Then I looked in my email and noticed that the quantity of politics related spam was increasing at a seemingly exponential rate.  Exacerbated I did what anyone would do, passive-aggressively complained on social media:

Why do I keep getting emails warning me about communists and attacking the Greens – you're pushing me closer to voting @NZGreens with this.

— TVHE (@TVHE) September 18, 2014

Unsurprisingly to anyone who reads the blog, I was never going to be very responsive to the communist cat-call given I think it makes no sense.

As a result, I was just wondering if anyone has any knowledge about the effectiveness of political marketing techniques, especially during different stages of the election cycle. Marketing is a general issue that we’ve written a little about here (here, here, here – and which is related to views on addiction), so any research you guys know of would be of genuine interest.

Now I hate it when people just whip out rhetoric like “social constructivist” and don’t explain it – so what do I mean, how have they gone this way, and what do we know about this type of framework so we can analyse it?

Social constructivism

I like to get definitions off Wikipedia, and in this case this does a good job of articulating how I understand the concept:

Social constructivism is a sociological theory of knowledge that applies the general philosophical constructivism into social settings, wherein groups construct knowledge for one another, collaboratively creating a small culture of shared artifacts with shared meanings. When one is immersed within a culture of this sort, one is learning all the time about how to be a part of that culture on many levels. It is emphasised that culture plays a large role in the cognitive development of a person.

In combination with the economic framework that is used, both here and by GG, with their views on the unconscious mind have led to a situation where they increasingly use the word “trick” to mean “set our preferences.

As a result, it has become increasingly clear that whenever GG says the “food industry is tricking us”, it is just a rhetorical device for expressing the term “the food industry is setting our preferences in a way that we disagree with/believe is bad for the individual”.

Social constructivism does have a nugget of truth, and in the formative years of childhood there are important elements too it.  However, there are two key concerns:

1. It becomes purely deterministic, especially in conjunction with a deterministic view of choice, thereby absolving the individual of responsibility from their own actions.
2. By its nature there are “multiple equilibrium” with no clear definition of value – therefore it is a framework that appeals to utopians (and dystopians) who simply want to pick an outcome and demand we do what we can to get there.

Althought GG accuse others of extremism around choice – this rings hollow when their own framework is pure extremism.  If you don’t eat in a way that GG feel is appropriate it is not a choice, it is because someone else is forcing you.  By using a purely constructivist framework, they absolve themselves of facing the value judgement that people may have a preference for the unhealthy – and may trade that off to consume something they enjoy.  They allow themselves to target obesity as an outcome by making it external to the individual, when such a view is fundamentally insulting about the individuals capability to make choices.

Social constructivism is very popular with people who have an outcome they want to target, and want to ex-post motivate it.  This type of output focus, combined with a downplaying of individual agency, is the antithesis of the way I view economics – which is why I can’t help but write something

Where do you “disagree”

First let me state down where our frameworks meet.  Advertising to and information for kids does matter.  We build up a stock of habits, rules of thumb, and physical attributes as children which have a fundamental impact on the type of life available to us as adults – and we are ill equipped to make choices for ourselves.  In that case we do need to think about these types of issues.

But the point is that we are building up a stock of habits, rules of thumb, and physical attributes here – and it is through the active choices of adults.  Even in an “ideal” childhood where a masterful adult unaffected by advertising “creates” us as our own “perfect adult”, our preferences will differ.  As we just inherently like different things.  In such a place, we will still enjoy things.

When I was young we rarely had chocolate, and I wasn’t allowed coffee.  However, when I was an adult I loved chocolate (over it now) and caffeine drinks (still do).  No doubt these things aren’t good for me, and GG would gladly tell me so I’m sure, but I know this and want to do it anyway.

They reach far too far in trying to say that deviations from their ideal are due to promotions like toys in supermarkets.

This doesn’t answer the idea of toys in supermarkets though

For this, let me go to an old post of mine.

So food with a McDonalds wrapper does taste better. Now I’m sure many people will take this as a sign that advertising is evil, as it can lead to children being overweight, however I think it is an awesome service provided by McDonalds. You see McDonalds advertising makes food taste better, they increase the value of the product to an individual by advertising it, and getting all your senses excited. Although two otherwise identical products might seem homogeneous to you, the fact that the McDonalds wrapper is on one and not the other implies that one has the value associated with advertising while one doesn’t. As all McDonalds is doing is increasing the value of their product, thereby increasing demand I don’t have a problem with it.

However, there may be a role for government intervention yet. If McDonalds is an addictive good, and the consumer had no a priori knowledge that it was addictive, then the increase in future consumption (and the associated negative effects) of McDonalds is not taken into account when the person purchases a product. By advertising, they can increase demand and make more people fast food addicts. Now to do not know the degree with which fast food is addictive. However, government regulation, such as education or limits on advertising could be useful.

What is the advertising doing?  Is it increasing the subjective pleasure associated with the experience?  Is it misleading (making ex ante expectations and the realisation different) or creating a cost for other choices?  The difference matters if we actually respect individuals enough to accept they have some agency over their own choices.

In the case where we give little kids a toy of a milk bottle, a carrot, or a chocolate bar at the supermarket we are undeniably normalising “shopping at the supermarket”.  But in this instance it is hard to see how it will have much to do with anything about the kids stock of habits or rules of thumb growing up – apart from recognising certain brands above others.

Turning around and criticising the promotion because you don’t think people should eat chocolate bars, and so they shouldn’t be included in the promotion, is an unreasonable position – in what universe would a little milk bottle toy lead to future excessive milk consumption.

GG hits the nail on the head when he says that brands are competing to be part of the competition – but this is because they want brand recognition above competitors.  They are cultivating market share by making “Anchor” and “Pams” more recognisable names.

In truth all such an act is saying is that ANY promotion that could lead to higher consumption of a good GG doesn’t approve of is bad (so this includes discounts for chocolate bars, pretty labeling of high sugar foods, and Vinylcuttingmachineguide signs up in the supermarket hinting that you should have a dessert) – which in a policy sense gets increasingly close to treating disliked foods in the same way as tobacco and eventually fully banned substances.

But there are limits to our choices!

Of course there are, but it isn’t “perfect information rationality” or “social constructivism” – having to go to either extreme is ridiculous.  To quote from my post comparing the models of choice I use and I think GG use:

Yes we can think of matters through a “conscious” and “unconscious” mind, where the unconscious mind bear similarities to a computer – and where we ex-post rationalise choices to satisfy ourselves.  This model has empirical backing, is logically consistent, and suits my priors – so I’m comfortable with it.  And it is this context that the article Gareth discussed, and his own view on the obesity epidemic, are based.  In this way, yes we have the same model of fundamental choice.

Where we might differ is in terms of our belief that people can, will, and should precommit their actions and influence the rules followed by their unconscious mind.

I take a revealed preference approach to this.  If people don’t precommit, it is because precommitment itself is costly and so the benefits from doing so are presumed to be too low.  Their may be a failure in their expectations or information – in which case government can help.  Government may be able to offer low cost commitment mechanisms, or even at a push use framing effects to “nudge” (note, these framing effects should not be directly costly – something that often gets forgotten).  But that is that.

Contrary to what I often see GG write online, their opponents are not assuming perfect information or hiding behind choice – instead we accept that social factors have an impact on choice, and that habits exist, but we still recognise that people have different preferences and we can’t see them!

Sometimes I want Tim Tams knowing full well that they aren’t good for me, and in some part undermine my exercise.  If that doesn’t fit into your choice framework and policy advice, it is the framework at fault – not my choice.

I appreciate they want to avoid people “tricking me” to make ex-ante choices I regret ex-post, but the more I hear the rhetoric of addiction being whipped out, the more it starts to sound like GG wants to restrict my choice.  I love both these guys, but not enough to let you reduce my choice set

However, a small part of the post did spark my imagination, and will lead me to write on a loosely related, but important issue.

In the post, when talking about potential issues with the new scheme, the author says:

We hear echoes of the Bolger-led Government adoption of social capital in the late 1990s. Remember that? It placed social problems and their solution-generation with ‘communities’. There is a worthy role for this type of policy in a wider package, but it can also be used as a distancing policy to shield a government and the state from its responsibilities (e.g. on welfare benefits), deflecting the blame and responsibility for solutions to the level of communities.

This is a fair point, words like “community” and “opportunity” are often used by politicians on the right to avoid action.  However, politicians on the left are just as eager to push inappropriate policy at a national level by dismissing these claims.  In truth, the relative importance of “community”/”opportunity” as opposed to nationwide determination of policy depends on our assumption about how different people are – to whip out some jargon, we need an idea about how heterogeneous individuals are with regards to the issue we are looking at.

Take the posts discussion of a 20% sugary drink tax as an example.  Well, we can only really defend that policy is we have perceived a specific need for that policy – why are we taxing sugary drinks?  We could try out the following explanations:

1. Sugary drinks hurt health, which hurts the person – and they don’t include that as they are time inconsistent.
2. Sugary drinks hurt, we have public health funding, this is an indirect form of “user pays”.
3. Sugary drinks are seen as a status good, and are overconsumed by people to achieve “relative status”.  This was sort of implied in the Spirit Level book.

Note:  The “fake food” argument doesn’t mean much unless we have a behavioural mechanism such as the ones above.

Cool, ok.  With time inconsistency we are asking why people don’t precommit (examples of commitment here and here).  With the second one we may view as a fat tax, this involves thinking about the relationship between consumption and health outcomes – a kicker is the tax is linear, while the “costs” are non-linear.  The final one involves stating that these drinks are seen as a type of status good, and we may have a view that increasing the price would reduce this specific coordination failure.

Even at an aggregate level these things are hard.  But food is such a good example as individuals ARE massively different with regards each of these three explanations.  Different groups are time inconsistent in different ways, different people experience negative health effects in different ways, and different communities respond to having something as a status good very differently.  Therefore the appropriate tax/policy on these different groups will be very different!

The status good argument is one that is especially easy to pick on – if you increase the price, this may in fact increase the use of sugary drinks as a status item.  If it is mainly poor households that use this type of food as a “status good”, then it is really a punitive regressive tax!  And even if we were to deliver an income transfer to do this, the fact that the higher price may have made it more of a status good simply implies that we have exacerbated the problem!!!

When discussing “community” the key idea is that we have specific failures that policy can address, and those failures are not equally distributed across society or across class.  National policy that focuses on helping communities and targeting need can in this way make more sense than national policy that is meant to address the problem itself with a single instrument – something like a “fat tax” could well be too blunt a tool to address the specific failures we are concerned about.

Sidenote:  I would more generally point out that, if we find sensible targeted community programs do not change behaviour, this doesn’t so much imply we need to go in harder – it more implies that the actual “market failure” involved may be smaller (or different) than we had previously believed.  We can’t observed the heterogeneity of individuals in terms of their wants and desires, we can only get an inkling through their choices – we must be careful to not, in turn, impose our own preferences on others

Anyways, I went along to the supermarket and purchased a small number of cashews.  The checkout operator warned me “be careful, those are addictive”.  I responded by saying “hey that is why I buy them is such small quantities”.  We’ve talked about this idea in the past here and here.

Now what we really described there was a situation where the consumption of cashews is time inconsistent, and where I use a precommitment strategy of “buying less of them”.

This broad definition of addiction, which merely means that you are unable to commit to an optimal time path of consumption, is fine.  But the cost of it is limited by the cost of precommiting.

When viewing action externally, one way we might believe we’ve seen addiction is when we see choices that increase the net benefit of consuming the good in the future.  This is not really addiction as defined as a “failure” – but instead just describes a process that people with addictions may show, and provides an important area where “lack of information” is a concern.  However, if our observation of addiction depends on looking at items that behave this way it does imply we need to be very careful – and that we have to also be careful not to mix up choices that increase net benefit by increasing the benefit of consumption, as opposed to choices that do so by increasing the cost of not consuming.  In this way, we are unlikely to call examples of this type of process “addiction” in common parlance.

All these definitions might make us feel good – but in truth, as was the case in the supermarket, we are just applying “folk psychology“.  Non-expert usage of both “common sense” and technical terms to try to discuss psychological phenomenon we observe in our daily lives.  To clinical people, and people in psychology, addiction is significantly more specific, and involves specific conditions and physical traits (depending on the type of addiction) – of course I don’t know what these are, this is just what people who are experts in this field tell me, and their appeal to authority is compelling as it is not my field!

