Some Personal Reflections on Economic Well-Being and Income Distribution
Irving Kristol
National Bureau of Economic Research, 1980
From
the corridors of power in Washington to protest encampments on Wall
Street, economic
inequality is once again at the forefront of American
public debate. The combination of rising fortunes at the upper end of the
income distribution and stagnation lower down has led to calls from the left
for actions to redress the imbalance and punish what Theodore Roosevelt called
"malefactors of great wealth." If the immediate circumstances are
new, however, battles over the significance and implications of inequality are
not, and in this context we feel it useful to resurrect a skeptical perspective
on the subject from a previous era. Irving Kristol's 1980 essay "Some
Personal Reflections on Economic Well-Being and Income Distribution,"
originally prepared for the National Bureau of Economic Research and published
in Reflections of a
Neoconservative, is thus reprinted below. In his long career
as a writer, editor, and public intellectual, Irving Kristol (1920-2009) served
as editor ofEncounter, The Reporter, and The Public
Interest.
It
is my understanding, from surveying various studies of trends in income
distribution in the United States over the past three decades, that economists
have found very little significant change to have taken place. There does seem
to have been a slight increase in the proportion of national income received by
the very poor, a slight decrease in the proportion received by the very rich.
What goes on in between is such a complex muddle that economic analysis can
tease few unquestionable inferences from the data. Moreover, the very
methodology of studying income distribution has, over these decades, become ever
more controversial. Just what is to be included in the concept of
"income" becomes less clear every time a new governmental
"entitlement" program is launched (whether it involves food, housing,
medicine, or whatever). And it has become ever more apparent that in order to
take account of normal age differentials in earnings, of changing demographies,
and of economic mobility (both up and down), the distribution of "lifetime
earnings" would give us a far more valid report than any cross-sectional
survey at a moment in time. The trouble is that economists have not come up
with any accepted procedure for measuring any such distribution of lifetime
earnings, and there are even some grounds for thinking they never will.
Does
it matter? What, precisely, is the point of all of these studies and of the
interminable controversies they generate?
When
one raises this issue among economists, one discovers that they tend to feel
that, in some way or other, income inequalities ought to have
a significant relation to other larger issues such as the rate of economic
growth, economic stability or instability, social and historical stability or
instability, or even that sense of well-being we vaguely call
"happiness" or "contentment." And yet it is astonishing how
little by way of any such relationships economic and social research have come
up with. Increases and decreases in income inequalities, as conventionally
measured, appear to be indifferently compatible with social turbulence as with
social stability, with economic decline as with economic growth, with political
order as with political chaos, with an increase in individual and social
pathologies (e.g., suicide, alcoholism, drug addiction, crime) as with a
decrease. Inequality, one gets the impression, is an important issue for
today's social scientists despite the fact that such
importance escapes all empirical verification.
To
complicate matters even further, any effort to relate income inequality even to
strictly economic well-being is plagued by the fact that the concept of
economic well-being is itself not so unambiguous as some economists believe. An
improvement in economic well-being can be quite rigorously defined as an
increase in (actual or potential) purchasing power over the material goods of
this world (i.e., the goods that money can buy). But this brute statistical
fact is always "processed" through people's minds, and it is the
ideas and attitudes in these minds that ultimately determine the meaning we
give to any brute statistical fact. Fortunately for the science of economics,
those ideas and attitudes are not utterly disparate, incoherent, and
inconstant. One can therefore say, with some confidence, that most people, most
of the time, and most anywhere, wish to see their purchasing power increase and
are pleased when that occurs. Having said that, however, one must also go on to
say that particular circumstances can modify or even overwhelm any purely
statistical measure of economic well-being. Both poverty and affluence can have
ambiguities that escape the strictly economic perspective.
It
is an observable fact that not all people who are statistically poor are
everywhere equally miserable or have an equal sense of being "badly
off." The past and the future always shape our sense of the present. So
much, therefore, depends on the hopes one may have for one's children, the
faith one may have in the ultimate benignity and "fairness" of
Providence, on the assurance and solace one may derive from traditions. Poverty
does not always dehumanize, and relative affluence can have its costs in human
terms -- costs that are actually, if often dimly, felt. Anyone who has
seen Fiddler on the Roof and contrasted the lives portrayed
there with the lives of Jews in Long Island's Great Neck today, will appreciate
the immense difficulties involved in disentangling economic well-being from
other kinds of well-being.
