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Why Equality Matters: Michael Jordan and the 1%

Posted: 07/29/2012 3:56 pm

Michael Jordan joined the Chicago Bulls and dramatically raised salary inequality on the team. But because Jordan's presence more than tripled the lowest paid player's salary, that player had nothing to complain about. Matt Schoenfeld recently argued in the Wall Street Journal that this shows that "equality is not a good in itself and shouldn't be analyzed in a vacuum." But Schoenfeld's argument is no slam dunk.

First, Schoeneld assumes that inequality makes poor Americans better off. His basketball analogy is thus inapt. Jordan's presence improved the poorest player's lot (from $135,000 to $500,000) while dramatically increasing team inequality (Jordan's salary was $33 million). But we cannot assume this illustrates the American situation because we have little reason to believe that inequality is the source of our improvements over time. Mr. Schoenfeld points to 1959 when American inequality was low compared to today but the poverty rate was much higher (then 20%, now 13%). The tradeoffs, he argues, are worth it. And if this were the whole story, he might be right. But his examples ignore a messier reality. In 1968, both inequality and poverty were low. Rich countries such as Austria and Denmark currently enjoy great equality and extremely low poverty rates, while others, such as Japan and South Korea are far more equal than America with only slightly higher proportions of poor people. In fact, inequality often accompanies poverty, as in Mexico, Kenya, Brazil, India and medieval Europe. Jordan may have helped the average Bulls player. But since economic growth does not depend on inequality, we cannot just assume that increased inequality helps poor Americans.

Schoenfeld also ignores the social costs of our radically unequal state. Expensive educational preparation for top-flight universities, and exclusive social, dating and career networks ensure continuing dominance for the 1% -- not because of merit, but because of fortuity of birth. The lower classes then stagnate, and people stuck in the cycle of poverty more frequently turn to less productive pursuits. Sadly, our land of opportunity seriously lags behind Norway, Canada, Finland and Denmark in intergenerational mobility. Even Germany and socially calcified France edge us out. Schoenfeld too is concerned when Americans can't pursue innovative ideas or attend decent schools. But unfortunately, this kind of poor opportunity fits hand in glove with gross economic inequality.

The economic costs of wealth concentration abound as well. When the well-heeled class amasses too much relative power, its opportunities for insulating itself from competition increase. It more easily influences government regulators, forcing externalities onto the public, fixing markets in its favor and raising barriers to entry for innovators. Its interests receive increasing attention as the politicians who depend on it for reelection draft tax, trade and spending bills. Concentrated resources also create asymmetries in information and bargaining power, and allow the gilded class to sequester itself behind expensive legal regimes and armies of experts for hire. In such situations, elites extract "rents" -- meaning they take more money from consumers than a competitive market would allow. Everyone pays more for these goods and services while missing out on the benefits of competition. It's redistribution in the wrong direction.

Absolute gains, Schoenfeld's focus, are indeed important, but relative position matters too. Even the reasonable standards of basic needs like health, food and shelter are affected by context. Two hundred years ago, no one thought healthcare or high school education should be universally available, and rightly so. An eighth grade education was more than enough for most Americans in 1750. Today it would probably damn any of us to a life of want. As society becomes better off, the deprivation mark moves. If 200 years from now, everyone has access to housing, fresh produce, a four year education and what counts today as top-of-the-line health care, we should celebrate, no matter how many diamond rings and extra moon condos the rich have at their disposal. But if the rest of society enjoys medical technology that creates 500 year life-spans and triples our IQs, and if PhDs are required for workplace survival, our work will not yet be done.

Of course equality does not belong in a vacuum. Individual and social virtues like fraternity, civility and frugality are important, but none of them should exclusively shape society, unqualified by other important principles. Aristotle argued that overemphasis on any particular virtue produces perverse results. Most of us would rightly agree. But this doesn't mean they aren't goods in themselves, generally worth pursuing. So it is with equality.

Those who protest "inequality" use the term as a shorthand for unequal opportunity, and the depredations that tend to accompany gross inequality. They recognize that wealth is both absolute and absolutely relative. While we cannot and should not erase all inequality, we usually drift in the opposite direction. This is why we speak of equality as good in itself.

 

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