 Welcome to Free Thoughts, a podcast project of the Cato Institute's Libertarianism.org. Free Thoughts is a show about libertarianism and the ideas that influence it. I'm Aaron Powell, a research fellow here at Cato, an editor of Libertarianism.org. And I'm Trevor Burrus, a research fellow at the Cato Institute's Center for Constitutional Studies. Our topic for today's episode is inequality. We're joined today by our colleague Brink Lindsey, vice president for research at the Cato Institute, an author of Human Capitalism, how economic growth has made us smarter and more unequal. Brink, we know that inequality exists, that some people make a ton of money and some people don't make much at all. And it bothers a lot of people. I mean, outside of any effects, it has just the very existence of this huge disparity in income that we see is deeply troubling for a lot of people to the point that they want to do something about it. I guess I want to start by saying, is there anything... To that, to this, I mean, is there something wrong with people earning hugely different salaries or are these people just kind of upset about absolutely nothing? Yeah. I think that hostility towards inequality per se is a fairly deep-rooted human sentiment, but a fundamentally illiberal one. That is, there is a fundamental tension between liberty on the one hand and a goal of equality of condition on the other in that given that people naturally have different abilities and preferences, if you allow them to do what they want, they are naturally going to end up dispersed over a wide variety of economic outcomes. So the only way to stop that is to constantly intervene and override what would otherwise be the natural results of differences in abilities and preferences. And it would be continuous intervention because once you did it once, then again, these natural differences would reassert themselves. So I think, again, just a knee-jerk pining for equality of condition is probably hardwired into the human brain in some way or another, but it's not something. It's not the part of the brain that we want to reward in a free liberal society. So do we think that another condition here is marginal utility of wealth? People might have not necessarily a problem with the money sums in the absolute, but the fact that this guy can buy another $1,000 bottle of champagne and this guy can't buy water. So there'd be one argument that says, well, we should allow these inequalities except to the point where a guy can't buy water while other guy is buying champagne. So there is a completely different set of concerns about whether some people have enough, that is, are some people simply below the floor of a decent standard of living. And if they are, then as naturally other regarding people with sympathy for others, we're going to be upset about that and want to do something about it. We can lift people up from the bottom and make them better off than they otherwise would have been and above some minimum without in any way affecting the overall unequal pattern of incomes. So I think you do not have to conflate a concern for the less fortunate and concern for genuine disadvantage and suffering with a thoroughgoing egalitarianism that sees as an ideal a complete equality of condition. And to be honest, this kind of thoroughgoing egalitarianism I think is more or less a strong man. Not many people in American political debate would sign up and say, that's me. But I wonder, a lot of people when they're talking about this problem with income inequality, there's this sense that, yeah, there's people at the bottom who don't have enough, but there's also a kind of moral blameworthiness they place upon the wealthy in this distribution, which is to some extent because people think that it's because the wealthy have so much that the poor have so little, like a zero-sum outlook, but also this declining marginal utility of wealth question. There's this idea that it's somehow morally blameworthy to be buying that really expensive bottle of champagne when there are people out there suffering who could be helped hugely by you just redirecting that resource somewhere or by that money being taken from you in the form of higher taxes or whatever else. You're kind of shirking your responsibilities as a good person. To be sure, there is zero-sum thinking rampant in public opinion and non-economic thinking rampant in public opinion. And part of that is the idea that we live in a zero-sum world so the rich got rich by taking it away from somebody else and so if the rich are doing better than before, that must mean they're taking out of the hide of others. And that can be true, but it certainly isn't necessarily true. I would say through most of human history it was true. So the fact that we have kind of zero-sum instincts culturally is understandable. So for most of human history, the overwhelming majority of people lived at the edge of subsistence and a tiny aristocratic elite lived very well by the standards of the time basically by stealing from the masses. So I think it's understandable that a prejudice arose that rich people are thieves. And that's been going on for thousands of years. It's only in the past couple hundred years of modern economic growth that you had fortunes arise from giving stuff to people that they really wanted. So superior service as an origin of fortunes rather than predation is an historical novelty and it hasn't sunk in culturally so much. As to the idea that someone is consuming obscenely, that how can you buy that thousand-dollar bottle of champagne when there are people suffering down the street is I think a kind of accusation that comes naturally to people, to aim at people above them without recognizing how then vulnerable they are to the same kind of argument. So anybody in the United States doing anything like a normal American standard of living is vulnerable to that charge by the lights of or by the standards of the way most people in the world live. There's three billion people on the