Note:  Calling economics a form of folk psychology is a common refrain from Rosenberg – an issue that recently caused an uproar.

So given this, would you agree that models of addiction that economists may mention based on either rational choice or time inconsistency are “folk psychology”, or is the essence of the term different as it is being used in a different context?  I am interested in arguments both ways

And one extra point.  When the term addiction is used in policy, and by academics, how does its meaning compare to the way the public interprets it?  If addiction means something different, then there is likely to be an issue of communication with the public – this is a common issue when discussing inequality, GDP, unemployment, and even poverty for macroeconomists so I wouldn’t be surprised to see subtitles lost in translation here.

However, what they’ve decided to say in this brief post was one of the clearest example of beating on the West because it is fashionable – there is a line between showing a respect for those who are struggling, and trying to switch the blame away from a corrupt regime and onto everyone else:

What they found surprised them – a people who were poor, yes, but wonderfully engaged, well-dressed, fully employed and well informed. In Gareth’s view, what North Korea has achieved economically despite its lack of access to international money has been magnificent.

Surely they read through this passage before stating it.  Praising the economic policies of North Korea, the same North Korea that through central planning and mismanagement had starved a large number of its people throughout the 1990s, the same North Korea with an epidemic of meth addiction, the same North Korea that is 163rd on GDP per capita (5.9% of NZ levels), and the same North Korea that openly and massively restricts individual freedoms (disrespecting the heterogeneity of individuals) and constantly threatens war with the South.

Yes, the North Korean situation is more complicated than we often hear, the choices of South Korea (which was long a military dictatorship) are far from innocent, and I have no doubt that many North Koreans are trying to live their life with pride and dignity.  But then trying to blame the rest of the world for this (which is how these comments read) – I’m sorry Gareth but that is a massive step too far.

I like the fact you try to make us think, and that you are willing to take contrarian positions.  But these comments come across like support from a corrupt and frankly immoral regime – and I’m just noting it how I see it.

Sidenote: I struggle note to read this with a furrowed brow.  Most of the concerns about income inequality stem from the idea that the “relative poverty matters” because of competition for status/Veblen goods.  Such as the quality of clothing thanks to local screen printing companies.  Mentioning how well they dress implies there is competition for status goods, and given the low calorie intake of many in the country this is in itself a concern.

We may say “ahh, that was just the people Gareth met on his tour, it isn’t representative” – in which case this is just a biased sample in the first place, which wouldn’t be surprising given government guidance …. hmmmm.

Warning, this is an exceptionally long post given that I am putting down brief notes on each chapter (the review is over 4k, the summaries just that again).  I have signposted sections so if there is something you want to swing to (tl;dr, conclusion, general issues) you can swing to that.  Also note that I link to an excessive number of old posts from the blog – essentially many of the ideas noted down over the last few years here will come in useful for reviewing the book.  For that reason, I’ve put a pdf of my blahing here MN Spirit level review.

I have also explicitly avoided reading other people’s reviews – except for the postscript that I have written later.  As a result, I can’t promise I’ve added anything, but I can promise that I’m being honest in my views

Note:  This review is also a blog post – not some external thing you just read, but something you can interact with.  If I’m wrong on statistics, on logic, on interpreting the authors, or I’m just plain immoral as a person, throw down a comment and tell me.  If you convince me, I add updates onto the review to say you’ve changed my mind – party times!  I am here to steal all your knowledge.

Tl;dr review

I have a list of concerns – excluding anything about the “countries in the sample”:

• Hypothesis changes and language gets mixed up – argument is generally unclear and in a sense untestable as a result.
• There are occasional untruths about what the “inequality measurement” is – and their treatment of income is inconsistent.
• Outliers do matter.
• Overconfidence of result – especially given that the lack of “structure” hits the policy relevance of what they are saying.
• Causation is a mess, and they haven’t been able to adequately deal with “alternative hypotheses”.
• On a literary level, the constant appeals to authority, overuse of barely related anecdotes, and lack of clarity in sections of the writing make it a unpleasant read – especially if you are trying to read it to distil their argument structure which is variable.

Conclusion:  Contrary to what they say, this book is not “science” (in the way they try to make it sound – I don’t want to fight about “what science is” as I’m not the one defining it for the book!), it is thoughtless “silver bullet” posturing dressed up as analysis.

To the full review!

To review the book, I really need to frame it as an argument.

Base book argument

1. Static inequality of income is correlated with negative health and social outcomes in a cross sectional analysis (across countries, and across states in the US)
2. Therefore, reducing income inequality will improve health and social outcomes.

This is the very base argument, but they do attempt to give it some structure.  Specifically they go along the lines:

1. Static inequality of income is correlated with negative health and social outcomes in a cross sectional analysis (across countries, and across states in the US)
2. Static inequality causes a break down in trust, social stratification, and a changing in social norms through time.
3. Therefore, reducing income inequality will improve health and social outcomes.

The mixture of a static figure and a dynamic figure is a bit vexing.  If I want to be generous (which I do) I would state they mean the following argument in the book, even though they don’t frame it this way due to a lack of time series data (supposedly).

1. Static inequality of income is correlated with negative health and social outcomes in a cross sectional analysis (across countries, and across states in the US)
2. Static inequality is correlated with lifetime income inequality
3. Lifetime income inequality causes a break down in trust, social stratification, and a changing in social norms through time.
4. Therefore, reducing income inequality will improve health and social outcomes.

This hypothesis is not just reasonable.  It is akin to the way economists view how the social preference for “optimal levels of inequality” will function.  I can get behind that (to a degree – not as an absolute).  As a result, we need to ask whether the “scientific” analysis they promise they are giving us helps to show that.

Quick point on science:  I’m down with the Popperian view that we can’t prove hypotheses, only reject them – and I’m down with the fact that in social science these come conditioned with protective sets of ceteris paribus assumptions.  So I don’t expect this to prove anything conclusively.  However, the way the arguments are treated has a distinct bearing on how much we update our beliefs around the likelihood the argument may be true!

Now I have severe problems with how they have shown this, and with how they described it.  You may look at me, look at my job, and decided that this is due to my vested interests – I am an economist after all.

But before you judge what I am going to say on those credentials – it is important to note the large hippy streak I inherently hold.  Specifically, I am a long-term proponent of land tax based on the idea that all land is communally held, but that we offer long-term leases to get the advantage of property rights.  I term land-tax a rent that provides a “social dividend” that should be shared among all people – inherently I also believe in a guaranteed minimum level of income as a result.

Furthermore, I titled this blog.  I gave it the name “the visible hand” because I see the government as a driver of good – it is a mechanism that people in society use to help us co-ordinate and create the social structure we desire.  Yes government can be corrosive as well, like other institutions, however they form a central part of our “social contract”.

On an ideological basis I am actually, in some ways, in the same camp that Wilkinson and Pickett are – a normative base I try to avoid thrusting down the throats of people that read the blog, where I try to instead force the idea of “trade-offs”.

And it is in this regard that the Spirit Level, with its disregard for the literature and data on inequality, and the poor data analysis involved, leaves me cold.  Yes I personally believe in redistribution, and yes I believe that trust, honesty, and social capital are central parts of society.  But the way the book tries to force all this into “income inequality” is not just flawed, it is likely to lead to more middle-class welfare rather than a real focus on the poor.

They are determined to describe a “free lunch” stemming from “magically lowering inequality somehow” – but without more structure they are on very dangerous ground!

Issues with the data

It would be obvious for me to say there are severe data issue here – and I’m going to try to avoid going heavily down this path.

The first point to raise is that a lot of people have talked about the size of the sample, and the fact countries have been excluded that would influence the result.  I haven’t been able to avoid hearing that point.  I am going to ignore it.

They get points for sticking to the same series on countries the whole way through – and I am going to ASSUME this was the right set.  This could well be wrong (many feel it is) but it will have no bearing on my review.

So what data issues did I have:

• Interesting interpretation – In Chapter 2 they say the following:  ““When we reviewed all this research, a clear pattern emerged.  While there was overwhelming evidence that inequality was related to health when both were measured in large areas, the findings were much more mixed when inequality was measure in small local areas”.”
  • They interpret this as strengthening their result as it is the impact of national inequality on communities.  I read it as showing that, inequality excluding unobserved variation across the nations regions has no impact on health – as if we are looking at inequality “within a community” this is where I would expect a direct causal impact from their hypothesis to be strongest.  This feeds into my later point – their “hypothesis” is actually a complete an utter mess, which they never try to tidy up. Note:  I find this especially weird given the importance of status seeking to their explanation.
• The fit on the “index of all issues” is a lot stronger than for the individual indices – it is also an unweighted linear combination of indices from what I can tell.  All of this is strange – why use an unweighted index, and why would outliers seem to “cancel out” in this way.  I’ll give them the benefit of the doubt on this, and just say that an aggregate index appears inappropriate.
• Outliers are a major problem:  There are several places where the result would be a lot weaker if the outliers were taken out – they even admit as much, but then say “the fact that so many relationships with inequality are statistically significant, despite the limits to the data, is an indication of how powerful the underlying relationships actually are” – so they admit the result.  The health obesity (chapter 7) chapter is the clearest examples of results relying on outliers.  I would note that my old Hayahi Econometrics book says the following about highly influential outliers on page 23 of this pdf:  “In this case they should definitely be dropped from the sample” …
• On the note of the above comment, they are saying the P-value is low even with low data so yeah!  This comes from the idea that they are rejecting a null hypothesis of “no impact” with their estimation, and it can be difficult to reject the null hypothesis when there is little data.  Essentially for a given mean and variance, the larger the sample size is, the more likelihood we place on the mean of our parameter (in this case the coefficient on the impact of inequality on or social ill of choice) being different from the null (of it being zero impact).  Here is the kicker, in small samples it is pretty difficult to say whether we are near convergence to the “mean” and “variance” of the “underlying model” – I am going to assume they recognise this and are basing the confidence they have in their book on the breadth of research or some such.  What I would keep in mind is this makes their estimated result VERY responsive to new data – and to adjustments to outliers … the very factor they were so dismissive about in their postscript. [Note:  I’m not going to get into a debate about the usefulness of P-values in general, or the problems with statistical significance – that is important, and for broader academic debates, which should be based on the papers rather than the book per se].
• Update: I forgot to make this important point about the above point – “but it is less well appreciated that low power also reduces the likelihood that a statistically significant result reflects a true effect”.  I’ll be honest, it was in my mind but I couldn’t remember how to show it, and thought I might just be making it up so left it out   In truth this is a central criticism of the book – and I should have checked and put it in here, I’m sorry.
• Talking about the obesity result, we have the following.  As the causal mechanism we are told that status seeking leads poorer people to put on weight and wealthier people to lose weight (from what I can tell in this).  Just obesity rates in the wealthy are said to be higher in unequal countries – shouldn’t weight inequality be higher to be consistent.  I can never really tell – as the hypotheses they use change far too often, and SHOULD be defined more clearly.
• Subjective indices of outcomes – how trust worthy are they?  I’m an economist, we generally have concerns about reported results relative to “revealed preferences” – people will say they want more, and that they want society to change NO MATTER what type of society we have!  People just want more.
• The mental health result (Chapter 5) was found to not be significant (was due to US outlier in global work – although extended in the postscript, within the US didn’t hold).  However, it was taken as a given result during the rest of the
• Their data description has a sneaky little qualifier in it – they use Gini coefficients over net household income.  They show their “income” comparisons off a different base, gross national income per person.  This is pretty cheeky, net household income and GNI (which has your government spending from tax, and business spending, they are all loitering in that) are completely different series.  We will touch on how this may have had an impact when we note “alternate hypotheses” that they didn’t seem to touch on.

