Krugman on Equality

Krugman on Equality October 20, 2008

Since his Nobel prize was announced last week, I have been (re)reading some of Paul Krugman’s old columns for Slate magazine. I find the columns to be thoroughly engrossing, which is to say not that I think everything Krugman says in them is right, but that even where he is wrong he is wrong in an interesting way or for interesting reasons.

Case in point: in a column entitled The CPI and the Rat Race, Krugman argues that it is inequality, rather than poverty, that is the more important social problem. Krugman begins the column by conceding (as he must) that, materially speaking, life has gotten a lot better for Americans over recent decades:

In 1950 some 35 percent of dwellings lacked full indoor plumbing. Many families still did not have telephones or cars. And of course very few people had televisions. A modern American family at the 12th percentile (that is, right at the poverty line) surely has a flushing toilet, a working shower, and a telephone with direct-dial long-distance service; probably has a color television; and may well even have a car. Take into account improvements in the quality of many other products, and it does not seem at all absurd to say that the material standard of living of that poverty-level family in 1996 is as good as or better than that of the median family in 1950.

Nonetheless, Krugman says, it would be wrong to conclude that life is better for the average American in 1996 than it was in 1950, as what people really care about is not their absolute standard of living but rather their relative standard. To justify this claim, Krugman offers up the following sci-fi inspired hypothetical:

Imagine that a mad scientist went back to 1950 and offered to transport the median family to the wondrous world of the 1990s, and to place them at, say, the 25th percentile level. The 25th percentile of 1996 is a clear material improvement over the median of 1950. Would they accept his offer? Almost surely not–because in 1950 they were middle class, while in 1996 they would be poor, even if they lived better in material terms. People don’t just care about their absolute material level–they care about their level compared with others’.

Now there aren’t actually any mad scientists with time machines running around (that I know of), so there’s no way to directly test Krugman’s hypothesis here. But there is a rather close approximation to the scenario he outlines that does obtain in the real world. It may not be feasible to transport a person from the year 1950 to the year 1996 (or 2008), but you can transport them from one country to another. And there are plenty of countries in the world whose material conditions now are comparable to those of the U.S. in 1950. If Krugman is right, then individuals in those countries should not be willing to move to the United States, because while this would improve their absolute material condition, their condition relative to their society would dramatically decrease. In fact, what we ought to see is people from the United States clamoring to get into these poorer countries, as by so doing they could greatly increase their relative material condition.

This is, needless to say, not what we actually observe with regard to immigration. The fact that so many people are willing to risk their lives to become poorer (relatively speaking) by coming to the United States suggests that perhaps one’s absolute material condition does matter to people more than Krugman suggests.

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  • Jeremy

    I would agree with this. Observation, plus some research articles I have seen point to the fact that happiness is less about what you have, and more about what your neighbor has (in relation to what you have). I lay ten to one odds that if you could go back in history 100 years and tell somebody there that they could have a hot bath and a cold drink anytime they wanted it, they would probably assume they would have to work at being not happy all the time.

  • joseph

    Very good post.

  • That article “In Praise of Sweatshops” is my favorite.

  • Zak

    I don’t think your counter-example works all that well. People who emigrate to the US see their absolute material condition improve, yes, but it is not certain that relative material condition decreases substantially. They are already coming from societies with high inequality (China, Mexico, most of the rest of Latin America, and sub-saharan Africa all have higher gini coefficients than the US, don’t they?), and most immigrants, although not completely impoverished, since immigrating usually requires some capital to pay for it, are at the lower end of the economic spectrum anyway. It’s not the petty bourgeousie and aspiring upper middle class coming here from Mexico, it’s farmers whose produce is no longer competitive and laborers looking for similar jobs paying more.

  • Zak

    Plus, people emigrate to communities where those immediately around them will still have similar levels of wealth, so it’s as possible to keep up with the Sanchezes in Pilsen in Chicago as it was back in Durango.

  • Jeremy

    There is much more to happiness than relative materialism. Health and a sense of belonging to a community, but once those are achieved, then relative materialism begins to take root.

  • premodern

    It is not just the absolute and/or relative material condition upon arrival that is taken into consideration but the POTENTIAL FUTURE material condition that counts. Unlike most of the countries that these people are leaving, the US is still viewed as the “Land of Opportunity”. The US is still viewed as one of the few countries where a person can improve their material condition significantly with wisdom and hard work, regardless of their education, family tree, race, religion etc.

  • blackadderiv

    Zak,

    Some parts of Africa have higher Gini coefficients than the U.S. much of it does not. In any event, when I spoke of immigrants choosing a lower relative position in the U.S. than in their home country, I had in mind not so much immigrants from Latin America as from places like Canada, Europe, the sub-continent, and various other parts of Asia. These countries have less inequality than the U.S. and immigrants from those countries do not generally come from the most impoverished or ill-educated classes. Yet the immigration flows between those countries and the U.S. is decidedly one-sided.

  • Mike J.

    BA,
    I think the problem with your comparison is that it assumes the immigrant is comparing their new material situation against their *current* neighbors, not their previous neighbors. For the immigrants and possibly first generation, what you hear is, “we’re better here than there”, so the comparison is made to the old country, not the new.

    -Mike

  • RR

    Does it make a difference? It seems to me that what we consider “absolute poverty” is relative to our own status. “Absolute poverty” needs to segregate necessities from luxuries but that is based on the availability of those things in society.

  • First, I think your example is solid and that Krugman’s idea that a middle class family from 1950 would decline to become a 25th percentile family in 1996 is based on rather flawed assumptions. Sure, people pay attention to their relative wealth compared to others, but it’s the others they can see at the moment that are key. Most people not completely overcome by pride (“Better to rule in Hell than serve in Heaven…”) would probably make their decision mased in immediate material improvement, but might later develop discontent if they found themselves stuck at a low comparative material position compared to their new neighbors.

    How much this is a problem doubtless depends on one’s ideas of morality and the “good life”. It seems to me that there’s a decent moral case to be made that if one has the essentials of a “good life” (good food, clothing, and shelter, access to basic medical care, leisure time and the tools for pleasurable leisure) that it really shouldn’t matter at all whether other people are richer or not.

    However it’s certainly an accurate observation of human nature that even if we ourselves our comfortable, we eventually become upset at others having more if we do not see our way open to achieving a similar status at some point in the future. The question is: does this represent some sort of natural right and ordered desire (as Krugman seems to implicitly assume) or is it a universal human tendency towards envy?

  • As Steve Sailer has noted, the problem with being poor in North America right now is not that you do not have enough stuff, but that you have to live around other poor people, with all their attendant social pathologies. Poor people tend to be poor at least partially because they have such characteristics as low intelligence and poor impulse control, and no increase in either their relative or absolute standard of living is going to change those characteristics.

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