earth today making do with less than $2 a day. Anything in the bottom quintile of American life looks obscenely self-indulgent by their standards. So I don't think, so I think there's something fundamentally wrong then with that approach and the fact is that poverty is the natural human condition and that the escape from poverty that has been going on thanks to modern economic growth over the past couple of centuries has been a gradual process which means it started someplace and has been spreading slowly and deliberately which means that the transition from a world of mass poverty to a world of mass affluence, that whole transition period is a period of great inequality. But that I think is not what you should focus on. You should focus on the direction and where the end goal is a world where everyone has been liberated from material deprivation and so to stop that deliverance process in the name of objections to the fact that it hasn't affected everybody instantaneously is really short-sighted. So apart from preying on the poor and maybe buying a $1,000 bottle of champagne, maybe not being charitable enough, it seems like some people think that there are types of wealth or maybe specific wealthy people that is bad or like hedge fund managers or bankers. Bankers have a very long history of being hated and you don't see it with LeBron James, right? They don't criticize the wealth equally so that seems to be another component here. Sure. So just to back up a little bit, if inequality per se was a bad thing and a more equal society per se was a good thing, if inequality really is a fundamental indicator of the justice of social institutions, then we would be living in a very different universe than the one we currently inhabit. The most comprehensive measure of income inequality is a number called the Gini coefficient and it runs from zero to one. Zero is perfect equality. Everybody in that society makes exactly the same amount. One is perfect inequality. One person in that society makes all of the income. Everybody else makes a zero. The U.S. Gini coefficient is about 0.45, pretty high by world standards. A country with a comparable Gini coefficient is Uganda, just a little bit less than ours at 0.44, so slightly less unequal than we are. So slightly better than we are. And yet on the UN Human Development Index, which takes GDP per capita, life expectancy and educational attainment and balls them together into one number, the U.S. is number three on the UN Human Development Index and Uganda is number 161 out of 187 countries. So the Gini coefficient tells you precisely nothing about how good that society is, how well it is run for its citizens, how justice institutions are, etc. And why is that? Why is there so little informational content that you can glean from the Gini coefficient? It's because that bottom line pattern of incomes is an incredibly complex phenomenon that reflects thousands, millions of different factors all pushing in different directions. So there are good reasons causing inequality, like an economic takeoff where some people are suddenly becoming rich for the first time. There's good reasons for inequality, whole new industries being created and creating vast new fortunes because someone has figured out how to build a better mousetrap or build a, create a notebook or a tablet or a smartphone or something that nobody ever had before. And then of course there are bad reasons why you can have inequality rising such that people take control of the levers of power and use it to enrich themselves and steal from others. And traditionally, traditional societies have a lot of that kind of predation and so traditional societies tend to have unequal a la Uganda. We're unequal for very different reasons. And so again, because there is this baseline knee jerk against inequality and because we all like to moralize all of our debates that we're in, there is a great tendency to just assume that if high levels of inequality are bad, then they must have arisen for bad reasons. And yet if you look at the reasons why inequality has arisen in the United States, you can see all kinds of reasons that people on the left might say are bad reasons, but you can see all kinds of reasons as well that people on the left would say are good reasons. So we have, for example, much more liberal immigration, low-skill immigration today than we did from the 20s to the 60s. And that has exacerbated income inequality basically by bringing in a bunch of unskilled people who make low incomes. We've shifted the median income downward and created a more unequal overall income structure. We have reduced global inequality by doing so greatly because those immigrants now make a lot more than they did back in their home countries and their children do too. But for U.S. stats, we have worsened the Gini coefficient by expanding freedom and opportunity for people who really, really needed it and in a way that progresses tend to support. Likewise, a non-trivial component to the rise in unequal incomes in the United States has been greater quality, social equality, freedom, opportunity for women that we've had since the 60s and 70s opening of a whole range of jobs and professions to women that previously had been boxed out of. And as a result, we've seen really rapid gains of women income relative to men. As it happens, though, we have also assortative mating, which is that people tend to marry someone of similar socioeconomic status and in particular similar educational attainment. So what we've seen then, if we didn't have assortative mating, then the big rise in female incomes could have been a leveling factor because the low-income man could have married a now high-income woman and it could have even the scales, but what has happened is it has exacerbated income inequality because the high-income male is now, instead of having a stay-at-home wife, has a working wife who is also well educated, highly skilled and commands a high income. So here again, a good thing has led to something