General issues

These issues are other concerns I ran into:

• Lifetime, not a point in time:  Their argument is about a dynamic breakdown in trust and social structure solely due to income inequality.  They need a dynamic look at the data – they need to look at time.  I find it strange they say the data isn’t there – the World Bank has Gini figures going back 30 years, and if you dig into countries there are broad data sets that give you a time dimension.  Cross-country comparability gets tough – but the argument is about a dynamic process after all.
• Multivariable analysis:  Seriously, they need to correct for confounding factors.  Yes, we do need to be careful with the causal chain – and theory helps with that.  But this isn’t a reason to ignore omitted variables.  If social stratification is the cause, show that.  If inequality is influencing social stratification then show that, and build the process – don’t ignore the “structure” and rely on a “reduced form” model for policy conclusions!  In other words the following quote is not a “methodological strength” – it is a “methodological failure”:

“Second, it is a fundamental methodological principle of epidemiological analysis that you should not control for factors which form part of the causal chain – in this case explaining how inequality causes a particular problem.  For example, if we think – as we do – that societies with greater income inequality have worse health because poorer social relations increase chronic stress, then we would need to be cautious about how to analyse that particular causal sequence. Fortunately, there are products like CBD Oil UK to counter that stress.  Simply including measures of trust and social cohesion in a statistical model could remove the association between income inequality and health, even though it is likely that inequality actually leads to poorer health because it is socially divisive.”

• Actually, lets spell it out – omitted variable bias:  If something else is positively related to inequality, and positively related to the social ill of choice, then not including it gives you a upwardly biased estimate of the “true” impact of inequality on the social ill.  I didn’t think this was necessary to spell out – but some readers may not have run into omitted variable bias or endogeneity before .  The “true model” they keep describing is between social capital and trust ideas and social ills – so this should be what they include.  If your argument is that inequality is causing the change in social capital, show that separately (Note how this increases the importance of “through time” analysis for the argument!).  If you put both in, and inequality isn’t significant it is because inequality only has an impact “through” the social channel – you don’t avoid doing the regression in that case, you just interpret the data correctly .  I will be honest here, this is a horrible error – data limitations make this hard, but it should do a LOT more to reduce their confidence in their results.  Univariate analysis on limited data doesn’t make a “strong scientific case” no matter how many times they say it in the book.
• A loose version of the Lucas Critique:  Straight from above we come to the Lucas critique – well not quite, but a related idea .  Essentially, the relationship between inequality and these outcomes is not invariant to the policies we use to get there.  Think of it this way, the policy suggestions in this book are based on the first “argument” I have at the start (nom static income inequality to solve problems) – but the “structure” is based on the third one (lifetime inequalities based on certain relationships can influence trust and social structures, and we should try to ensure policy changes are consistent with their impact on these things using lifetime inequalities as a lens to understand them).  We have an indirect reduced form relationship between these structural causes and static inequality – but unless the policies we use to target static inequality are the same ones we would use to target the structural model, we aren’t going to get the results we expect when we change policy settings.   Note:  Read this as “not all ways of changing inequality are created equally!
• Where is the panel analysis:  We have “time” and we have a “cross-section” – so we can do panel analysis of these issues.  But that hasn’t been done here.  Using panel analysis would allow you to belt out the unobserved heterogeneity between countries!  [Note:  This isn’t perfect in any stretch, cross-country comparisons (where we are treating a country like an individual) are sketchy in general – this would still be an improvement as long as we recognise the shortcomings].  I would note something in their favour for ruling this out though – the small sample of both time and cross-sectional variables!
• Timing problems:  There is a push in the book to add biological arguments – inequality creates stress which limits child development, which leads to inequality when they are adults. To battle that stress, one can try playing games such as FM카지노. Hey, I have sympathy with child development stuff for sure.  But timing matters here – often they will make this explanation, then talk about changes in inequality having contemporaneous impacts … the impact should be a generation down the line if that is really the cause.  This is a careless error, and suggests the “biological science” isn’t really being applied, just thrown in for faux-authority.
• Inequality indices:  This was a complete shocker – this single line annoyed me so much I had to go take a walk to make sure I’d come back to this book without a heavy bias at being lied to (Chapter 2):  “There are lots of ways of measuring income inequality and they are all so closely related to each other that it doesn’t usually make much difference which you use”.  This is complete false – it isn’t just a misstatement it is a dangerous lie, when our “goal” is to redistribute based on the measure we use!!!  I found Frank Cowell’s discussion in Measuring Inequality to be pretty useful on this point – and the ways that different measures didn’t meet certain criterion.
• The book is very confused between levels and rates of change – repeatedly claims are made about “equality” then replaced with “changes in equality”.  Constantly the book starts using “education” or “health” inequality interchangeably with “income” inequality – when actually they are supposed to be trying to prove this relationship.  This is partially bad writing.  However, during some points in the policy prescription section, this confusion actually makes their policy conclusions completely unclear – do they have a view on “optimal” inequality, is it just lower or is it complete?
• Whatever the “hypothesis is” is inconsistent, and as a result untestable and unscientific (by their own definitions): Adding to this is the idea that we can then design policy based on their recommendations.  The hypothesis is often unclear, partial, there is a poorly defined structure, and the policy “benefits” they occasionally quantify feel like they are throwing a dart in the air.  This could be the style of the book rather than the robustness of the underlying literature – but that is what I am reviewing.
• They also use this to attack random straw man arguments at strange points in the book (ultimatum game is a clear example in chapter 14, but arbitrary unsupported passages and attacks are throughout the book) – often acting like we don’t redistribute at all, I suspect this is again due to bad word choice.  If I was being less generous, I would say they aren’t critically interpreting empirical and theoretical arguments from economics … which would reduce my faith in them doing so from other disciplines I know even less about.
• Equality and heterogeneity of individuals:  They occasionally seemed to stray into the territory on complete equality on the basis of it being democratic.  They even noted the idea of prices being democratic and the such.  I have heard that before – right here!  However, I’d note some extra things – individuals are heterogeneous and relative price levels change for the purchasing patterns of different income groups.  We can’t “abstract” away from that and push for complete equality – heterogeneity is so insanely important, hell even if we were all carbon copies at different points in our lives we would STILL be heterogeneous!  Policy needs to appreciate this – not just treat all income difference as akin to luck!
• Note 2 on heterogeneity:  One of the biggest heterogeneities is the fact people value working, and goods and services, differently – their skill set plays into this, but fundamentally people value things different ways.  Any view of “inequality” needs to take into account that some people want to work more to consume more – and some want to work less and consume less.  This key key key point gets ignored too much, and choice never makes an appearance in this book.
• Status goods are not just income – the authors don’t notice this:  For such an important, important, important issue the idea of status was treated very poorly in this book.  If income can’t be used as a status good, people will find something else to use as a status good (look at all the people rolling ‘non-profits’ for attention and people pushing for twitter followers) – this is human nature.  Acting as if removing income inequality will cancel out status good competition EXAGGERATES any impact – this is a key point when they tell us cutting inequality will save 1.5 million lives
• The US-China comparisons:  They keep writing the US is more unequal, and as a result more selfish – which China is more communal and less selfish.  Did they look at Chinese inequality numbers before making that claim multiple times? [Wikipedia, other, other – all first page of google]
• The appeals to authority are grinding:  The book starts with the authors comparing themselves to the dude who pointed out that having doctors wash their hands would save lives.  They then imply that if you disagree with them, it is like disagreeing with that which led that researcher to commit suicide.  The strength of the appeals to authority do not ease back from there … it made me skip chapters that seemed unrelated to the central thesis by the end.  I would note that other people have told me they found it the same when I chat to them.
• Anecdote overload:  A prison warden is a douche, and a 16 year old loves fast food – just the sort of long winded stories that prove your point when you haven’t bothered writing down a hypothesis outside of “the level in inequality causes social ills and these annoying anecdotes”.  Again, this is probably a style thing – historians do anecdotes well, I just don’t think social scientists have their skill with them

Oi, so what else can shift inequality that we should be looking at!

The book mentions two causes – changes in technology and skill, and changes in social norms and government policy.  It says the first is exaggerated, and the second is what it is all on!  They only do this briefly, surprisingly.

Now there is a pile of work going on at the moment with people breaking all this shiz down.  The two things that come to mind this second are “Income inequality in the United States, 1913-1998” by Piketty and Saez (2003) and “Levels and Trends in United States Income and Its Distribution A Crosswalk from Market Income Towards a Comprehensive Haig-Simons Income Approach” Burkhauser and Larrimore (2013).  I’ve put down two articles that come to different conclusions – and my impression is more of the literature is currently behind Piketty-Saez (although the Burkhauser-Larrimore paper is new).

That is lovely and all, but one of the key things is that when we start breaking down the income distribution into causes we start seeing that there are many more causes – population aging, household structure, changes in relative prices (such that the change in nominal income distributions may not actually mean different real purchasing powers), changes in tax, benefit and labour market policies, changes in other policies (macroeconomies are filled with unforeseeable distributional consequences).  This is in addition to changes in skills, education, broad technology (both globally shared and nation specific), and demand for skills types.

Making the argument sound like there can only be two causes of changes in the inequality distribution allows them to exaggerate the policy relevance of what they are saying.  If they actually had to go to the source, trust, status competition, and social capital the “solutions” would be as easy (although they would have a lot more validity).  This is a FUNDAMENTAL methodological issue with what they are doing – reading this entire book, and seeing how they talked about inequality, it just sounds like they don’t understand the variable they want society to control.  This is damning.

Alternate hypotheses:

Even if the fundamental result was robust – we still have an issue of causation!  Here is a non-exhaustive list of alternative hypotheses that they do not cover off in the book, including in the post-script where they cover off other alternative hypotheses.

• Risk loving behaviour is correlated with both inequality outcomes (dispersion of wealth) and many of these “social harms”.  Given all the data is cross-sectional, it is hard to rule out that risk loving is the cause of both (a confounding variable).
• Institutionalised status seeking, social stratification, strength of social contract causes income inequality:  The treatment of causality in the book was poor – chapter 4 was the only time they mentioned a causality test, and this was in terms of the trust index.  Supposedly some academic sociologists raised concerns that the causality could run in the other direction (from the postscript) and I agree with this.
• The poor data structure is confusing poverty and inequality – inequality for a given average income implies MORE poverty for that income.  Needs to be corrected for.
• The poor data structure is confusing income and income – for a given level of income, if governments share of income is larger, measured inequality will be lower but their “income measure” (GNI per cap) will be unchanged.  As a result, this could just represent “more government intervention” a confounding variable that needs to be accounted for.  In Chapter 13 they say they accounted for government expenditure in some places.  I realise this is for the public but just saying “even accounting for government spending” whenever you did that would HELP your argument with everybody – as it is I have to assume this was often ignored (especially given the authors point that they don’t include confounding variables).
• Not culture, but homogeneity:  They rule out culture as the cause – fair enough!  But hasn’t there been a lot of talk about more homogenous societies having greater equality and stronger social bonds – can’t the homogeneity due to being with “similar” people create a situation where society “chooses” more equality.  The areas they “group” and say aren’t culturally similar are similar in terms of homogeneity – so this is actually a powerful alternative.  And I don’t find it that morally compelling, as I wish there was a way for humans to find “others” as more akin to themselves!  Now personally, I am picking that the authors have realised and looked into this – but the postscript could do with an update to mention it and why it is inappropriate!
• The lack of time missing the “causes” of changing inequality:  I find it insane how inequality is said to be the “cause” of everything – and not the result of anything.  Especially since the distribution of income and measured inequality is an issue that economists have spent much time looking at “causes” for.  Eg here is a paper I read last week from Motu, dealing with the causes of the changing income distribution between 1983 and 1998.  A lot was put down to changes in population and household structure – instead of policy change.  Now I appreciate the idea that inequality and other things can be a two-way street – but there wasn’t the slightest effort in this to try and understand “what the difference in Gini coefficients between countries” actually represents … as this is actually a f’ing hard question.  It can be hard to compare Gini coefficient between countries – the Gini coefficient represents the area between the “equality line” and the Lorenz curve for the income distribution, and Lorenz curves can “cross”.  This implies that countries with very different income distributions could have the same Gini coefficient!
• Modern technology is the cause of dehuminisation:  Or our relation to it – I recently read Zen and the Art of Motorcycle maintenance, and so the idea that progress has led us to be disenfranchised is sitting in my head.  Aha, but shouldn’t this have occurred across all countries!  Well if we had overtime comparisons we could look at that – but we would still need to think about how this process in turn relates to our institutions within society.  Could even add that, increased wealth and capital concentration due to technology increases inequality AND as a result this is what we could see driving the result – could test this by actually looking at measures of capital intensity and the such though.  Key point, “many shifts” in the constant changing state of nature could be confounding variables in here, need more data to truly break it all up

To be honest, I find many of these alternatives more compelling than inequality stuff did it – but testing any of them in a satisfactory manner, including inequality, is danged difficult.  Given this, I am amazed at the confidence they have in their own results …

Conclusion:  My concerns given the hypothesis

How is this result being interpreted?  Just the way they want it to be – that changing inequality has a mystical magical impact on these social outcomes.  Not only has this not been shown, but it merely leads people to stop thinking about the hard issues and trade-offs in order to try to push a button that fixes everything.