Similarly,
on the street where I lived until recently there was a Chinese family, recent
immigrants, who ran a basement laundry. The parents and their five children shared
the two tiny rooms at the back of the tiny store, and I shudder to think what
this family did to our official poverty statistics. Still, those parents
expressed great confidence that their children would "get ahead" --
and, in fact, all five ended up as college graduates. Ought not one to
incorporate that prospect in any estimate of the family's
economic well-being? In contrast, on that same street there were several
welfare families whose incomes, in cash and kind and services, may well have
been larger than that of our Chinese family, but who were in various stages of
a dependency-induced corruption, with little family stability and with the
children involved in drugs and delinquency. Would an increase in their welfare
receipts really have improved their economic well-being? If it had merely
accelerated their demoralization, how would that relate to economic well-being?
Or,
at the other extreme, take the case of a statistically affluent suburban child
who has every advantage, as we say, but who comes to experience those
advantages as bars in a "gilded cage," to use Max Weber's prescient
phrase. He perceives the improbability of his surpassing his successful father
in either economic or professional terms. He finds family and community life empty
of meaning, and school a distracting bore. So he "drops out" of the
world he was born into and becomes a "bohemian," a pseudobohemian, or
a drifter, living -- perhaps placidly, perhaps miserably -- off handouts and
odd jobs. What meaning are we to ascribe to the statistics of his economic
well-being, before and after? When affluence can demoralize as vigorously as
poverty, can we take the statistics on economic well-being with the solemnity
that economists are naturally inclined to do?
And,
of course, this matter becomes infinitely more complicated if we try somehow to
incorporate the idea of economic equality into the idea of economic well-being,
as so many economists think proper. Here, ordinary people seem to have an
intuitive respect for existential complexities that economists often seem to
lack. The intensity with which economists work out their Gini coefficients, and
the subtlety with which they measure income trends in the quintiles or deciles
of the population, is matched -- so far as I can see -- by the utter lack of
interest of the average American in their findings. To some extent, perhaps,
this is because those findings are never definitive -- every piece of research
seems to give rise to an exercise in counterresearch, and the arguments soon
unravel into microdisputations. But mainly, I think, it is because the average
person is far less interested in economic inequality -- or is interested in it
in quite a different way -- than is the average social scientist.
Why?
One reason, I would say, is that the social scientist links the issue of
inequality to the issue of poverty more rigorously than does the average
person. It is certainly true that as a society becomes more affluent, the
"poverty line," as popularly perceived, will also move upward. Today,
for example, no one would dispute the fact that the absence of private, indoor
toilet facilities -- an absence our grandparents would have found not at all
shocking -- is a sure sign of poverty. On the other hand, the average person
feels free to distinguish between needs and wants in ways that the average
economist, qua economist, is prohibited from doing. People who have what are
perceived to be minimally adequate food, shelter, and clothing may be seen as
poor, but not asproblematically poor, regardless of how far down
they are in the income distribution. And if one looks at poverty in this way,
then the percentage of the American people who qualify as poor is small -- well
under 10 percent. A social scientist might retort that any such "absolute"
definition of poverty is arbitrary, as compared with a definition in terms of
relative income. But it is precisely this question to which economics can never
hope to give an authoritative answer.
This
popular perception of poverty is closely linked to a popular perception of
opportunity -- specifically, the opportunity to move out of poverty. To the
degree that poverty is not viewed as a necessarily permanent condition, it will
be of less concern. And the average American is strongly of the opinion that,
leaving the physically handicapped (in which one would include the elderly)
aside, there really is no reason for anyone in the lowest quintile of the
income distribution to interpret his condition as permanent, since
opportunities for "bettering one's condition" will and do exist. It
may be recalled that Adam Smith had earlier suggested that themodus
operandi of a market economy is such that economic mobility -- and the
eventual distribution of income as well -- would of a certainty be less unequal
than in any other kind of society. The reason for this is that the talents
requisite for success in such an economy are so mundane, and the role of sheer
luck is so great, that economic mobility should be greater, and eventual
economic inequalities less significant, than in noncapitalist orders. Americans
on the whole tend to accept this thesis as a fact of life. Social scientists,
in contrast, think it important either to prove or disprove this thesis by
research.