that someone might think of as a bad result. So it is to really see this whole issue analytically and objectively, you have to step back from this black-at-white-at moralistic approach to things because something as complex as a genie coefficient is going to reflect a whole bunch of factors, some of which you like and some of which you don't. And truly then, that leads, I think, to a conclusion that it would be very helpful and very constructive to shift debate away from inequality per se and shift a debate on to possible bad things that are driving up inequality. Then we can argue about whether those are really bad things and if we agree that they're bad things, then we can argue about what to do about it. But those arguments can take place much more constructively without the inequality frame and they're really what we should be focusing on anyway. So let's talk about some of the trends that you've mentioned a little bit because we hear this a lot now. The most in my lifetime hearing these discussions of whether it's the 99% and the 1% and all these sort of YouTube videos about how much wealth is, we hear this a lot. So in the general proclamation that inequality has increased under whatever metrics they're using, whatever studies they're using, do you agree with that and how are they measuring that? So the measurement of inequality is one of the great statistical food fights of our time and there's lots of back and forth and choosing what dimension of inequality you want to measure will lead to different conclusions. So you could look at genie coefficients, you can look at the ratio of the 90th percentile to the 50th percentile, high versus middle, you can look at ratio of the 50th percentile to the 10th percentile, middle versus low, you can look at 90, 10, you can focus on what percentage of total income is commanded by the top 10% or top 1% without paying attention to anybody else. So there's a whole lot of different ways to look at this. But I would say that overall, you can quibble with numbers and I have, but I would say that the data are clear enough that there are two different phenomena that have been going on that have pushed incomes in a more unequal direction or towards a, they now disperse over a wider range than they used to. And the first, I would call the 1 versus 99% inequality and that's what tends to attract most headlines and that is that incomes at the very top have experienced rapid growth in recent decades while incomes in the middle and below have grown tepidly if at all there's dispute whether there's outright stagnation or maybe some people are actually worse off than they were before, but at the very least, growth for most people has slowed down and growth at the top has been more robust than ever. So that's going on, growth at the very top. Meanwhile, there is, in addition to 1 versus 99 inequality, there's 30 versus 70% inequality. So there's the growing cleavage basically between the highly skilled, more or less the people with college degrees and everybody else. So as of 1980, the college wage premium, the difference between the average salary for a college grad and the average salary for a high school grad was 30 to 40%. Over the course of the 80s, it doubled to 70 or 80% and it stayed high ever since. So we have this growing cleavage between the highly educated and highly skilled and everybody else. This cleavage is not just an income, but it's in a whole lot of other things too. It's in family structure, single parenthood. It's in entertainment preferences. Cultural differences, NASCAR versus... So there's things that I think people wouldn't think are very important, sort of superficial cultural differences. Family structure and so that includes marriage out of, or childbearing out of wedlock. It includes divorce rates, very different levels between the highly educated and everybody else. It didn't used to be that way. Those differences have grown larger. Big difference between, in labor force participation now and an inversion of the traditional way that things were where you had the working class or the less well off, those are the people who work for a living and the rich were the leisure class. Now our top income earners work much many more hours per year than the people at the bottom and indeed the labor force participation rate for high school dropouts is around is like under 50%. So there's a lot of just complete exit from the workforce at the bottom. Is that because the people at the top and the income bracket simply want to work more than the people at the lower or would the people at the lower typically want to work as many hours and boost their income as the top earners do but don't have an option to do that? I think it's complicated but in general many people in the top have jobs that are intellectually stimulating, challenging and confer lots of social status and so they're fun to have those jobs and people do them because they pay the bills but also because they are intrinsically enjoyable to a much greater extent than jobs at the bottom. So the economists idea that labor that work is always disutility is really not true for an increasingly large group of people but it remains quite true at the bottom. So work is not an attractive option because the work that is done just isn't as interesting and could be physically tiring and exhausting and dangerous but on top of that you have a welfare state that offers some kind of minimum standard of living without having to work and if your market wage, if your skills, the market value of your skills is roughly comparable to whatever the social minimum is then you're not very likely to work for a living. Your least bad option could very well be to be on the dole. So this 3070 inequality, it's very interesting because I think you're right, you see it in a broader social move, you see a lot of different types of behavior going on between different types of classes. Charles Murray's book talks about this to an extent. Yes. So propensity to vote, propensity to join