Income inequality -- good or bad?

Great Debates
41

Do you have some examples? And an estimate of how this affects the overall cost in drugs?

We’re talking about RE Importation. Not just buying drugs from foreign suppliers.

Drug companies are engaging in price discrimination - i.e. charging what the market will bear. Obviously, the market price for a drug in a wealthy country like the U.S. is going to be different than the market price for a drug in the Congo or in Argentina. Because the marginal cost of production is low, drug manufacturers can sell drugs at the profit-maximizing price in each country.

But if you allow cheap drugs from the Congo to be re-imported into the U.S., it will eat into U.S. profits. The result is that the drug company will have to set one price for both countries - which will price the drug out of the market in the poorest countries. This will hurt drug company profits, which could easily mean they’ll have to charge higher overall prices (or at best the U.S. price won’t come down if it’s set at the market price - they’ll just destroy the drug markets in other countries).

All you’ll be doing is hurting poor people in Africa and elsewhere in your never-ending quest to take away ‘excess profits’ from the evil drug companies. And if you make the global market overall lesss profitable because you’ve destroyed the efficient price setting mechanism of discrimination, you’ll make it harder to raise R&D capital.

If you want to reduce the cost of drugs, you might want to look at the problem of a 10-15 year FDA approval process that costs over a billion dollars, which has to be recouped over a 20-year patent lifetime. That’s what’s controlling the price of drugs - that and the fact that drugs are becoming increasingly sophisticated and expensive to create.

Again, this isn’t a given. The end result could simply be that drug companies will raise their international prices to match American prices. Or, they could raise them enough so that they’re still slightly cheaper, but not enough to make it worthwhile to re-import. If American drugs represent the bulk of their profits, eliminating re-importation will simply destroy foreign markets - especially in the poorest countries where the differential is greatest. Why do you hate poor African children? Is getting a 5% price cut in your drugs worth having the drug companies essentially stop selling needed drugs to poor people? That could easily be the result.

42

Careful with that table, it sorts numbers treating them as text and ignoring the period. That is, it will sort 3.9 < 32.4 < 4

Very interesting once I figure out exactly how to interpret it, but don’t trust its sorter.

43

As I think others have touched on, I think the idea, I think the whole concept of income inequality is a complete red herring when we’re trying to improve the quality of life of everyone. Let us consider that these days a family at the poverty line (roughly $22k for a family of 4 in 2009) will often still have most or all of the following: a car, a telephone, a television, a refridgerator, a microwave, a computer, etc. I would argue that each of those devices improve the quality of life to some degree though, admittedly, some quite a bit more than others. Choose a time when income was more equal, and I imagine we’ll also see that fewer people had these sorts of devices that made life easier. In fact, if you go back far enough, even the wealthy didn’t have many of these devices available.

That is, what matters for quality of life isn’t that the rich are so much richer than the poor. In fact, what the rich can and cannot buy really has very little meaning to me when I’m evaluating the quality of life. What I think really matters is what the poor can get with their money. The real question we should be asking is, regardless of the income differential, if the quality of life of the poorest people is improving or declining over a sufficiently long timeline. And I think the answer to that is an undeniable “yes” because of the aforementioned sorts of technological advances, not to mention other advances that are harder to easily quantify like better production and distribution of goods which results in relatively more buying power and improved product quality.

I really don’t see how everyone having more equal incomes has any meaningful impact on the minimum quality of life. In fact, as others have pointed out, I think more inequality in income will actually improve this minimum because it provides incentive to people who want more than this minimum amount. Consider a scenario where everyone who works makes, $25k. Incentive to go to college for 10 years for an MD or PhD is all but gone because you put in all that work and don’t see any reward. Incentive for dangerous or otherwise unpleasant jobs also disappears. This will result in less advances and, thus, the minimum quality of life will grow very slowly or possibly start to decline. Now consider a scenario where there’s a huge discrepancy in incomes, where a janitor sits at the poverty line with ~$25k, but someone with a college degree makes $250k. The janitor still has a minimum threshold on quality of life, but now there’s a lot more incentive for people to want to have jobs that require more training or education or are harder or more dangerous and advances increase and, as a result, that minimum threshold of quality of life will grow faster.

Of course, those are both unrealistic extremes and the reality lies in between, but the focus on the wealthy really doesn’t matter because no matter what we do, they’ll still have gold plated toilets and there will still be many, many more at the poverty line.

