, a bit too cutely, are:
    • That degrees of income inequality matter, and they matter a lot for everybody, not just those with the short end of the stick (the point of The Spirit Level);
    • That the U.S. has a very extreme (and growing) degree of income inequality;
    • And that a mere return to the “normal” degree of the 1940s into the 1970s in the U.S. (which nobody to the left of Rand Paul would call “socialism”) would have a huge impact on our social well-being.

    Getting back to where we once were, using methods already proven to work within our national institutions and traditions, can make the economic pie bigger by sharing the pieces better. Strong unions, equalizing social movements, and an enhanced social wage paid for by a steeply progressive tax system are as American as apple pie. Getting moving in the right direction does not require us to agree on the final goal. We are such a wealthy society now and one that so severely maldistributes income and wealth that just moving modestly in the right direction can have an enormous positive impact.

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  4. Fluck says:

    This reads like “don’t try and take away ALL of the money I know I don’t deserve”. It sounds like the author has realised that the level of inequality is so unsustainable that his excessive lifestyle is in jeopoardy and wants to get in first in suggesting the system equalises itself a little bit… but not too much.

    Why is it that people who are surrounded by wealth and comfort think that poor people – people who are working themselves to death – are going to work less if they get more money? The author believes that the rest of society would behave like him, crossing their arms and sulking like spoilt brats instead of working, if everyone earned the same amount.

    The information in the article doesn’t even support the author’s biased conclusion about a ‘good amount of equality’. All of the indicators used by the author to determine ‘success’ in this situaton are reflected in those countries with the greatest equality. The one example of ‘postwar prosperity’ to contradict the rest of the evidence so the author can support a feeling of entitlement and preserve his lifestyle – feeling like he’s contributing without actually doing anything – is the perfect indicator of his real perspective, intentions and overt lack of egalitarianism.

    Unfortunately, it’s largely a good article that raises a few valid points. It would have been a lot better if the author hadn’t projected his own notions of what incentives people need to ‘work’ because the only people that would sit around suckling off the work of others in an equal society are the people who already do that – that ‘top ten’: people like the author.

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  5. Michael Christenson II says:

    I actually took a crack at this based on a lot of research and theory over a couple of decades. Here’s my summation:

    http://www.reddit.com/r/socialism/comments/cp2r5/my_attempt_at_a_better_society_in_the_us/

    While not addressing true equality, I think it’s a huge step forward for the working class.

    By having a livable minimum salary for adults, regardless of whether they are working or not, and having a smaller minimum salary for children up to a working adult age, I have addressed the negative aspects or fallout of low wages, poor economies, and unemployment.

    By tying the minimum salary as a percentage of GDP and/or inflation rate I have addressed the issue of national prosperity when compared to individual worker prosperity.

    By restructuring the charters of incorporation I have addressed the issue of business risk, shareholders, profit sharing, and business decision control; leaning heavily towards worker operated and owned businesses through cooperatives.

    By restructuring how our police and military are funded I’ve addressed the issue of democratic control over policies and actions of these forces.

    By addressing how voting is done, and how political and judicial offices are filled and vacated, I have addressed the need for a more active body politic and offered a way for peaceful and constant political reform by the working class.

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  6. Thanks to Jack Metzger for opening up the dialogue on inequality. I think most of us on this list would agree that the excessive inequality we currently have makes no sense and is bad for our economy, democracy, and civil society.

    Inequality is relative. Therefore Jack’s solution to the inequality problem of reducing the top tenths share of the pie to 1/3 doesn’t really get at the relative nature of income inequality. Since money makes money under capitalism he also leaves perhaps the bigger problem of wealth inequality unacknowledged.

    Be that as it may, the problem of income inequality might be better addressed by a solution that takes the relative nature of inequality into account.

    Sam Pizzigati, first in The Maximum Wage, and then in Greed and Good: Understanding and Overcoming the Inequality That Limits Our Lives proposes a Maximum Wage that is linked to the Minimum Wage. He proposes a Maximum Wage that is only 10 times more than the Minimum Wage. Far from absolute equality, enacting the tax laws that could accomplish this would be a far political stretch, but still allow for some incentive that seems to be core to capitalist psychology. More than that, this 10 times rule links the economic well being with those at the top with those at the bottom, a sort of trickle up.

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  7. David Byrne says:

    Jan Tinbergen the founder of econometrics (and what would he think of what that has turned into) like the decent Dutch socialist he was thought not more than one to five. I would apply that only to cash incomes and have incomes in kind e.g. health care, be even more redistributive.

    David Byrne

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  8. Jack Labusch says:

    One of the more dubious instances of American income inequality is, for example, a case of two bench assemblers. Both work full-time, both are medically insured, both have the same nominal pay rate, both fall in the same tax bracket, hold the same job skills, seniority, number of dependents, etc. Yet one consumes 50% more than the other. The Ol’ Debbil is group health insurance, America’s actuarial junk food, which is a really strange product.