community organizations, health, exercise, smoking, obesity, they all now cleave on educational lines in a way that they didn't before which is that the reemergence of a class divide along educational lines is a new phenomenon in American life and I consider it to be an unfortunate one. So from my perspective, although most of the headlines go to the 1% versus 99% inequality just because those fortunes are so eye-popping and it's easy to be sensationalistic about to my way of thinking that just isn't much of a problem at all. The fact that the super rich are pulling away from the well-healed does not strike me as a massive social problem as an incredibly important problem. And what as a liberal I am most interested in is living in a society where individuals can flourish and thrive in lives of their own choosing. So what I'm interested in is differences along that dimension. And so if you take me a policy walk and compare me on the one hand to a hedge fund trader or on the other hand to someone who replaces bed hans at nursing homes, the income difference the hedge fund trader makes a thousand times more than I do. I make five to ten times more than the cleaning lady. And yet in terms of the things that so that inequality is much greater between me and hedge fund guy than it is between me and cleaning lady. But in terms of the things that I think really matter opportunity to engage in stimulating interesting challenging work that you feel good about and you feel like a productive member of society and I feel no real inequality between me and the hedge fund trader and I feel a gigantic chasm between me and the cleaning lady. And so to me a world in which people are not getting ahead by developing the kind of skills that do command good compensation in today's market economy. That's a much bigger problem. It affects a lot more people and it affects a much more important matter than inequality at the very tippy top. As I'm listening to you talk I'm trying to approach this from the perspective of someone not sympathetic to the views that we in this room tend to share and I can see them listening and thinking so what you're saying is that the real disparity, the growing inequality, the one that ought to concern us is between these people who have the right kind of skills, the right kind of culture, the right kind of attitudes and are getting these great jobs that are fun and all that and then the people who have this culture that's not synced up with where the money comes from and they aren't developing their skills and they aren't taking jobs that are demanding in highly skilled ways and they have higher divorce rates and all these other things and it sounds like blaming the victim or it sounds like that maybe our system, if our economic system is such that all of the benefits flow to a small group who hold a minority's preferences or a minority's cultural beliefs and attitudes that maybe there's something wrong with that system and we need a system that instead works to the benefit of how most people think and act and want to live and most people's capabilities and whatever else. So let's let me back up and approach that by giving the explanation of where I think this skill-based inequality, this increase in skill-based inequality is coming from a fundamental driver of social change throughout the world and especially the more advanced economies over the course of the 20th century has been that economic development makes society more complex over time. So first, there's just more knowledge and know-how distributed throughout the system than ever before. Secondly, the division of labor becomes ever more specialized and finally grained and then finally there's just more choices along every dimension of human existence the richer you get. So there's just more moving parts of society interacting in more different ways and this growing social complexity as I argue in human capitalism requires people with who can master that complexity to run things and indeed the more complex the economy gets the higher the percentage of people you need doing the running things. So in an analog to biological evolution where the brain-to-body ratio grows bigger when animals have more complex behaviors they need a bigger governor to run all those complex behaviors. As our economy gets more complex our brain-to-body ratio is growing. The percentage of total U.S. jobs that were managerial or professional in 1900 was about 10 percent now it's about 35 percent so that means that among other things the growth of the economy has created many more opportunities at the top it's created many more opportunities to stretch your mind and develop your inborn talents and capacities to run this incredibly complicated contraption that is a modern economy and that's a great story and so that's a story that that is a story of mass human liberation, liberation from boredom, liberation from ignorance, that that the imperatives of running a modern economy have catalyzed a huge investment in schooling and otherwise in the development of skills and so we're much smarter today or more people are much smarter today as a result of a capitalist development than otherwise would have been the case and so that's great. The problem that has emerged in recent decades is that the demand that economy keeps getting more complex the demand for highly skilled people keeps rising but the supply has not kept pace and we see that in the run-up of the college wage premium so if the if the premium for getting a college degree doubled then that's a very clear signal from the market telling people we need more highly skilled workers we need people with more training and then the fact that that premium has not then come down means that there hasn't been a commensurate supply response which is weird so it's it's here's this money hanging out there if you get a college degree and yet people are not responding interestingly women are responding women's college attendance and graduation rate has continued to climb but the