Now, there is an issue with the wealthy having more influence on politics and such, but I’m not really sure if that’s particularly relevant because they’re not out to screw the poor, just to improve their own situation which may or may not even affect the poor at all. Besides, we can also note that as the government interferes less and less in the economy to ensure less income inequality, the influence of the rich over the the economy through influencing the government will decrease and, thus, they’ll have less ability to screw the poor anyway.
And on a similar point, I also fail to see how it matters if wealthy people “deserve” their wealth or not. Because, really, who cares? Personally, I don’t care if someone like Paris Hilton is wealthy, and I think most people would agree doesn’t “deserve” her wealth. There’s always going to be people who have more wealth they they “deserve” whether it’s because they win the lottery, marry into money, inherit lots of money, have the right connections, or otherwise just happen to be in the right place at the right time for fame and fortune. Applying any policy to try to prevent those sorts of situations is pointless because they’re statistical outliers and it strikes me as nothing more than envy. All that I care about is that we do what we can to ensure that the best, brightest, hardest-working people tend to get what they deserve because that’s what will drive innovation and ultimately improve the quality of life of everyone.

44

The FDA approval process takes a long time - for a reason: It takes years to collect sufficient data and ensure enough time elapses to catch possible problems. I for one don’t think simply shortening the approval time is necessarily a good thing. And accelerated approval / fast-track programs have been around for 20 years or so for specific cases.

I think the biggest factor is, as you noted, drugs are not only extremely sophisticated and expensive to develop, the hit/miss ratio is extremely poor: I recall reading that less than 15% of new drug candidates ever make it to market, either because the candidate failed in the clinical trial phase, or the company decided at some point that it wouldn’t generate enough revenue to offset the costs of development. Seems to me that if we reduce the capability of pharmaceutical companies to recoup costs, they’ll simply cut back on innovative research.

45

Let me guess - you’re a libertarian.

The idea that the government is the only thing that can interfere with the freedom of individuals is the foundation of libertarianism. And because that idea is ridiculous, libertarianism will never be a serious philosophy.

There’s all kinds of things that can interfere with rights. Governments can do it. But businesses can do it. Individuals can do it. What you need to have rights is a balance between the various forces - remove one force and you just make it easier for the remaining forces to interfere with you. In a society without government interference you’d be some corporation’s slave.

A free market is an ideal but it can’t build itself. Competitors will not naturally co-operate. Left to themselves, they would seek to eliminate other competitors and monopolize the market as their best strategy. Even those that might not choose to eliminate competitors out of a sense of “fair play” would still be eliminated by their less scrupulous competitors.

For a free market to continue functioning as a free market you need an outside force. And that force is the government. It is a powerful entity which has no direct stake in how the free market functions as long as it functions. The government doesn’t care whether you buy Brand X or Brand Y so it can ensure you have a choice between the two.

46

Nava, I was sorting by US Gini (4th column from the left), and it seems to work OK on my PC here.

47

And this is analogous to slavery? Please.

Regards,
Shodan

48

Or, go to this Wikipedia page to see a colored map showing an income-inequality statistic.

Most of the posts in this thread have been unrelated to OP-cited article, which says thing like:

49

It appears the author is confusing cause and effect. Of course you will get income disparity in a dysfunctional society -the minority who can avoid the dysfunction will disproportionately benefit.

No, it isn’t. This is like saying that “the goal of evolution is to produce human beings”.

Thee market is the dynamic equilibrium between perceived supply and perceived demand. It cares nothing about human standards of living or sustainability or any of the rest of it. It is neither moral, nor immoral - it is amoral. It just is.

That may certainly be the goal of your economic policy, but the market will do its thing whether you like it or not. You can distort it, you can change it, but you can’t stop it from working.

Regards,
Shodan

50

Equality of opportunity is a great ideology. It creates such gems as affirmative action, no child left behind, and governmental subsidies galore.
The problem with these types of equal opportunity scenarios is that ultimately they aren’t fair for all. They tend to be bias(even racist in some cases) one way or the other, how is that equal?

There is also the problem of environment which the big great governments can’t change. Look at schooling for my cite.

Equalizing revenues across the board sounds good, until you realize that people spend money on a different set of priorities. The great thing about America is that opportunity and choice EXIST, some people will always be below the poverty line. What do we need to do to help them? I really don’t know but I assume that programs mentioned in this post serve as a reminder that this equality of opportunity does exist.
As a general rule, redistribution of wealth will accomplish nothing because in a set time period the wealthy will have regained financial dominance over the poor. How often are you going to redistribute? Every 5 yrs? 10?

This is why conservatives cry “Socialism”. The opportunities exist for most folks to better their lot in life. You cannot stimulate drive to do so.

51

So how about instead of re-distribution of wealth you limit the affect that wealth has on political influence? Talk about throwing the baby out with the bath water…

52

This just raises the next question, why do we have markets? We don’t have a choice about evolution or gravity, but we sure can choose how we organize our economic behavior. As it turns out, under the right circumstances, markets can maximize social welfare. If they didn’t, then we wouldn’t have them. The market isn’t exogenously fixed, it is a social choice that we more or less all make. Like anything else, when markets fail, we can and should eliminate them.

