Branko Milonavic's Confusion on Inequality
Branko Milonavic is one of the most prominent writers on economic inequality. So when he wrote a recent article on why he cares about inequality, I looked forward to reading it so that I would understand better why he cares. Disclosure: As long as pretty much everyone is doing better economically, I don’t care about inequality.
Milonavic starts by correctly expressing the view of people like me that I stated directly above:
The argument why inequality should not matter is almost always couched in the following way: if everybody is getting better-off, why should we care if somebody is becoming extremely rich?
So then why does it matter to him? He goes on to say why, and I recommend that you read the whole thing. He sees a conflict between inequality and growth. But then he writes a paragraph that surprised me:
Why would inequality have [a] bad effect on the growth of the lower deciles of the distribution as Roy and I find? Because it leads to low educational (and even health) achievements among the poor who become excluded from meaningful jobs and from meaningful contributions they could make to their own and society’s improvement. Excluding a certain group of people from good education, be it because of their insufficient income or gender or race, can never be good for the economy, or at least it can never be preferable to their inclusion.
It’s not clear what he’s saying here. Is he saying that people in the lower deciles are doing worse? That would be bad, as he and I would agree. Or is he saying that growth of income for people in the lower deciles is positive but less than he and I might like? It’s not clear. Later in the paragraph, he says that they are not making “meaningful contributions they could make to their now and society’s improvement.” I’m not sure that’s true. But even if it is true, how does that have to do with inequality? What if a small group of people get really rich, a large group in the middle gets substantially richer, and the bottom one or two deciles get somewhat richer? And, even better, what if people in the bottom two deciles do so by working? He might say they don’t have meaningful jobs, but he doesn’t say what that means. I think all honest, non-coercive work is meaningful.
It’s possible that Milanovic is saying that the growth in income at the the top comes at the expense of the growth of income at the bottom. I can imagine scenarios in which this is true and the most likely ones are some version of cronyism in which the government grants monopolies and subsidies to favored recipients, a la Lyndon Johnson. But I’m not sure that’s what he’s saying. Is he saying that entrepreneurs who make money by innovating or bringing innovations to market are hurting people at the bottom or causing their incomes to grow less quickly? That’s a hard case to make. Bill Gates got rich but people at the bottom did a little better because of him. Recall recent Nobel prize winner William Nordhaus’s finding that entrepreneurs receive only about 2.2 percent of the producer and consumer surplus that they create.
Notice the title: his confusion about inequality. I’m not saying that there’s not a way of expressing his thoughts that could clear up the confusion. I’m saying that he hasn’t done so.