male college graduation rate today is the same as it was in 1980 so so there's some inhibition that is preventing people from responding to economic incentives and it is preventing them from developing their own native talents and capacities and and profiting thereby so in no sense I think am I blaming the victim I am identifying victims people who because of of various reasons are not getting the shake that they deserve to be all they can be and realize their potential once upon a time people thought that capitalism would thrive by keeping the masses down you've got the you know the Charlie Chaplin modern times vision of the proletariat just turning that one screw on the assembly line for all eternity and we couldn't run the machine of a modern economy without all these human drones but in fact reality has turned out completely differently it's that as we go along capitalism wants more and more people to develop a broader range of their talents and capacities than before and right now our culture our educational system our communities are not producing the supply of these highly skilled people that the economy needs so there is currently more room at the top we could have an occupational structure in which there is a even higher percentage than today of people with interesting stimulating jobs if our families communities and schools could produce the people willing to fill those jobs are capable of filling those jobs because they aren't our occupational structure is more bottom heavy than it otherwise would have been so let's find the it seems like we can start thinking about blame almost to some extent which is as you said more productive than just sitting around and complaining about the fact that these people are rich and saying well let's get some people up to the top schooling seems to be one thing and that would be public schools but someone listening this might be thinking oh well you know Obama and Presidents for many terms now have been talking about you know STEM many people in STEM think we need to get more people into college with college degrees and and there's also pushback that that's even a good idea because the college might be not worth it for some people to go so where do we start trying to patch this together yeah so just before I get into possible solutions let me just dwell a little bit more on on framing the problem because I think looking at this as a failure to develop human capital as as a mismatch between the demand for human capital and supply is the appropriate way to look at this and not the way that that people who rail against inequality tend to they tend to frame this in terms of wage stagnation and that something happened to the economy so that this growing gap between the highly skilled and everybody else which is basically everybody else is stagnating or growing or their fortunes are growing very slowly relative to people who who have higher skills they tend to see that as the system is somehow or another broken that the working man is getting fleeced by the system he's not getting his his fair shake that somehow or another markets are uh failing to reward people for their full contributions I think that's blaming the messenger that I don't see any evidence of systemic failures in labor markets that would lead to the conclusion that workers aren't getting their marginal product so uh most labor markets have lots of sellers and lots of buyers that's a classic textbook example of a competitive marketplace so I don't see any reason to think that there is some kind of systematic failure in markets so that the workers are being systematically underpaid so the problem isn't that workers are being systematically underpaid the problem is that too many people just aren't worth very much that's the problem and so rather than saying that this all happened because Ronald Reagan fired the air traffic controllers and somehow or another mystically through ways we can't really talk about that destroyed the union movement and therefore people don't get paid as much as they used to that I think is just a dead end of really bad history and and leads away from the correct conclusion the correct conclusion is that we need to build up people in the bottom half and need to pay attention to how they can cash in on what the fortunate third have cashed in over the past generation so how do you do that first you know most obviously the social institutions charged with human capital formation in our society or our schools we have a long-standing system of government financed and provided public schools for k through 12 and then we have a very complex mix of private and public institutions for post-secondary education but the the the core social commitment that we've made through public policy is public education and and it's it's basic promise was to address what is currently going on which is that regardless of your family background regardless of where you come from we're going to you're going to come here for free and we're going to give you the skills you need to thrive and flourish in American society and that just ain't happening in American public schools anymore right now we see the children of professional parents come in with a big come into school at age four or five with a big test score advantage over children from disadvantaged backgrounds and then those test score differences grow slightly over time so that what the public schooling system does rather than mitigate class differences it just perpetuates them and so we have public schooling just failing to deliver on its fundamental promise and we have a system that is clearly deep into the territory of of diminishing returns we spend two three times as much per pupil as we did 30 40 years ago graduate a lower percentage of kids from high school than we did 40 years ago and test scores are about the same marginally higher in some at some ages and in some subjects and marginally anyway very little improvement in test scores with a i.e. outputs with a huge infusion of additional inputs