I would say that this proposition is unsupported by most of human history. The market is not a juggernaut. It can be undone just like it was created.

53

Maybe I’m just not reading you correctly, but I think we’re actually in agreement? I’ve been arguing the same thing: I’d rather have equality of opportunity (that we, in general, have in the US) compared to the more forced equality of outcome that exists in Japan. I have no idea why affirmitive action or no child left behind come into the discussion…

54

Ok, and exactly how do you “undo” black markets and or all transactions involving barter? How do you control every exchange between humans? Do you kill all human beings?! I guess that’s one way to undo a market. Or maybe you chain every single citizen to a pole and observe all their bathroom habits plus any possible exchanges of products and services? Hell, I’m not so sure if even that’s effective since markets even crop up inside prison walls.

“Markets” arise spontaneously between human beings. In this sense, they are a juggernaut.

55

There are a lot of arenas where black markets are unlikely to arise, though, such as energy and electrical markets - if the Government decides to institute the Federal Power Supply Division, and doesn’t price things oppressively, then it’s unlikely that bootleg power plants will become common. Similarly, if the government wanted to ban health insurance and replace it with a UHC system that put health care at directly affordable levels, you’d be unlikely to see black market insurance markets emerging.

56

You can’t have “freedom of choice”, as you are defining it, and have freedom for most of the population. As Little Nemo says, you are obviously a libertarian, with the libertarian’s denial of all forms of coercion that don’t come from the government.

The “free market” is about power at least as much as it is about choice. It’s not the fuzzy ideal of liberty you make it out to be; it’s about manipulation and coercion as much as it is about anything else. The free market is perfectly capable of restricting the choices of people, of making them less free not more.

And most importantly of all, so what? “It’s the free market!” isn’t much of an answer to the question “Income inequality – good or bad?” The free market isn’t some transcendent moral goal, it’s just an economic system; and not one that even really exists or can exist, for that matter. If the government isn’t manipulating it, someone else will; there is no actual free market, never has been and never will be.

57

The scientist interviewed in the article has played fast and loose with his data and conclusions. He uses a different and less accurate measure of inequality than other researchers do and his conclusions do not hold up to scrutiny. For a complete debunking go here: http://super-economy.blogspot.com/2010/02/spirit-level-is-junk-science-part-deux.html for starters.

58

[quote=“Ruminator, post:54, topic:531835”]

Ok, and exactly how do you “undo” black markets and or all transactions involving barter?

<hyperbole snipped>

[quote]

No one said anything about preventing people from transacting at all.

What we can do is stop worrying about competitive markets. There are several easy ways to do this: nationalization, selective rollback of property rights, allowance of monopoly competition in other industries, imposition of price controls, whatever. These have all been arrows in the quiver of governments for, well, as long as there have been governments. These aren’t just distortions of competitive markets, they are outright destructive to competitive markets.

And to the extent that they work better than competitive markets, then they are exactly what we should be doing.

For the most part, they don’t. It’s not because competitive markets are some amoral, borglike force within which all of us will be assimilated but because they actually do maximize social welfare under constraints.

59

Constantly and permanently. It’s called “taxes”. And no, they won’t all flee to other countries to avoid the taxes; they make speeches about it, but in reality that doesn’t happen. Besides, you could drastically raise taxes on the wealthy here, without them having anywhere to flee to that doesn’t either have higher ones or a far worse quality of life for the wealthy ( which is what they actually care about, not taxes ).

Nor can most people significantly “better their lot in life”. In the real world, if you are born poor you will most likely stay poor. Your claim amounts to just the standard sneer that the poor are all just lazy; the poor typically work quite hard, but that just makes them tired and poor.

60

You are mixing up ideas. You are talking about the ability to have OPTIMAL, CONVENIENT, AFFORDABLE, and AVAILABLE of choices. This is not the core idea of “freedom of choice.” It doesn’t mean the selection of choices are all desirable – it simply means the the choice is not distorted by the government or made on my behalf via the government.

Yes, the dominance of Bill Gates Microsoft has “limited” the choice of computer operating systems. IBM OS/2, Amiga, Digital GEM are gone now. I acknowledge that many of you guys like to call this “coercion.” If you want to go into your corner of the universe and keep insisting that this is “coercion” but simply a non-govt form of it – fine – I’m not arguing with you. Use the term as you wish. However, keep in mind this is irrelevant to what economists call “freedom of choice.”

I never said it was the answer to “good or bad.” The OP was the one who mistakenly tried to tie “free market” to “goodness or badness.”