It just so happen that this button involves more transfers to the middle class (hello directors law) and less focus on the specific issues that exist in the health and education system.  Now, the people that really get disadvantaged from this change in focus are the poor – and the people that win are the middle class people who received income transfers as a way of helping them deal with the stress of other people being richer than them.

Let that sink in, this is what the book is fundamentally saying.  It is a non-scientific book (the number of data and statistical concerns indicate that) that supports transferring resources and policy effort towards the middle classes.

It is not an objective analysis of the way we build up trust and cooperation in society – which is unsurprising as that would be a very difficult thing to do a full analysis of.  However, it pretends it is doing that – instead of placing its flag in the ground and admitting the trade-offs involved with the specific program of redistribution they are pushing they want to make they pretend there are none.  Lovely.

Now do not get me wrong – many of the policies that we may decide to put in place to help groups will knock down inequality.  The idea that, as a community we should try to build up trust and social capital has definite merit.  The idea that progressive tax and transfer policy, that represents the social contract, can help in this end is also acceptable.  But this book doesn’t show that – instead it gives a misleading idea that targeting one variable will create great happiness, the sort of blind ideology that leads to social harm.

My postscript – reading what others have said

I still haven’t read anything – and I’m pretty tired from putting together this review!  I will check other reviewers and write about what they have said in a separate piece in a couple of weeks.  However, here are some links that I have been sent:

• Andrew Leigh here.
• Spirit level delusion.
• Patrick Nolan (hey my brother!).
• CIS.
• Bill Kaye-Blake.

Does anyone have pieces supporting their research – more stuff against them is fine, but I’d like to also see work challenging some of the concerns I’ve run into here.

Appendix chapter summaries

Here I will give you the brief notes of the chapters, and comments I had while reading those bits.  This will hopefully add to what I have discussed in the review, rather than contradict it

Prelude

• They come from health inequality research – epidemiology related methods.
•  “At an intuitive level people have always recognised that inequality is social corrosive”.
• They suggest following data even if we can’t explain why – example of doctor washing hands

Chapter 1

• Need a focus on psychological wellbeing instead of just GDP (no economist would disagree in principle).
• Statement of hypothesis:  “we will show that the scale of inequality provides a power policy lever on the psychological wellbeing of us all”.
• Blabbing on income and happiness is irrelevant – already highly empirically falsified.  Although again agree that the “goal” is not GDP.  Furthermore, trade-off isn’t between growth and inequality – it is between level of income and inequality.

Chapter 2

• “There are lots of ways of measuring income inequality and they are all so closely related to each other that it doesn’t usually make much difference which you use” – this is incredibly false, holy cow.  However, doesn’t influence overall argument per se – just not a nice statement.
• Personal note:  At this point would be nice to separate “inequality” impact from “low income” impact on outcomes – as they state low income is associated with these negative social outcomes.  Poverty is a confounding variable at this point – need to make sure they make this clear
• Health and social outcome index is a touch random – equal weights across disparate social outcomes?  What does it really mean?  (They do say they will separate out – good)
• The inequality index is in net household income – the “income” comparison is average national income (fig 2.3).  There is no correction for social spending OR the fact that for a given average income (and given policy settings) poverty/low income is greater for the unequal country, making poverty the proximate cause (instead of inequality).  Keep an eye out for this to be explained.
• “In chapter 4-12 we will examine whether each problem is related to inequality and will discuss the various reasons why they might be caused by inequality”.  Great, ex-post justification instead of testing alternate hypotheses – this is a big methodological problem.  Still, see how they do it.
• Argument about relative position and status goods – this is legitimate.
• “Where income differences are bigger, social distances are bigger and social stratification more important” … my note:  we actually need a view on mobility for this, and lifetime inequality – not just static Gini coefficients.  It is a broad principle that I don’t disagree with though.
• “When we reviewed all this research, a clear pattern emerged.  While there was overwhelming evidence that inequality was related to health when both were measured in large areas, the findings were much more mixed when inequality was measure in small local areas”.  They interpret this as saying it is broad social structures across society causing health issues in smaller regions.  I interpret it as saying that, when controlling for other variables by narrowing the geographical scope the inequality result GOES AWAY.
• A lot of rhetoric without substance – look past this – say you are ignoring that, as its no doubt written this way to be like a pop book.

Chapter 3

• Social structure influencing individuals – fair starting point.
• States increase in anxiety (work by Jean Twenge) – interesting, but claim that 1980s kids are as anxious as psychiatric patients from 1950s seems strong, thankfully now we have natural treatments to ease this condition, for example the new on sale hhc.  They note that isn’t solely due to inequality – appears to start prior.
• Rise in narcissism placed down here – used to justify favoring of status goods, protecting the “view of self”.
• Breakdown in identify and community that provided it.
• Matt Note:  Link between this and inequality?  Or is it a cofounder? Inference that status is only on income is a stretch in modern age – people choose to be low paid musicians for a reason!
• States that Japan is more equal and more modest – US less equal less modest.  Blames lack of modesty on inequality.  Ummm, what! (Especially when then stating that the Japanese pattern was in China – one of the most unequal countries on earth!!!!)

Chapter 4

• Again with the US-China comparison – ignoring inequality is worse in China.
• Social relations deteroriate in “less equal” society – states that it forces us to treat other income groups as the “other”.  Matt question – who do we view as the “other” if this wasn’t the case, the historic comparisons had much larger sexism and racism than we have now, is it just a fault in human nature to make an “other”?
• Negative correlation between trust and inequality (they put the causation from inequality – but doesn’t it work both ways given govt policies are endogenous to trust and the social contract?)
• US gap correlation for trust to inequality is more compelling to me – although state level redistributive policies are important to think about.
• Uses Robert Putnam (Bowling alone) to justify how they are “mutually reinforcing”.  Inequality eats into “social capital”.
• Bo Rothstein as showing inequality leads trust. [Note:  Still static measures for a dynamic argument – would be nice to at least mention the idea of lifecycle inequality instead]
• Trust to cooperation – stating that breakdown in trust due to rising inequality causes breakdown in cooperation.
• Stating that inequality also correlates to lower women status – note that this includes earnings, so when half your population has relatively lower earnings higher inequality is a product of it.  As a result, ignore this one.
• They note that, in trust, poverty in of itself is not as strong a factor – they should really be fleshing this one out more!

Chapter 5

• The mental health data is only cross-country, not time series.
• The mental health is due to inequality data doesn’t hold between US states.
• After even pointing out the data wasn’t there – they’ve just assumed it is the result.  Ahh “affluenza” is the problem – and Frank’s “luxury fever”.  Sorry, the 1950s was packed with this during a time of massive equality … this is not compelling.
• Inequality and drugs – I don’t even see an argument here other than extending the mental health argument that wasn’t made.

Chapter 6

• Low social status causes negative health outcomes.
• WTF, the US is an insane outlier driving the entire result of “no relationship between health spending and life expectancy”.  This suggests there is something insanely wrong with the health system in the US – or something linked to it (dudes, your food is pretty much insane).
• Is there no chance that instead of inequality causing lower health outcomes, they can both be explained by heterogeneity in individuals.  Being endowed by poor health reduces your relative earning capacity …
• So inequality reduces the health outcomes of those at the top as well … really … are you sure you aren’t missing a confounding variable here??!?!?!
• Life expectancy rose during the two world wars at a faster rate than between and after … this is very fishy. [Note:  They are also saying nutritional status improved due to rationing, what]
• Stresses of inequality cause lower life expectancy now – even though stresses of WAR increase it.  Note I agree that stress reduces life expectancy, that is well shown.
• Uses Russia as an example of place moving from central planning to market economy and thereby lowering life expectancy – hold the f up.  We know the pre-wall collapse data wasn’t necessarily reliable, and I’d hardly call Russia a market economy … more like an oligarchy.

Chapter 7

• Weight distribution switched from positively related to income to negatively related.
• Relationship between obesity and inequality again looks pretty heavily skewed by US …
• They note that link is likely due to stress (highly believable) – so relies on link between inequality and stress.  This should be in turn testable.  I would note we can slot this directly in with addiction – so again relies on the mental health argument that was so weak.
• They note that fast food is a status symbol for the poorer.
• The link between socio-economic status (note not inequality) and obesity appears to be a female only phenomenon.
• They make argument about how fuller bodied women used to be seen as more attractive – isn’t this a debunked urban myth?
• Weight as social status is different in different groups – ahh this isn’t a particularly clear passage or mechanism (no answering why).  Piling into anecdotes from 16 year olds on the street
• Seems to be implying that “low” weight is treated as status symbol by wealthy, but the “obesity” problem is said to be spread across society, so the status argument isn’t holding?  (Claim on it being spread made again in Ch13)
• Argument:  Societies with more stress lead to babies with low birthweight who view food as scarce and so eat too much.  Note:  This may make sense for obesity, but not so much for the idea of wealthier people being thinner – as the stress is supposed to be “spread”.
• They suggest that it was the increase in inequality post-Berlin Wall falling that led to rising obesity in East Germany … what the shiz.

Chapter 8

• Inequality and educational scores are closely related:  No shiz – if they don’t deal with causation this is a disaster of a chapter. [Note relationship is weaker than my priors suggested]
• Drop-outs positively associated with inequality.
• Educational inequality related to educational performance – said to be given by outside literature.  Also they keep mixing “educational” and “income” inequalities implying they are the same thing.  Need to be more careful.
• Link is that inequality causes stress, which reduces educational opportunities and performance – aha.  Poor parenting is implied to be a response to income inequality.
• They note that castes, and status, announcements can help lead to differentials in performance – note this is a general concept about how groups form, it is not solely about income (eg if the income inequality went away, people would find another way to rank themselves).  The REAL result is that announcing and observability have this signalling effect.
• Argument that class status influences opportunity – this is true.  The solution is dealing with opportunity and attitudes in the community though; increasing social mobility … this would come up by peaking at some of the longitudial studies within countries
• Inequality leads to higher aspirations for work (expecting high skill instead of low skill).  Ok, wtf, result driven by Japan – AND this is skills not status, it is not necessarily a bad thing.  “If inequality leads to unrealistic hopes it must also lead to disappointment” – holy shiz wtf.

Chapter 9

• Teenage birth rates are higher among the poor.
• Higher in Anglo-Saxon, opps I mean unequal societies.
• State high teenage birth rate in unequal countries is due to lack of trust.  Especially noted “absence of father” – mothers relatively close relationship to child, desire for child, as a result.

Chapter 10

• Inequality increases incentive for status seeking, leading to more violent behaviour (which is an act of status seeking).
• Relationship exists – but again, US is ridiculous outlier.
• State that violence comes from lack of fathers – relies on inequality breaking up families.
• State that violence, crime, and teenage pregnancy have all moved with inequality in the 80’s, 90’s, and 00’s – falling then rising.  No time series shown though.

Chapter 11

• Inequality explains imprisonment rates better than crime rates – note:  this is the clearest argument that confounding variables are the cause and not inequality FFS (why, as countries that institute more punitive punishment are likely to also institute similar welfare policies, increasing inequality EVERYTHING ELSE equal).
• They make claim unequal societies are more punitive as well.  Note, this is set in policy – this isn’t the result of inequality but one of the causes!!!!!!!
• Note:  At this point the random, barely related, asides and anecdotes (instead of ya know, actual evidence) they are using are making the book close to unreadable.  It is starting to get boring.  I don’t see how the fact a prison warden is a douche adds anything to their argument … Joe Arpaio.
• Argument that prisons can be counterproductive – true but absolutely irrelevant to their thesis.