money so that suggests that that to get better education for our kids we're going to have to have a fundamental redesign of the system because this system isn't delivering better results for more money so we have a structural problem so i think looking at structural redesign of our k through 12 schooling system is incredibly important and big shock as a kato institute guy i'm going to think that's that the main focus of reform should be in instilling additional competition so that schools compete against each other for students and the ones who do a good job grow and the ones that don't shrink and die just like in the marketplace so that good schools can then grow over time and scale over time and bad schools will wither and die we don't have anything like that kind of system today i think we would be in a much better world if we did that said i think that a lot of the differences in human capital that we see and that are important today are already present by the time kids show up at school and are some of them are pretty hard to budge after that point so what happens meanwhile people live most of their lives outside of school so they're subject to even if school is pushing in the right direction there may be bad influences elsewhere they're swamping those good influences so i think family life and and is an incredibly important part of the picture uh and we see clear class-based differences between uh parenting at for working class or underclass families versus parenting in upper middle class families much greater stress on intellectual stimulation uh much greater stress on uh time management and on long time horizons then then lower down in the social ranks and that family life where at the top where every moment is a teachable moment is just a constant non-stop training ground for amassing the kind of human capital that you need to ultimately to do well in school to like school and therefore to get the credentials and the skills you need to do well uh so um and i think there are some interventions that can be tried to help kids from disadvantaged families uh but i don't hold out huge hopes uh that that anything revolutionary uh can happen uh basically uh because uh we want to grant families a great deal of autonomy and it's creepy and and even oppressive uh to dive too deep into family life and have the state be the surrogate parent um so i think our the the main action even if even if the family may be a more important source of inequality uh there's limited things we can do about that we can do more at school and i think that the main takeaway uh policy recommendation that comes from uh from my book human capitalism is uh that a dramatic overhaul in our educational system is is our best bet for uh making progress on on this issue and truly expanding the number of people who have the wherewithal to flourish and thrive in contemporary society listening to that i'm struck by how big of a project that sounds i mean you said that in order to address this income inequality we need to fix by overhauling our educational system we need to somehow improve parenting on a large scale we need to do something about culture and and that sounds i mean that's a big project it's not an easy project what about someone says well maybe that's just too much to do it's it's not feasible but you've said that the that the people at the top of the distributions often aren't doing this for money or their jobs are much more satisfying much more fun they they're working long hours because they like them and they get other things besides a paycheck out of it status whatever else so they would keep doing them potentially even if they were making marginally less than they are now so why not just redistribute which is going to be far easier than fixing culture and so we increase welfare or as some people have argued have a guaranteed minimum income which is just going to be that's we could institute that tomorrow say as opposed to fixing the scope of united states culture so the problem is you can't redistribute what needs to be redistributed so you can redistribute money so it's true that you could give more money to people at the bottom by taxing people at the top more our genie coefficient in the united states post tax is more dramatically different from europe's than than our pre-tax genie coefficients are so the main reason european western european countries are less unequal than us is because they do more taxing and redistributing so you can do that you can you can get better numbers but that does precisely nothing to affect the things that i care most about which is people actually developing their inborn talents and capacities and and living lives of of purpose and challenge and reward so and indeed by reducing the absolute costs of not developing those skills by making the social safety net cushier you reduce the incentives to to develop talents and skills by reducing the gap between the highly skilled and the skilled you reduce the economic incentive to develop skills now i'm not saying that those that those current differences are sacrosanct and that there are that those incentives are absolutely necessary but but i am saying that that if you are truly interested in a in a more egalitarian society in the ways that matter most not money income but quality of life um a fiscal redistribution scheme isn't going to get you where you want to go and may even make it harder to get there i think i've seen that in in england i've i've seen that a lot that there have a they already have a pre-existing class system but but an incredibly generous welfare state i mean we have these sort of debates all the time and about you know how much does it disincentive to work it how much is there but if you just imagine an incredibly lavish welfare state then you wouldn't want to develop yourself and you would want to and then you would create an entire dependent class that that had sort of lost human potential left behind and i fear that we're moving in that direction so if uh no matter