I
carefully say "social scientists" because sociologists are perhaps
even more prominent in this endeavor than economists. It is they who have
created a sizable library of ever more technical literature on the question of
"social mobility," of which income mobility is the major component.
It is an open question whether this literature provides more enlightenment than
obfuscation. We do know, without benefit of research, that if economic growth
tends to create new and better-paying jobs and occupations and professions (as
it does), then the statistics will obviously reveal considerable upward social
and economic mobility (as they do). But what sociologists appear to be worried
most about is whether everyone benefits equally from these
changes, and they do seem to be especially concerned as to whether those who
are already in the top decile manage to hang in there. The statistical
procedures of sociologists are such that one begins with a rigorously
egalitarian definition of social mobility, one in which the children of
upper-class parents are downwardly mobile, while their places are taken by the
upwardly mobile -- a world turned upside-down indeed! -- and then measure the
actuality in the light of this "ideal." The fact that there has never
been such a society, or that the very idea of such a society is inherently
absurd, somehow is lost sight of.
It
is sociologists, too, who have popularized the concept of "relative
deprivation," which is supposed to explain why people's views of their own
economic well-being are inextricably intertwined with the idea of equality.
Now, there certainly is such a thing as a sense of relative deprivation, but it
turns out to have only a limited connection with the larger idea of equality
and to be more intimately related to the idea of justice or fairness ("to
each his due"). Thus, there have been innumerable strikes in the United
States over pay differentials among workers ("equal pay for equal
work!"), yet I do not recall a case of there being a strike over the chief
executive officer's very high salary. If sociologists tacitly assume -- as
practically all seem to do -- that a more egalitarian society is (and will be
perceived to be) a more just society, that is an assumption which derives from
ideology, not from history or contemporary experience.
And
much the same is true, I would say, for the way in which -- and the intensity
with which -- economists study income inequalities. One begins blandly with the
premise that absolute equality is the ideal state and then one measures degrees
of departure from this ideal. Yes, I know, there is nothing
"normative" about such a statistical procedure -- it is merely a
mathematical convenience that zero inequality is taken as the base for all
measurements. But is it not odd that it is impossible to point to a study that
breathes satisfaction (as distinct from Schadenfreude) at
discovering an increase in economic inequality? This whole literature is as
profoundly suffused with ideology as it is liberally bespattered with
statistics.
What,
really, is the point of this keen interest among economists and sociologists in
the issue of inequality? There is precious little evidence to the effect that
it responds to a widespread popular concern and much evidence to the contrary.
Indeed, one gets the distinct impression that much of the research is directed
toward "raising the consciousness" of the public about the issue --
and that the rest of the research is directed toward rebutting such
"consciousness raising" efforts. It is hard to believe that even the
most casual reader can fail to perceive the essentially ideological nature of
this disputation.
My
own view -- admittedly a bit extreme -- is that when you need an economist or a
sociologist to bring you intelligence about inequalities of income or social
class, that is in itself proof that neither issue is of serious concern to the
citizenry. There are simply no "mysteries" to be elucidated about
income inequality and social class, since there is no reason to think that
common opinion, based on observation and experience and gossip, is likely to be
self-deceiving about a matter of such interest to everyone. The very notion
that such self-deception is probable derives from the Marxist idea -- an
ideological conception of the role of ideology -- that bourgeois society is
constantly at work instilling "false consciousness" into the
populace.
At
this point a social scientist might object that opinion poll data do reveal
that people misconstrue the social and economic reality they inhabit -- that,
for instance, households with incomes of $100,000 a year blandly report
themselves to be "middle class." To this objection, there are two
rejoinders.