Chapter 12

• Finally, they will cover social mobility and opportunity – the big issue for economists!!!
• State that longitudinal data is hard to come by – although tbh if you look it is around
• They compare 8 countries with social mobility indices.  They compare them with STATIC (end point) income inequality.  They pretend there is a result – in truth it just says mobility is lower in the US and UK than it is in Europe and Canada.
• The ratio of public expenditure on education, and the correlation between father and son earnings, indicate that mobility in the US has declined.
• Concentration of poverty has increased (they say this is due to inequality – that is a stretch, it is policy relevant in itself).
• An excessively long blah on the fact that different groups try to signal status using wealth with no data.
• “In more unequal societies, more people are oriented towards dominance; in more egalitarian societies, more people are oriented towards inclusiveness and empathy” – ok when the hell did you actually make this case???  They’ve actually just included this and pretended they’ve made the case for it.
• “health of ethnic minorities who groups who live in areas with more people like themselves is sometimes better than that of their more affluence counterparts who live in areas with more of the dominant ethnic group” – people tend to move towards “others” they relate to, I don’t see how this is relevant to equality of opportunity being impinged BY income inequality.  It isn’t due to income dispersion, it is an underlying factor.
• “Bigger income differences seem to solidify the social structure and decrease the chances of upward mobility.  Where there are greater inequalities of outcome, equal opportunity is a significantly more distant proposal”.  What I’m struggling with is they never actually made or tested these claims – it is like they wrote them down, then included a pile of filler that “proves” it by unrelated anecdote.  They have shown that inherently different groups impact upon mobility – and suggested that mobility has fallen back in the US context recently.  Nothing more.

Chapter 13

• Continuing to claim that the negative impact is on society as a whole.
• Arbitrary unweighted index or indices correlated with static income inequality
• Claim that more “equal” countries have lower working age population death rates.

Alternative hypotheses:

• English speaking countries:  They rule this out as there is still a relationship between them, and because Portugal also sucks.  Same deal with Nordic countries – get rid of them and still have relationship in funky index.

Ok, that was it.  Onwards

• Get equality through tax and transfers, size of govt etc doesn’t matter.  Note: This is a strange claim, and their “data” is subject to the Lucas Critique as they have no “structure”.
• “For countries in our international analysis, we collected OECD figures on public social expenditure as a proportion of GDP and found it entirely unrelated to our Index.  Perhaps rather counter-intuitively, it also made no difference to the association between inequality and the Index”. [So they did a multivariate analysis here?]

Alternative hypo again

• Ethnic divisions:  Taken as status marker.  They state that they haven’t tried to correct for it – and since it is the same process we will treat it in the same way.  Note:  Hmmm
• Breakdown in traditional family unit:  No relationship between number of single-parent households and child wellbeing.
• History dependence:  I don’t see what the criticism is or their response, this is all blah
• Causality:  Since it has happened on so many variables it must be true.  Also with the little time series available we can say things like ‘the US and Japan swapped places on life expectancy’.  They also say they have ruled out govt expenditure (would like to actually see that in detail) and that it is unlikely there is some other catch all factor – I think they are missing the point a bit here, inequality could be set due to a myriad of policy and choice factors that are correlated.  It is not inequality itself that needs to change, but a range of government schemes in that context.
• They touch ideology:  Discuss in a broad way that this isn’t that important per se as there was no intention to worsen outcomes – they don’t seem to quite get the idea of ‘packages’ of policies in the face of funding trade-offs.
• They note the caste/status evidence as evidence of causation for income inequality – actually it is just evidence of status.  Note:  Removing the inequality does NOT necessarily solve the status seeking.
• Push to state that the chain of logic is inequality hits social capital – therefore it worsens outcomes.

Chapter 14

• Focus switches to “how greater equality is attainable” – stated that greater equality, in of itself, is now proven to be desirable.
• “Far from being impractical, the implications of our findings are probably more consistent with the institutional structures of market democracy than some people would like to believe”.
• “We need to understand how … greater equality allows a more sociable human nature to emerge”.  Note:  This link should have been made earlier.
• “Systems of material or economic relations are systems of social relations” – again no shiz tbh
• “The egalitarian preferences people reveal in the ultimatum game seem to fly in the fae of the actual inequalities in society” – aha this is nonsensical.  Ultimatum game shows an inherent preference for “some” level of redistribution, society DOES involve “some” redistribution.  They are working too much in “absolutes” with their description which makes the argument misleading.
• Make claim that “modern inequality arose with the development of agriculture” – they are taking this as evidence that society is less egalitarian than it was with hunter-gathers.
• “Our tendency to feel a common sense of identity and interdependence with those with whom we empathize and share a sense of identity” – implying that income and resource equality causes people to view themselves as part of a group.  This is essentially the thesis – very likely backwards!
• State, effectively, that morality and fairness views about society are formed when a child.
• “Many of the problems which we have seen to be related to inequality involve adult responses to status competition” – this seems to be the more general cause, Si.
• Then state that inequality impacts upon children – surely this actually indicates that active policies for children are actually what is more important rather than indirect redistribution?
• Lots of loosely related blah about chemicals stimulating pleasure and how not having friends makes you sad.

Chapter 15

• Note:  They still haven’t said “how” to redistribute at this point – even though they promised
• Here is what I am guessing this chapter will say – reducing inequality reduces “status good” competition (Veblen goods), and leads to easier “co-operation” thereby solving global warming
• I can’t really be bothered reading this chapter – and it is standalone, so skipping.

Chapter 16

• State that thinking about inequality domestically doesn’t mean ignoring global inequality – a more trusting society will be more generous.  Note:  I would be more careful with the margin, but agree we can separate the question UNLESS there is a common cause (labour mobility).
• Some stuff about transformation – this isn’t particularly “clear”
• “It is often said that greater equality is impossible because people are not equal.  But that is a confusion: equality does not mean being the same” – no the confusion is between a change and a level, and it is on the authors part.
• “Nor – as often claimed – does reducing material inequality mean lowering standards or levelling to a common mediocrity”  Ok, you haven’t show this and the real evidence suggests this is wrong.
• “Wealth, particularly inherited wealth, is a poor indicator of genuine merit” – this is mixing issues again
• “People are now more likely to see psychosocial wellbeing as dependent on what can be done at the individual level …. However it is clear that income distribution provides policy makers with a way of improving the psychosocial wellbeing of the whole population”.  This is their claim – it is unproven.
• “The glaringly obvious fact that these problems have common roots in inequality and relative deprivation disappears from view” … sigh
• They state that, since income inequality has risen so much between the 1970s and the 1990s we can easily make it change back.  Note:  This does depend on the cause right.
• Notes that Krugman blames changes in “institutions, norms, and political power” as cause of changes in US income inequality.  Arguing against changes in relative skills essentially.
• Can have redistribution through taxes and benefits and “through a large welfare state, countries like Japan manage to achieve low levels of inequality before taxes and benefits”.  Note:  I thought they rule out the impact of social expenditure earlier?  They go on to note that social expenditure can in turn be increase as you “pay to deal with harms” … hmm
• Problem is that society and politicians have “lost touch with what really matters”, surveys say.  Note:  I bet, if there were surveys about this 40 years ago, people would have said the same thing dudes.
• They note 60% of Americans want more redistribution.  Note:  middle class wants more middle class welfare – no way!
• Corporates owning govt, blah blah blah.
• State they think more co-operatives, non-profits, and government run organisations will lower inequality – surely this is a “industrial economics” issue a bit more!  Lens of competition necessary.
• Some stuff about increasing progressivity of tax system – yup by definition this should reduce inequality.
• Weird stuff on “employee ownership models”.  Ok, if they want to purchase the capital and land that is fine – that stuff aint free guys.  They really like employee owner firms …
• Attacking idea that freedom and income equality contradict, fair enough.  “The truth is that modern inequality exists because democracy is excluded from the economic sphere” – ok that is a pile of horse shiz.  Do they NOT UNDERSTAND individuals are heterogeneous!
• Complaint about the current structure of patents – this is true.  Their solutions are naff, but many economists are concerned about that.
• ‘History is on our side bullshiz’

Postscript

• They state that some studies cited did estimate impact of inequality allowing for the impact of changes in income.
• They state academic sociologists were surprised the book focused on income inequality and not social class classifications – they defend this on the basis of incomparability of data.  Fair in that respect.  However, the underlying issue of “cause” isn’t touched – that classifications are the cause of observed inequality rather than being a product of.
• They compare themselves to a bunch of other areas saying that criticisms are just trying to fight against scientific evidence – ahhh hmmmm
• “It is now extremely difficult to argue credibly that these relationships don’t exist” – have any of the 200 papers actually gone along the road of causation.  You are suggesting “policy intervention” based on something you don’t “understand” – there is still an implicit structure that isn’t being thought about!
• Stuff about dataset structure – this is an issue I am leaving to the side both ways
• They argue the “cultural difference” perspective is relatively flawed.  “Culture” is used as a catch all description without definition.  I agree here.  Homogeneity of culture is a different story – and they don’t seem to touch it.
• Defending outliers and statistical significance:  “Our results are, sometimes sensitive to exclusions simply because we are looking at a limited number of countries, but the fact that so many relationships with inequality are statistically significant, despite the limits to the data, is an indication of how powerful the underlying relationships actually are”.  Go to town on this Matt – holy moly
• “There were several reasons why we chose not to include other factors.  First, we wished to present the simplest and most understandable picture of the correlation between income inequality and health and social problems, so the readers could see the strength of the relationship for themselves.”
• “Second, it is a fundamental methodological principle of epidemiological analysis that you should not control for factors which form part of the causal chain – in this case explaining how inequality causes a particular problem.  For example, if we think – as we do – that societies with greater income inequality have worse health because poorer social relations increase chronic stress, then we would need to be cautious about how to analyse that particular causal sequence.  Simply including measures of trust and social cohesion in a statistical model could remove the association between income inequality and health, even though it is likely that inequality actually leads to poorer health because it is socially divisive.”
• “Third, including factors that are unrelated to inequality, or to any particular problem, would simply create unnecessary ‘noise’.
• They note some studies have tried to account for other variables.
• Reiterating – “relationship between inequality and various … problems are not reducible to the direct effects of people’s material standard of living”.  Fair, and I don’t think anyone would disagree per se – income is not the only cause of these things, and even if you don’t believe inequality “did it” it is likely that causal variables that are positive related to the problem will have a positive relationship with inequality!
• Introduction of UK, Aussie, NZ, and Canada increases fit on mental illness link – not they are all pretty close together.
• More data for “social mobility”, negative relationship weaker but less due to outlier.
• “Reducing inequality in OECD countries would prevent upwards of 1.5 million deaths per year” – reducing it by how much, and how.  FFS.
• Social relationships matter for health.  No shiz.
• “Economists sometimes suggest that the market is like a democratic voting system … If this is true, someone with twenty times the income of another effectively gets twenty times as many votes”.  Link to myself – also note that not thinking about the “web of prices” and what that income genuinely means in terms of goods and services is being confused here.  Twenty times the income doesn’t mean twenty times the claim on goods and services, as relative prices will shift as that ratio rises.
• Something about inequality causing financial crisis – I will leave this to the side, not relevant to thesis.

I have heard a bunch of criticism of the Spirit Level book based on its “sample” and “cheery picking” (Note:  This started life as a typo, but I liked it and used it throughout ).  I’ve decided to ignore that, and to read the book on the merits it gave in the text.  Given this how did I find it?

Warning, this is an exceptionally long post given that I am putting down brief notes on each chapter (the review is over 4k, the summaries just that again).  I have signposted sections so if there is something you want to swing to (tl;dr, conclusion, general issues) you can swing to that.  Also note that I link to an excessive number of old posts from the blog – essentially many of the ideas noted down over the last few years here will come in useful for reviewing the book.  For that reason, I’ve put a pdf of my blahing here MN Spirit level review.

I have also explicitly avoided reading other people’s reviews – except for the postscript that I have written later.  As a result, I can’t promise I’ve added anything, but I can promise that I’m being honest in my views

Note:  This review is also a blog post – not some external thing you just read, but something you can interact with.  If I’m wrong on statistics, on logic, on interpreting the authors, or I’m just plain immoral as a person, throw down a comment and tell me.  If you convince me, I add updates onto the review to say you’ve changed my mind – party times!  I am here to steal all your knowledge.