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  9. Kristi Ceccarossi says:

    Perhaps this was meant to be just an academic exercise, but this post seems like a terribly narrow and ineffective way of conceiving of and tackling inequality in the US.

    Because, of course, it is not incomes that are the chief problem. It is wealth. It is ownership. It is lifestyle and all of the factors implicit in that. If we are going to try to dismantle inequality, we have to unravel these things as well, and before we broach income.

    And because, of course, it is not income alone that motivates people to work, or work hard. In fact, for most working class people, I have personally witnessed and experienced that something far more complicated than actual income motivates them to work and work *very* hard.

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  10. Lou Martin says:

    I agree that this is a great post. I thinking getting more people to think about income distribution is a key step toward accomplishing more equity and justice.

    In addition to studies like “The Spirit Level,” I think we also need more studies of how people think about income distribution. For example, I hear complaints about how much pro athletes make but rarely are owners’ profits discussed or even widely reported. People get disgusted at Wall St executive bonuses but not so much about the rest of that top 1 percent.

    I think books like Liz Fones-Wolf’s Selling Free Enterprise unlock part of this puzzle, but I think there’s more work to be done.

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  11. Bob Hughes says:

    Jack thinks equality plain and simple is impossible:

    “Most economists will tell you, however, that the economy would not grow under those conditions because incentives to work and innovate would disappear.  Though I suspect they’re probably right, these economists’ wisdom is based on a speculative assumption about a fixed human nature that a lot of world-class philosophers have contested.  And that would be a great discussion to rekindle if only somebody could figure out a workable, sustainable, and just mechanism for completely equalizing income without giving the government totalitarian powers.  So far as I know, nobody has figured out such a mechanism, and those who were trying to find a way have given up trying.”

    Well, no growth sounds like a good idea! (See Tim Jackson’s “Prosperity without Growth”, for example – on the UK Sustainability Commission’s website).

    There is abundant evidence that innovation is actually _diminished_ by inequality: see the data on which countries register most patents in Kate Pickett and Richard Wilkinson’s The Spirit Level (Scandinavian countries and several other less-unequal countries vastly outperform the UK, which in turn outperforms the USA). Plus the abundant research on the devastating effect of competition, hierarchy, and even basic rewards on creativity (Guy Claxton’s book “Hare Brain, Tortoise Mind” – 1997? – contains lots of sources on that).

    As for “those who were trying to find a way [of achieving equality] have given up trying”, it’s not exactly as if there has been any concerted attempt at equality in the past few centuries, that has not been immediately subjected to vicious, punitive measures, often including massacres and torture, by the anti-egalitarian elites and their allies. Fear is the real obstacle; it is justified; and we need to acknowledge it AND where it comes from.

    And as for “fixed human nature”, he is dead right that it is contested! We are whatever we want to be. And apart from the occasional psychopath, we prefer to be equals and hate oppressors. See Danny Dorling’s recent book “Injustice: why social inequality persists”; and in particular, Christopher Boehm’s “Hierarchy in the Forest: the evolution of egalitarian behavior” (1999)

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  12. Great post. But Jack, I expect that you and your wife haven’t done much outsized-share grabbing over the past 30 years, unless you all sit in the top 1 percent.

    From 1979 to 2007, the bottom half of America’s top 10 percent saw their incomes, in inflation-adjusted dollars, rise modestly from $95,000 to $129,000, the equivalent of not much more than $1,000 a year in increased income.

    The top 1 percent, in the meantime, saw their incomes more than triple over those same years, from $421,000 to $1,364,000. The top tenth of 1 percent, by the way, saw their incomes more than quadruple.

    In other words, the big hike in the top 10 percent’s share of our national income reflects, at root, an immense hike in the incomes of our richest of the rich.

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  13. Ken says:

    Thank you for the post and thoughts wrt income in-equaliy, its pitfalls and possible benefits and how to potentially ameliorate its rougher aspects.

    I think you can also see in the two comments that I have been able to read that doing so within the apparent target audience of this blog may not always feel fruitful. Nonetheless _if_ the current social and physical science paradigm on the human condition is correct, than you are correct in your attempt to open just such a discussion.

    How _do_ we live with inequality? What is the best distribution? How does society prevent those with the most from acquiring more and how do we redistribute those funds in a way that is best for society?

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  14. Kelly Ohler says:

    Have we come so far to understand so littloe? Where are the great minds in Working Class Studies? Have they all taken a sabbatical?
    Do you not remember Michael Yates’ work in which he describes in detail how a living income would eliminate worry and stress and actually make us more productive? Must the “great minds” in “Working Class Studies” continue to reiterate the stereotypes and myths of un-named capitalist “economists” who do not have an understanding of basic human behavior? Human beings instinctively seek out work of some sort; we continually seek to be productive human beings. Stop perpetuating capitalist nonsense.

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  15. Make that “capitalist economists.” The idea that people would lie on the ground and die if not for economic incentive is, um, debatable. People will do what they believe is necessary and what they want to do, regardless of pay.

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