What’s Fair?

The editors of the Washington Post remark on income inequality in the United States:

Consider the distribution of income across the entire spectrum. This is often measured by the Gini index, which represents how the actual distribution of income deviates from the line of perfect equality, where everybody gets the same. It ranges from zero in a perfectly uniform society to 1 in a society in which all income accrues to the top dog. Mr. Auten and Mr. Splinter estimated that between 1970 and 2019, America’s Gini rose from about 0.42 to 0.54, before taxes and transfers. Including the effect of government redistribution, it rose from 0.35 to 0.42.

This speaks well for American redistribution — pushing back against market forces driving up inequality. But the numbers are also pretty similar to preexisting work. The Luxembourg Income Study, which estimates inequality based on survey data (rather than official government data, as Mr. Auten, Mr. Piketty et al. do), finds that the U.S. Gini index rose from 0.40 to 0.51 before taxes and transfers over this period and from 0.32 to 0.39 after redistribution is added in.

America’s story might be due for some reinterpretation. Perhaps the very rich do not take quite as large a slice of the pie as many thought. Still, the “new” version of the United States remains a remarkably unequal place, more so than most other industrialized countries. According to data from the Luxembourg study, Norway’s Gini, after adding in taxes and transfers, is 0.28; Canada’s is 0.29, Germany’s is 0.30 and Britain’s is 0.30. Of the 38 countries in the Organization for Economic Cooperation and Development, only four are more unequal: Chile, Costa Rica, Mexico and Turkey.

I have a number of thoughts on this. The first and, possibly, the most important is what is fair? Are equal and fair the same thing?

Let’s say there are two workers with the same job titles and responsibilities. The first comes in late, leaves early, and is slapdash in his work. The second comes in early, leaves late, and is unfailingly conscientious. They’re paid the same amount. That is equal. Is it fair?

Second, I was unaware that Norway, Canada, Germany, or Britain shared 2,000 mile land borders countries where the typical household income was a quarter theirs. In fact I believe we are the only country in the world with that distinction. It’s not too much of a leap to suspect that has some impact on incomes at both the low and high ends.

Third, we import very large numbers of very intelligent, highly educated, hardworking people into the United States at wages considerably higher than in their country of origin. That, too, is bound to have some impact on incomes both at the high end and the low end.

All of that said I will admit to being very uncomfortable with the incredibly high incomes being realized by some. When they can be related to supply, demand, and output, that’s completely reasonable. When it can’t it isn’t and that will be the case far too frequently. I have no idea how to remedy that but I’m open to suggestions. Please don’t suggest the tax system. If there’s one thing we’ve learned over the last 40 years it’s that our political leaders are allergic to taking money away from their donors. At least without giving them even more.