Tl;dr review

I have a list of concerns – excluding anything about the “countries in the sample”:

• Hypothesis changes and language gets mixed up – argument is generally unclear and in a sense untestable as a result.
• There are occasional untruths about what the “inequality measurement” is – and their treatment of income is inconsistent.
• Outliers do matter.
• Overconfidence of result – especially given that the lack of “structure” hits the policy relevance of what they are saying.
• Causation is a mess, and they haven’t been able to adequately deal with “alternative hypotheses”.
• On a literary level, the constant appeals to authority, overuse of barely related anecdotes, and lack of clarity in sections of the writing make it a unpleasant read – especially if you are trying to read it to distil their argument structure which is variable.

Conclusion:  Contrary to what they say, this book is not “science” (in the way they try to make it sound – I don’t want to fight about “what science is” as I’m not the one defining it for the book!), it is thoughtless “silver bullet” posturing dressed up as analysis.

To the full review!

To review the book, I really need to frame it as an argument.

Base book argument

1. Static inequality of income is correlated with negative health and social outcomes in a cross sectional analysis (across countries, and across states in the US)
2. Therefore, reducing income inequality will improve health and social outcomes.

This is the very base argument, but they do attempt to give it some structure.  Specifically they go along the lines:

1. Static inequality of income is correlated with negative health and social outcomes in a cross sectional analysis (across countries, and across states in the US)
2. Static inequality causes a break down in trust, social stratification, and a changing in social norms through time.
3. Therefore, reducing income inequality will improve health and social outcomes.

The mixture of a static figure and a dynamic figure is a bit vexing.  If I want to be generous (which I do) I would state they mean the following argument in the book, even though they don’t frame it this way due to a lack of time series data (supposedly).

1. Static inequality of income is correlated with negative health and social outcomes in a cross sectional analysis (across countries, and across states in the US)
2. Static inequality is correlated with lifetime income inequality
3. Lifetime income inequality causes a break down in trust, social stratification, and a changing in social norms through time.
4. Therefore, reducing income inequality will improve health and social outcomes.

This hypothesis is not just reasonable.  It is akin to the way economists view how the social preference for “optimal levels of inequality” will function.  I can get behind that (to a degree – not as an absolute).  As a result, we need to ask whether the “scientific” analysis they promise they are giving us helps to show that.

Quick point on science:  I’m down with the Popperian view that we can’t prove hypotheses, only reject them – and I’m down with the fact that in social science these come conditioned with protective sets of ceteris paribus assumptions.  So I don’t expect this to prove anything conclusively.  However, the way the arguments are treated has a distinct bearing on how much we update our beliefs around the likelihood the argument may be true!

Now I have severe problems with how they have shown this, and with how they described it.  You may look at me, look at my job, and decided that this is due to my vested interests – I am an economist after all.

But before you judge what I am going to say on those credentials – it is important to note the large hippy streak I inherently hold.  Specifically, I am a long-term proponent of land tax based on the idea that all land is communally held, but that we offer long-term leases to get the advantage of property rights.  I term land-tax a rent that provides a “social dividend” that should be shared among all people – inherently I also believe in a guaranteed minimum level of income as a result.

Furthermore, I titled this blog.  I gave it the name “the visible hand” because I see the government as a driver of good – it is a mechanism that people in society use to help us co-ordinate and create the social structure we desire.  Yes government can be corrosive as well, like other institutions, however they form a central part of our “social contract”.

On an ideological basis I am actually, in some ways, in the same camp that Wilkinson and Pickett are – a normative base I try to avoid thrusting down the throats of people that read the blog, where I try to instead force the idea of “trade-offs”.

And it is in this regard that the Spirit Level, with its disregard for the literature and data on inequality, and the poor data analysis involved, leaves me cold.  Yes I personally believe in redistribution, and yes I believe that trust, honesty, and social capital are central parts of society.  But the way the book tries to force all this into “income inequality” is not just flawed, it is likely to lead to more middle-class welfare rather than a real focus on the poor.

They are determined to describe a “free lunch” stemming from “magically lowering inequality somehow” – but without more structure they are on very dangerous ground!

Issues with the data

It would be obvious for me to say there are severe data issue here – and I’m going to try to avoid going heavily down this path.

The first point to raise is that a lot of people have talked about the size of the sample, and the fact countries have been excluded that would influence the result.  I haven’t been able to avoid hearing that point.  I am going to ignore it.

They get points for sticking to the same series on countries the whole way through – and I am going to ASSUME this was the right set.  This could well be wrong (many feel it is) but it will have no bearing on my review.

So what data issues did I have:

• Interesting interpretation – In Chapter 2 they say the following:  ““When we reviewed all this research, a clear pattern emerged.  While there was overwhelming evidence that inequality was related to health when both were measured in large areas, the findings were much more mixed when inequality was measure in small local areas”.”
  • They interpret this as strengthening their result as it is the impact of national inequality on communities.  I read it as showing that, inequality excluding unobserved variation across the nations regions has no impact on health – as if we are looking at inequality “within a community” this is where I would expect a direct causal impact from their hypothesis to be strongest.  This feeds into my later point – their “hypothesis” is actually a complete an utter mess, which they never try to tidy up. Note:  I find this especially weird given the importance of status seeking to their explanation.
• The fit on the “index of all issues” is a lot stronger than for the individual indices – it is also an unweighted linear combination of indices from what I can tell.  All of this is strange – why use an unweighted index, and why would outliers seem to “cancel out” in this way.  I’ll give them the benefit of the doubt on this, and just say that an aggregate index appears inappropriate.
• Outliers are a major problem:  There are several places where the result would be a lot weaker if the outliers were taken out – they even admit as much, but then say “the fact that so many relationships with inequality are statistically significant, despite the limits to the data, is an indication of how powerful the underlying relationships actually are” – so they admit the result.  The health obesity (chapter 7) chapter is the clearest examples of results relying on outliers.  I would note that my old Hayahi Econometrics book says the following about highly influential outliers on page 23 of this pdf:  “In this case they should definitely be dropped from the sample” …
• On the note of the above comment, they are saying the P-value is low even with low data so yeah!  This comes from the idea that they are rejecting a null hypothesis of “no impact” with their estimation, and it can be difficult to reject the null hypothesis when there is little data.  Essentially for a given mean and variance, the larger the sample size is, the more likelihood we place on the mean of our parameter (in this case the coefficient on the impact of inequality on or social ill of choice) being different from the null (of it being zero impact).  Here is the kicker, in small samples it is pretty difficult to say whether we are near convergence to the “mean” and “variance” of the “underlying model” – I am going to assume they recognise this and are basing the confidence they have in their book on the breadth of research or some such.  What I would keep in mind is this makes their estimated result VERY responsive to new data – and to adjustments to outliers … the very factor they were so dismissive about in their postscript. [Note:  I’m not going to get into a debate about the usefulness of P-values in general, or the problems with statistical significance – that is important, and for broader academic debates, which should be based on the papers rather than the book per se].
• Update: I forgot to make this important point about the above point – “but it is less well appreciated that low power also reduces the likelihood that a statistically significant result reflects a true effect”.  I’ll be honest, it was in my mind but I couldn’t remember how to show it, and thought I might just be making it up so left it out   In truth this is a central criticism of the book – and I should have checked and put it in here, I’m sorry.
• Talking about the obesity result, we have the following.  As the causal mechanism we are told that status seeking leads poorer people to put on weight and wealthier people to lose weight (from what I can tell in this).  Just obesity rates in the wealthy are said to be higher in unequal countries – shouldn’t weight inequality be higher to be consistent.  I can never really tell – as the hypotheses they use change far too often, and SHOULD be defined more clearly.
• Subjective indices of outcomes – how trust worthy are they?  I’m an economist, we generally have concerns about reported results relative to “revealed preferences” – people will say they want more, and that they want society to change NO MATTER what type of society we have!  People just want more.
• The mental health result (Chapter 5) was found to not be significant (was due to US outlier in global work – although extended in the postscript, within the US didn’t hold).  However, it was taken as a given result during the rest of the
• Their data description has a sneaky little qualifier in it – they use Gini coefficients over net household income.  They show their “income” comparisons off a different base, gross national income per person.  This is pretty cheeky, net household income and GNI (which has your government spending from tax, and business spending, they are all loitering in that) are completely different series.  We will touch on how this may have had an impact when we note “alternate hypotheses” that they didn’t seem to touch on.

General issues

These issues are other concerns I ran into:

• Lifetime, not a point in time:  Their argument is about a dynamic breakdown in trust and social structure solely due to income inequality.  They need a dynamic look at the data – they need to look at time.  I find it strange they say the data isn’t there – the World Bank has Gini figures going back 30 years, and if you dig into countries there are broad data sets that give you a time dimension.  Cross-country comparability gets tough – but the argument is about a dynamic process after all.
• Multivariable analysis:  Seriously, they need to correct for confounding factors.  Yes, we do need to be careful with the causal chain – and theory helps with that.  But this isn’t a reason to ignore omitted variables.  If social stratification is the cause, show that.  If inequality is influencing social stratification then show that, and build the process – don’t ignore the “structure” and rely on a “reduced form” model for policy conclusions!  In other words the following quote is not a “methodological strength” – it is a “methodological failure”:

“Second, it is a fundamental methodological principle of epidemiological analysis that you should not control for factors which form part of the causal chain – in this case explaining how inequality causes a particular problem.  For example, if we think – as we do – that societies with greater income inequality have worse health because poorer social relations increase chronic stress, then we would need to be cautious about how to analyse that particular causal sequence. Fortunately, there are products like CBD Oil UK to counter that stress.  Simply including measures of trust and social cohesion in a statistical model could remove the association between income inequality and health, even though it is likely that inequality actually leads to poorer health because it is socially divisive.”

