It is the Revised and Enlarged
Edition and the author is Thomas Sowell (2016).
I found this one to be special.
Even if it falls under the category of a book that confirms my priors
and where the last 75 pages were fairly repetitive. The author is a PhD economist at Stanford who
is African American and loosely affiliated with libertarianism and Austrian
theory. That makes him a unique bird,
and it follows that his perspective is illuminating and insightful.
The book largely refutes what we think we know about income
inequality. His “opponent” is the
intelligentsia who ascribe disparities in wealth to a sinister force of rich
people who exploit the poor to achieve their ends. What the author provides in response is all
of the various factors of time and space that lead to another way of understanding
unequal outcomes, all without having to enlist social justice warriors to the
cause.
For starters, “geography is not egalitarian”. For those who live in the mountains, or in a
country where the national river system is not as robust or as deep or as
navigable because of waterfalls and cascades (interesting fact: Africa has
twice the landmass of Europe, but Europe has a longer coastline), or where the
climate leads to land that is less fertile, or where there is extreme
linguistic diversity even between neighboring towns and villages, there is a
resulting isolation and lower standard of living that is not sinister or
otherwise avoidable through policy.
Beyond geography, there are also cultural realities which result in unequal
outcomes and are not a function of one group exploiting another. Put differently, Sowell describes “cultural
heredity” which is passed from generation to generation within ethnic groups
and leads to values that prioritize education, for example. And not every group shares the same
ethos. Moreover, some societies are more
receptive to other cultures, which enhances advancement and develops human
capital. Where there is greater cultural
isolation, the advances of others are less likely to be introduced. Again, all of these contribute to disparities
and gaps between countries on an international basis, and within national
borders themselves.
There are also countless examples in history of countries where
foreign minorities or different ethnic groups are demonized when they
outperform the majority population, even where these groups introduced
industries that had not existed before and which were net positive to
productivity and the well-being of all citizens (think Jews in Eastern Europe
or the Japanese in Peru). Ultimately,
these groups left and take the human capital with them, to detriment of the
entire society.
Now, in response to these various differences which can lead to
unequal outcomes, there is usually a chorus of academics and politicians who
try to romanticize the lagging groups and suggest that some group of “rich”
exploiters is to blame. What they focus
on is efforts to equalize outcomes, glossing over the empirical realties and
negative consequences. They also tend to
ignore that there is a difference between equal opportunity and equal probability of
achieving a particular outcome. Striving
for the latter is to disregard the preferences of millions of consumers who
have chosen to part with their incomes to purchase a certain good or
service. Moreover, as Sowell points out,
since the advent of the welfare state in America in the 1960s, there has
actually been a retrogression within the very groups that were targeted for
assistance and support. If that is the
result, and clearly it is by the numbers, then to continue down that path is to
focus on optics rather than actual outcomes.
And, in fact, these visions have dissuaded many groups from actually
developing the human capital that allows groups to rise out of poverty over
time (Jews, wherever they have settled, are a great example of such a
phenomena). Out of challenge and response
comes progress.
In more recent times, there has been even greater focus on income inequality
and what to do about it because of work by Thomas Piketty and Paul Krugman,
amongst others. And in this work, the
notion of income distribution commonly takes for granted the production part,
ignoring how if incentives are skewed, production will not necessarily remain
constant. Moreover, this work seems to
treat income quintiles and the “rich” and “poor” as static monoliths. In fact, there is tremendous turnover amongst
these different segments – in part, because the richest incomes in any given
year are commonly a result of capital gains, which are not necessarily
recurring; but also because the lowest to highest quintiles tend to reflect the
progression of workers as they rise up the ladder, with the youngest and least experienced
in the lowest rung, and those with years and lengthy careers under their belts
at the highest rung. That makes sense
and is how it should be in an upwardly mobile society where there is equal
opportunity to succeed. In addition,
even as the richest take an even greater share of the pie, that hasn’t precluded
everyone else from seeing greater productivity and increased incomes as well.
In the end, economic success is not just a lottery of luck. It requires an investment in human capital,
and from that is where the opportunity lies to increase the size of the pie.