First,
if a $100,000-a-year household thinks itself to be middle class, then it is
middle class. And the same is true for a $10,000-a-year household. What on
earth gives social scientists the authority to dismiss such
"subjective" conceptions of class and to impose a presumably more
"objective" one? Here again we are dealing with a Marxist derivative
that has been unthinkingly adopted by modern social science. Class may (or may
not) find phenomenological expression, but at root it is a mode of
self-definition. There are aristocrats in England who are as poor as church
mice but are definitely "upper class." And there are immigrants to
the United States who are also as poor as church mice but are definitely "middle
class" from the moment they set foot here. The very thought that there is
someone ("up there?") who knows better than we do what class we are
in is as breathtaking in its intellectual presumption as it is sterile for all
serious purposes of social research.
Second,
when poll data reveal vast, apparent misconceptions about other people -- about
how rich or poor they are, or how powerful or weak they are -- such data ought
not to be taken too seriously. No economic, social, or political system could
function for a moment if people actually had wildly unrealistic notions of
their economic, social, and political reality. The interesting question here
for social research is why people express such opinions and beliefs to
pollsters, not why they have them.
My
own explanation for the keen interest of social scientists in the nonobvious
issue of equality is that this is but one manifestation of how
nineteenth-century ideologies -- and most especially the socialist ideologies
-- have so decisively shaped modern social science. Thus, it is my
understanding that the National Bureau of Economic Research was itself
originally founded, back in the 1920s, to take a serious look at the issue of
economic inequality -- an issue then posed by socialist, quasi-socialist, or
"progressive" critics who maintained that, under capitalism, the rich
were getting richer while the poor were getting poorer. It was they who defined
the issue -- and it is they who have been defining it ever since. It is
fascinating to note the way in which research does not dispose of this issue.
One might have thought, as the evidence accumulated to the effect that nothing
very novel or exciting has happened to the distribution of income in recent
decades -- and there is even evidence to suggest that nothing very exciting has
happened in the past century -- that social scientists would simply lose
interest in the question. They have not. Instead the studies become ever more
sophisticated, ever more incomprehensible to the noninitiated, ever more
"scholastic" in the pejorative sense of that term -- and they still
don't bring us tidings of significance. The impulse behind such studies can
hardly be designated as routinely "scientific."
It
can, however, be quite easily recognized as "ideological." The
prominence of the issue of equality, I should say, reflects the degree to which
egalitarian, quasi-socialist conceptions of justice have permeated our culture,
including the thinking of many social scientists who do not regard themselves
as in any way socialist but who, as a matter of course, use the ideal of a
socialist society -- classless and egalitarian -- as a proper criterion for the
judging of capitalist reality. Of all the social sciences, economics has been
the least influenced by this ideological impulse, in part because the
discipline of economics is truly more rigorous than the other social sciences;
in part because a respect for market processes is indigenous to the methodology
of this discipline. But economists are human, and it could not remain
unaffected. One has only to recall the ingenuity and persistence with which
distinguished professors of economics elaborated quite fanciful justifications
for the progressive income tax -- for which there is no economic, as distinct
from moral or political justification, since it involves an interpersonal
comparison of utilities which is beyond the scope of economics.
It
is understandably irksome to many economists that the science of economics,
strictly considered, should not offer answers to many important questions that
appear to be economic in nature but in fact belong to moral and political
theory. Indeed, we have witnessed recently a vigorous dissenting movement by
advocates of something called "political economy" -- sometimes
"normative economics," sometimes simply "radical political
economy" -- who argue in favor of a candid union of economics with
ideology. These are for the most part younger economists who are discontented
with the limits of their social-scientific discipline and who wish to import
into economics all of those intellectual and moral considerations that used to
constitute the body of political philosophy when that discipline
still flourished. (One such consideration is equality, as an ideal or nonideal
for a good society.) One may sympathize with the moral and intellectual
passions behind this movement while realizing they are destructive of the
integrity of economics as a scientific discipline.
What
it comes down to, in the end, is the need for economists to recognize their
severe limitations qua economists. Economics has many useful and important
things to tell us, but it really has nothing to say about the larger features
of a good society, or about the status of equality or inequalities in such a
society, and it only has something to say about "economic well-being"
on a fairly narrow -- though not unimportant -- definition. Those economic
statistics we are being deluged with do tell us something valid about the real
world; but they often tell us less of the truth about the real world than economists
are -- by virtue of their déformation professionelle --
inclined to think.
--Irving Kristol, 1980