• Actually, lets spell it out – omitted variable bias:  If something else is positively related to inequality, and positively related to the social ill of choice, then not including it gives you a upwardly biased estimate of the “true” impact of inequality on the social ill.  I didn’t think this was necessary to spell out – but some readers may not have run into omitted variable bias or endogeneity before .  The “true model” they keep describing is between social capital and trust ideas and social ills – so this should be what they include.  If your argument is that inequality is causing the change in social capital, show that separately (Note how this increases the importance of “through time” analysis for the argument!).  If you put both in, and inequality isn’t significant it is because inequality only has an impact “through” the social channel – you don’t avoid doing the regression in that case, you just interpret the data correctly .  I will be honest here, this is a horrible error – data limitations make this hard, but it should do a LOT more to reduce their confidence in their results.  Univariate analysis on limited data doesn’t make a “strong scientific case” no matter how many times they say it in the book.
• A loose version of the Lucas Critique:  Straight from above we come to the Lucas critique – well not quite, but a related idea .  Essentially, the relationship between inequality and these outcomes is not invariant to the policies we use to get there.  Think of it this way, the policy suggestions in this book are based on the first “argument” I have at the start (nom static income inequality to solve problems) – but the “structure” is based on the third one (lifetime inequalities based on certain relationships can influence trust and social structures, and we should try to ensure policy changes are consistent with their impact on these things using lifetime inequalities as a lens to understand them).  We have an indirect reduced form relationship between these structural causes and static inequality – but unless the policies we use to target static inequality are the same ones we would use to target the structural model, we aren’t going to get the results we expect when we change policy settings.   Note:  Read this as “not all ways of changing inequality are created equally!
• Where is the panel analysis:  We have “time” and we have a “cross-section” – so we can do panel analysis of these issues.  But that hasn’t been done here.  Using panel analysis would allow you to belt out the unobserved heterogeneity between countries!  [Note:  This isn’t perfect in any stretch, cross-country comparisons (where we are treating a country like an individual) are sketchy in general – this would still be an improvement as long as we recognise the shortcomings].  I would note something in their favour for ruling this out though – the small sample of both time and cross-sectional variables!
• Timing problems:  There is a push in the book to add biological arguments – inequality creates stress which limits child development, which leads to inequality when they are adults. To battle that stress, one can try playing games such as FM카지노. Hey, I have sympathy with child development stuff for sure.  But timing matters here – often they will make this explanation, then talk about changes in inequality having contemporaneous impacts … the impact should be a generation down the line if that is really the cause.  This is a careless error, and suggests the “biological science” isn’t really being applied, just thrown in for faux-authority.
• Inequality indices:  This was a complete shocker – this single line annoyed me so much I had to go take a walk to make sure I’d come back to this book without a heavy bias at being lied to (Chapter 2):  “There are lots of ways of measuring income inequality and they are all so closely related to each other that it doesn’t usually make much difference which you use”.  This is complete false – it isn’t just a misstatement it is a dangerous lie, when our “goal” is to redistribute based on the measure we use!!!  I found Frank Cowell’s discussion in Measuring Inequality to be pretty useful on this point – and the ways that different measures didn’t meet certain criterion.
• The book is very confused between levels and rates of change – repeatedly claims are made about “equality” then replaced with “changes in equality”.  Constantly the book starts using “education” or “health” inequality interchangeably with “income” inequality – when actually they are supposed to be trying to prove this relationship.  This is partially bad writing.  However, during some points in the policy prescription section, this confusion actually makes their policy conclusions completely unclear – do they have a view on “optimal” inequality, is it just lower or is it complete?
• Whatever the “hypothesis is” is inconsistent, and as a result untestable and unscientific (by their own definitions): Adding to this is the idea that we can then design policy based on their recommendations.  The hypothesis is often unclear, partial, there is a poorly defined structure, and the policy “benefits” they occasionally quantify feel like they are throwing a dart in the air.  This could be the style of the book rather than the robustness of the underlying literature – but that is what I am reviewing.
• They also use this to attack random straw man arguments at strange points in the book (ultimatum game is a clear example in chapter 14, but arbitrary unsupported passages and attacks are throughout the book) – often acting like we don’t redistribute at all, I suspect this is again due to bad word choice.  If I was being less generous, I would say they aren’t critically interpreting empirical and theoretical arguments from economics … which would reduce my faith in them doing so from other disciplines I know even less about.
• Equality and heterogeneity of individuals:  They occasionally seemed to stray into the territory on complete equality on the basis of it being democratic.  They even noted the idea of prices being democratic and the such.  I have heard that before – right here!  However, I’d note some extra things – individuals are heterogeneous and relative price levels change for the purchasing patterns of different income groups.  We can’t “abstract” away from that and push for complete equality – heterogeneity is so insanely important, hell even if we were all carbon copies at different points in our lives we would STILL be heterogeneous!  Policy needs to appreciate this – not just treat all income difference as akin to luck!
• Note 2 on heterogeneity:  One of the biggest heterogeneities is the fact people value working, and goods and services, differently – their skill set plays into this, but fundamentally people value things different ways.  Any view of “inequality” needs to take into account that some people want to work more to consume more – and some want to work less and consume less.  This key key key point gets ignored too much, and choice never makes an appearance in this book.
• Status goods are not just income – the authors don’t notice this:  For such an important, important, important issue the idea of status was treated very poorly in this book.  If income can’t be used as a status good, people will find something else to use as a status good (look at all the people rolling ‘non-profits’ for attention and people pushing for twitter followers) – this is human nature.  Acting as if removing income inequality will cancel out status good competition EXAGGERATES any impact – this is a key point when they tell us cutting inequality will save 1.5 million lives
• The US-China comparisons:  They keep writing the US is more unequal, and as a result more selfish – which China is more communal and less selfish.  Did they look at Chinese inequality numbers before making that claim multiple times? [Wikipedia, other, other – all first page of google]
• The appeals to authority are grinding:  The book starts with the authors comparing themselves to the dude who pointed out that having doctors wash their hands would save lives.  They then imply that if you disagree with them, it is like disagreeing with that which led that researcher to commit suicide.  The strength of the appeals to authority do not ease back from there … it made me skip chapters that seemed unrelated to the central thesis by the end.  I would note that other people have told me they found it the same when I chat to them.
• Anecdote overload:  A prison warden is a douche, and a 16 year old loves fast food – just the sort of long winded stories that prove your point when you haven’t bothered writing down a hypothesis outside of “the level in inequality causes social ills and these annoying anecdotes”.  Again, this is probably a style thing – historians do anecdotes well, I just don’t think social scientists have their skill with them

Oi, so what else can shift inequality that we should be looking at!

The book mentions two causes – changes in technology and skill, and changes in social norms and government policy.  It says the first is exaggerated, and the second is what it is all on!  They only do this briefly, surprisingly.

Now there is a pile of work going on at the moment with people breaking all this shiz down.  The two things that come to mind this second are “Income inequality in the United States, 1913-1998” by Piketty and Saez (2003) and “Levels and Trends in United States Income and Its Distribution A Crosswalk from Market Income Towards a Comprehensive Haig-Simons Income Approach” Burkhauser and Larrimore (2013).  I’ve put down two articles that come to different conclusions – and my impression is more of the literature is currently behind Piketty-Saez (although the Burkhauser-Larrimore paper is new).

That is lovely and all, but one of the key things is that when we start breaking down the income distribution into causes we start seeing that there are many more causes – population aging, household structure, changes in relative prices (such that the change in nominal income distributions may not actually mean different real purchasing powers), changes in tax, benefit and labour market policies, changes in other policies (macroeconomies are filled with unforeseeable distributional consequences).  This is in addition to changes in skills, education, broad technology (both globally shared and nation specific), and demand for skills types.

Making the argument sound like there can only be two causes of changes in the inequality distribution allows them to exaggerate the policy relevance of what they are saying.  If they actually had to go to the source, trust, status competition, and social capital the “solutions” would be as easy (although they would have a lot more validity).  This is a FUNDAMENTAL methodological issue with what they are doing – reading this entire book, and seeing how they talked about inequality, it just sounds like they don’t understand the variable they want society to control.  This is damning.

Alternate hypotheses:

Even if the fundamental result was robust – we still have an issue of causation!  Here is a non-exhaustive list of alternative hypotheses that they do not cover off in the book, including in the post-script where they cover off other alternative hypotheses.

• Risk loving behaviour is correlated with both inequality outcomes (dispersion of wealth) and many of these “social harms”.  Given all the data is cross-sectional, it is hard to rule out that risk loving is the cause of both (a confounding variable).
• Institutionalised status seeking, social stratification, strength of social contract causes income inequality:  The treatment of causality in the book was poor – chapter 4 was the only time they mentioned a causality test, and this was in terms of the trust index.  Supposedly some academic sociologists raised concerns that the causality could run in the other direction (from the postscript) and I agree with this.
• The poor data structure is confusing poverty and inequality – inequality for a given average income implies MORE poverty for that income.  Needs to be corrected for.
• The poor data structure is confusing income and income – for a given level of income, if governments share of income is larger, measured inequality will be lower but their “income measure” (GNI per cap) will be unchanged.  As a result, this could just represent “more government intervention” a confounding variable that needs to be accounted for.  In Chapter 13 they say they accounted for government expenditure in some places.  I realise this is for the public but just saying “even accounting for government spending” whenever you did that would HELP your argument with everybody – as it is I have to assume this was often ignored (especially given the authors point that they don’t include confounding variables).
• Not culture, but homogeneity:  They rule out culture as the cause – fair enough!  But hasn’t there been a lot of talk about more homogenous societies having greater equality and stronger social bonds – can’t the homogeneity due to being with “similar” people create a situation where society “chooses” more equality.  The areas they “group” and say aren’t culturally similar are similar in terms of homogeneity – so this is actually a powerful alternative.  And I don’t find it that morally compelling, as I wish there was a way for humans to find “others” as more akin to themselves!  Now personally, I am picking that the authors have realised and looked into this – but the postscript could do with an update to mention it and why it is inappropriate!
• The lack of time missing the “causes” of changing inequality:  I find it insane how inequality is said to be the “cause” of everything – and not the result of anything.  Especially since the distribution of income and measured inequality is an issue that economists have spent much time looking at “causes” for.  Eg here is a paper I read last week from Motu, dealing with the causes of the changing income distribution between 1983 and 1998.  A lot was put down to changes in population and household structure – instead of policy change.  Now I appreciate the idea that inequality and other things can be a two-way street – but there wasn’t the slightest effort in this to try and understand “what the difference in Gini coefficients between countries” actually represents … as this is actually a f’ing hard question.  It can be hard to compare Gini coefficient between countries – the Gini coefficient represents the area between the “equality line” and the Lorenz curve for the income distribution, and Lorenz curves can “cross”.  This implies that countries with very different income distributions could have the same Gini coefficient!
• Modern technology is the cause of dehuminisation:  Or our relation to it – I recently read Zen and the Art of Motorcycle maintenance, and so the idea that progress has led us to be disenfranchised is sitting in my head.  Aha, but shouldn’t this have occurred across all countries!  Well if we had overtime comparisons we could look at that – but we would still need to think about how this process in turn relates to our institutions within society.  Could even add that, increased wealth and capital concentration due to technology increases inequality AND as a result this is what we could see driving the result – could test this by actually looking at measures of capital intensity and the such though.  Key point, “many shifts” in the constant changing state of nature could be confounding variables in here, need more data to truly break it all up

To be honest, I find many of these alternatives more compelling than inequality stuff did it – but testing any of them in a satisfactory manner, including inequality, is danged difficult.  Given this, I am amazed at the confidence they have in their own results …

Conclusion:  My concerns given the hypothesis

How is this result being interpreted?  Just the way they want it to be – that changing inequality has a mystical magical impact on these social outcomes.  Not only has this not been shown, but it merely leads people to stop thinking about the hard issues and trade-offs in order to try to push a button that fixes everything.

It just so happen that this button involves more transfers to the middle class (hello directors law) and less focus on the specific issues that exist in the health and education system.  Now, the people that really get disadvantaged from this change in focus are the poor – and the people that win are the middle class people who received income transfers as a way of helping them deal with the stress of other people being richer than them.

Let that sink in, this is what the book is fundamentally saying.  It is a non-scientific book (the number of data and statistical concerns indicate that) that supports transferring resources and policy effort towards the middle classes.

It is not an objective analysis of the way we build up trust and cooperation in society – which is unsurprising as that would be a very difficult thing to do a full analysis of.  However, it pretends it is doing that – instead of placing its flag in the ground and admitting the trade-offs involved with the specific program of redistribution they are pushing they want to make they pretend there are none.  Lovely.

Now do not get me wrong – many of the policies that we may decide to put in place to help groups will knock down inequality.  The idea that, as a community we should try to build up trust and social capital has definite merit.  The idea that progressive tax and transfer policy, that represents the social contract, can help in this end is also acceptable.  But this book doesn’t show that – instead it gives a misleading idea that targeting one variable will create great happiness, the sort of blind ideology that leads to social harm.

My postscript – reading what others have said

I still haven’t read anything – and I’m pretty tired from putting together this review!  I will check other reviewers and write about what they have said in a separate piece in a couple of weeks.  However, here are some links that I have been sent:

• Andrew Leigh here.
• Spirit level delusion.
• Patrick Nolan (hey my brother!).
• CIS.
• Bill Kaye-Blake.

Does anyone have pieces supporting their research – more stuff against them is fine, but I’d like to also see work challenging some of the concerns I’ve run into here.

Appendix chapter summaries

Here I will give you the brief notes of the chapters, and comments I had while reading those bits.  This will hopefully add to what I have discussed in the review, rather than contradict it

Prelude

• They come from health inequality research – epidemiology related methods.
•  “At an intuitive level people have always recognised that inequality is social corrosive”.
• They suggest following data even if we can’t explain why – example of doctor washing hands

Chapter 1

• Need a focus on psychological wellbeing instead of just GDP (no economist would disagree in principle).
• Statement of hypothesis:  “we will show that the scale of inequality provides a power policy lever on the psychological wellbeing of us all”.
• Blabbing on income and happiness is irrelevant – already highly empirically falsified.  Although again agree that the “goal” is not GDP.  Furthermore, trade-off isn’t between growth and inequality – it is between level of income and inequality.