what happens uh the richer we get the higher the social minimum that is going to be that is the the general shared perception amongst members of the society about the floor below which is just indecent to live uh and so if we have a welfare state or if we have libertopia with private charity that same dynamic is in effect maybe the it's the libertopia shifts the curve down but the it's still the slope is the same in that the richer you get uh the the higher the floor that you think people shouldn't fall below color tv yeah so poverty is a is to some extent a relative concept um so uh if uh we can get by can maintaining economic growth and innovation uh while wasting the potential of large numbers of people uh if uh if we can keep the ball rolling um with economic growth uh and innovation then society as a whole will get richer and the floor will grow higher if if growth overall growth happens faster than growth in human capital then what you're going to end up doing over time is just having more and more people's market value be below the social minimum which will push them out of the workforce and onto the dole so i could picture a world where a creative productive uh working class is the elite and you have a large proletariat leisure class that sort of is kept quiescent with bread and circuses uh and that's a terrible society to want to live in uh so um i i think uh when thinking about welfare state redesign uh there has been um a lot of commentary in recent months just kind of uh on this idea of an unconditional basic income or a guaranteed basic income um and i i can see uh arguments in favor of that at least relative to the welfare state status quo our welfare state status quo is incredibly expensive incredibly inefficient also incredibly intrusive and hectoring and and and uh condescending towards its subjects uh the one thing we know governments can do competently is cut checks uh so uh so if we just boiled the welfare state down to cutting checks to everybody uh uh then i can see a libertarian argument for that and indeed that libertarian argument was made 50 years ago by Milton Friedman when he uh advanced the idea of a negative income tax however if we're going to do some sort of clean sweep uh redesign of the welfare state uh along those kinds of lines of cutting checks my own inclination would be not to basically subsidize joblessness uh along the lines of a basic income but rather to have a system of wage subsidies uh that that pay employers for hiring low skilled people that is instead of accelerating the mismatch between the uh market value and the social minimum you now turbo to amplify or add to the market wage to get that above the social minimum to keep people in the workforce so i think a welfare state that is designed with positive work incentives to keep people engaged in the economy which then is uh uh gives them incentives to develop and maintain uh skills and capacities is much more likely to lead to a world where more people are living better lives than a world with a big unconditional dole and that seems to be the kind of world that that i advocate for an equal world in in one way which is that i want people to have equal happiness equal chances for happiness and that's something i think is addressing you know a market economy you're going to get a lot more chances to live the kind of life that you wouldn't want to live you know this this thing that happened with the puppeteer in the occupy wall street ever said oh we got to criticize pretty much puppeteer as opposed to being like i want to live in a world where puppeteering is a profitable endeavor because the toil world is the farm world and there aren't even opera singers so you could have incredible inequalities of wealth in that world but maximization of human capital where people are doing jobs they really enjoy and they're like okay yeah i'll stop at 80 000 a year because it's a great job and then that's we don't have that with the losing the human capital that's just brings up an interesting point about the kind of unavoidability of of some measure of increasing income inequality um measure you can measure income inequality in a bunch of different ways one way to split it is is uh with between group inequality basically different skill levels and what they earn and then within group inequality at a certain skill level what's the spread of incomes within that cohort um there's an economist i believe his name is thomas lemieux who some years ago in an american economic review article argued that virtually all within group inequality uh was simply a function of demographic change uh that the run up in within group inequality was due to the fact that we have an older and better educated population today than we did in the early 70s against which we benchmark these changes and basically the older and uh and better educated you get uh the more naturally incomes are going to diverge when everybody is young and unskilled then all incomes are going to be more or less equal they're going to clump at a very low level but when as people age and as they have as they have you know are better educated they can pursue a much wider variety of lifestyles so they can choose to work like a dog and be a hedge fund trader or they can choose to move to a small college town and run some groovy craft store and uh and uh so you can do your choices are much wider so the the scope over which differences and preferences can play out grows over time so i think a free rich society is necessarily going to be a fiscally unequal society because people are going to make different choices and some people are going to value money more than others um and that's great right so but uh uh we would like to live in a world where those differences do reflect choices rather than reflecting the fact that you chose their own parents thank you for listening to free thoughts if you have any questions or comments about today's show you can find us on twitter at free 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