Chapter 2

• “There are lots of ways of measuring income inequality and they are all so closely related to each other that it doesn’t usually make much difference which you use” – this is incredibly false, holy cow.  However, doesn’t influence overall argument per se – just not a nice statement.
• Personal note:  At this point would be nice to separate “inequality” impact from “low income” impact on outcomes – as they state low income is associated with these negative social outcomes.  Poverty is a confounding variable at this point – need to make sure they make this clear
• Health and social outcome index is a touch random – equal weights across disparate social outcomes?  What does it really mean?  (They do say they will separate out – good)
• The inequality index is in net household income – the “income” comparison is average national income (fig 2.3).  There is no correction for social spending OR the fact that for a given average income (and given policy settings) poverty/low income is greater for the unequal country, making poverty the proximate cause (instead of inequality).  Keep an eye out for this to be explained.
• “In chapter 4-12 we will examine whether each problem is related to inequality and will discuss the various reasons why they might be caused by inequality”.  Great, ex-post justification instead of testing alternate hypotheses – this is a big methodological problem.  Still, see how they do it.
• Argument about relative position and status goods – this is legitimate.
• “Where income differences are bigger, social distances are bigger and social stratification more important” … my note:  we actually need a view on mobility for this, and lifetime inequality – not just static Gini coefficients.  It is a broad principle that I don’t disagree with though.
• “When we reviewed all this research, a clear pattern emerged.  While there was overwhelming evidence that inequality was related to health when both were measured in large areas, the findings were much more mixed when inequality was measure in small local areas”.  They interpret this as saying it is broad social structures across society causing health issues in smaller regions.  I interpret it as saying that, when controlling for other variables by narrowing the geographical scope the inequality result GOES AWAY.
• A lot of rhetoric without substance – look past this – say you are ignoring that, as its no doubt written this way to be like a pop book.

Chapter 3

• Social structure influencing individuals – fair starting point.
• States increase in anxiety (work by Jean Twenge) – interesting, but claim that 1980s kids are as anxious as psychiatric patients from 1950s seems strong.  They note that isn’t solely due to inequality – appears to start prior.
• Rise in narcissism placed down here – used to justify favouring of status goods, protecting the “view of self”.
• Breakdown in identify and community that provided it.
• Matt Note:  Link between this and inequality?  Or is it a cofounder? Inference that status is only on income is a stretch in modern age – people choose to be low paid musicians for a reason!
• States that Japan is more equal and more modest – US less equal less modest.  Blames lack of modesty on inequality.  Ummm, what! (Especially when then stating that the Japanese pattern was in China – one of the most unequal countries on earth!!!!)

Chapter 4

• Again with the US-China comparison – ignoring inequality is worse in China.
• Social relations deteroriate in “less equal” society – states that it forces us to treat other income groups as the “other”.  Matt question – who do we view as the “other” if this wasn’t the case, the historic comparisons had much larger sexism and racism than we have now, is it just a fault in human nature to make an “other”?
• Negative correlation between trust and inequality (they put the causation from inequality – but doesn’t it work both ways given govt policies are endogenous to trust and the social contract?)
• US gap correlation for trust to inequality is more compelling to me – although state level redistributive policies are important to think about.
• Uses Robert Putnam (Bowling alone) to justify how they are “mutually reinforcing”.  Inequality eats into “social capital”.
• Bo Rothstein as showing inequality leads trust. [Note:  Still static measures for a dynamic argument – would be nice to at least mention the idea of lifecycle inequality instead]
• Trust to cooperation – stating that breakdown in trust due to rising inequality causes breakdown in cooperation.
• Stating that inequality also correlates to lower women status – note that this includes earnings, so when half your population has relatively lower earnings higher inequality is a product of it.  As a result, ignore this one.
• They note that, in trust, poverty in of itself is not as strong a factor – they should really be fleshing this one out more!

Chapter 5

• The mental health data is only cross-country, not time series.
• The mental health is due to inequality data doesn’t hold between US states.
• After even pointing out the data wasn’t there – they’ve just assumed it is the result.  Ahh “affluenza” is the problem – and Frank’s “luxury fever”.  Sorry, the 1950s was packed with this during a time of massive equality … this is not compelling.
• Inequality and drugs – I don’t even see an argument here other than extending the mental health argument that wasn’t made.

Chapter 6

• Low social status causes negative health outcomes.
• WTF, the US is an insane outlier driving the entire result of “no relationship between health spending and life expectancy”.  This suggests there is something insanely wrong with the health system in the US – or something linked to it (dudes, your food is pretty much insane).
• Is there no chance that instead of inequality causing lower health outcomes, they can both be explained by heterogeneity in individuals.  Being endowed by poor health reduces your relative earning capacity …
• So inequality reduces the health outcomes of those at the top as well … really … are you sure you aren’t missing a confounding variable here??!?!?!
• Life expectancy rose during the two world wars at a faster rate than between and after … this is very fishy. [Note:  They are also saying nutritional status improved due to rationing, what]
• Stresses of inequality cause lower life expectancy now – even though stresses of WAR increase it.  Note I agree that stress reduces life expectancy, that is well shown.
• Uses Russia as an example of place moving from central planning to market economy and thereby lowering life expectancy – hold the f up.  We know the pre-wall collapse data wasn’t necessarily reliable, and I’d hardly call Russia a market economy … more like an oligarchy.

Chapter 7

• Weight distribution switched from positively related to income to negatively related.
• Relationship between obesity and inequality again looks pretty heavily skewed by US …
• They note that link is likely due to stress (highly believable) – so relies on link between inequality and stress.  This should be in turn testable.  I would note we can slot this directly in with addiction – so again relies on the mental health argument that was so weak.
• They note that fast food is a status symbol for the poorer.
• The link between socio-economic status (note not inequality) and obesity appears to be a female only phenomenon.
• They make argument about how fuller bodied women used to be seen as more attractive – isn’t this a debunked urban myth?
• Weight as social status is different in different groups – ahh this isn’t a particularly clear passage or mechanism (no answering why).  Piling into anecdotes from 16 year olds on the street
• Seems to be implying that “low” weight is treated as status symbol by wealthy, but the “obesity” problem is said to be spread across society, so the status argument isn’t holding?  (Claim on it being spread made again in Ch13)
• Argument:  Societies with more stress lead to babies with low birthweight who view food as scarce and so eat too much.  Note:  This may make sense for obesity, but not so much for the idea of wealthier people being thinner – as the stress is supposed to be “spread”.
• They suggest that it was the increase in inequality post-Berlin Wall falling that led to rising obesity in East Germany … what the shiz.

Chapter 8

• Inequality and educational scores are closely related:  No shiz – if they don’t deal with causation this is a disaster of a chapter. [Note relationship is weaker than my priors suggested]
• Drop-outs positively associated with inequality.
• Educational inequality related to educational performance – said to be given by outside literature.  Also they keep mixing “educational” and “income” inequalities implying they are the same thing.  Need to be more careful.
• Link is that inequality causes stress, which reduces educational opportunities and performance – aha.  Poor parenting is implied to be a response to income inequality.
• They note that castes, and status, announcements can help lead to differentials in performance – note this is a general concept about how groups form, it is not solely about income (eg if the income inequality went away, people would find another way to rank themselves).  The REAL result is that announcing and observability have this signalling effect.
• Argument that class status influences opportunity – this is true.  The solution is dealing with opportunity and attitudes in the community though; increasing social mobility … this would come up by peaking at some of the longitudial studies within countries
• Inequality leads to higher aspirations for work (expecting high skill instead of low skill).  Ok, wtf, result driven by Japan – AND this is skills not status, it is not necessarily a bad thing.  “If inequality leads to unrealistic hopes it must also lead to disappointment” – holy shiz wtf.

Chapter 9

• Teenage birth rates are higher among the poor.
• Higher in Anglo-Saxon, opps I mean unequal societies.
• State high teenage birth rate in unequal countries is due to lack of trust.  Especially noted “absence of father” – mothers relatively close relationship to child, desire for child, as a result.

Chapter 10

• Inequality increases incentive for status seeking, leading to more violent behaviour (which is an act of status seeking).
• Relationship exists – but again, US is ridiculous outlier.
• State that violence comes from lack of fathers – relies on inequality breaking up families.
• State that violence, crime, and teenage pregnancy have all moved with inequality in the 80’s, 90’s, and 00’s – falling then rising.  No time series shown though.

Chapter 11

• Inequality explains imprisonment rates better than crime rates – note:  this is the clearest argument that confounding variables are the cause and not inequality FFS (why, as countries that institute more punitive punishment are likely to also institute similar welfare policies, increasing inequality EVERYTHING ELSE equal).
• They make claim unequal societies are more punitive as well.  Note, this is set in policy – this isn’t the result of inequality but one of the causes!!!!!!!
• Note:  At this point the random, barely related, asides and anecdotes (instead of ya know, actual evidence) they are using are making the book close to unreadable.  It is starting to get boring.  I don’t see how the fact a prison warden is a douche adds anything to their argument … Joe Arpaio.
• Argument that prisons can be counterproductive – true but absolutely irrelevant to their thesis.

Chapter 12

• Finally, they will cover social mobility and opportunity – the big issue for economists!!!
• State that longitudinal data is hard to come by – although tbh if you look it is around
• They compare 8 countries with social mobility indices.  They compare them with STATIC (end point) income inequality.  They pretend there is a result – in truth it just says mobility is lower in the US and UK than it is in Europe and Canada.
• The ratio of public expenditure on education, and the correlation between father and son earnings, indicate that mobility in the US has declined.
• Concentration of poverty has increased (they say this is due to inequality – that is a stretch, it is policy relevant in itself).
• An excessively long blah on the fact that different groups try to signal status using wealth with no data.
• “In more unequal societies, more people are oriented towards dominance; in more egalitarian societies, more people are oriented towards inclusiveness and empathy” – ok when the hell did you actually make this case???  They’ve actually just included this and pretended they’ve made the case for it.
• “health of ethnic minorities who groups who live in areas with more people like themselves is sometimes better than that of their more affluence counterparts who live in areas with more of the dominant ethnic group” – people tend to move towards “others” they relate to, I don’t see how this is relevant to equality of opportunity being impinged BY income inequality.  It isn’t due to income dispersion, it is an underlying factor.
• “Bigger income differences seem to solidify the social structure and decrease the chances of upward mobility.  Where there are greater inequalities of outcome, equal opportunity is a significantly more distant proposal”.  What I’m struggling with is they never actually made or tested these claims – it is like they wrote them down, then included a pile of filler that “proves” it by unrelated anecdote.  They have shown that inherently different groups impact upon mobility – and suggested that mobility has fallen back in the US context recently.  Nothing more.

Chapter 13

• Continuing to claim that the negative impact is on society as a whole.
• Arbitrary unweighted index or indices correlated with static income inequality
• Claim that more “equal” countries have lower working age population death rates.

Alternative hypotheses:

• English speaking countries:  They rule this out as there is still a relationship between them, and because Portugal also sucks.  Same deal with Nordic countries – get rid of them and still have relationship in funky index.

Ok, that was it.  Onwards

• Get equality through tax and transfers, size of govt etc doesn’t matter.  Note: This is a strange claim, and their “data” is subject to the Lucas Critique as they have no “structure”.
• “For countries in our international analysis, we collected OECD figures on public social expenditure as a proportion of GDP and found it entirely unrelated to our Index.  Perhaps rather counter-intuitively, it also made no difference to the association between inequality and the Index”. [So they did a multivariate analysis here?]

Alternative hypo again

• Ethnic divisions:  Taken as status marker.  They state that they haven’t tried to correct for it – and since it is the same process we will treat it in the same way.  Note:  Hmmm
• Breakdown in traditional family unit:  No relationship between number of single-parent households and child wellbeing.
• History dependence:  I don’t see what the criticism is or their response, this is all blah
• Causality:  Since it has happened on so many variables it must be true.  Also with the little time series available we can say things like ‘the US and Japan swapped places on life expectancy’.  They also say they have ruled out govt expenditure (would like to actually see that in detail) and that it is unlikely there is some other catch all factor – I think they are missing the point a bit here, inequality could be set due to a myriad of policy and choice factors that are correlated.  It is not inequality itself that needs to change, but a range of government schemes in that context.
• They touch ideology:  Discuss in a broad way that this isn’t that important per se as there was no intention to worsen outcomes – they don’t seem to quite get the idea of ‘packages’ of policies in the face of funding trade-offs.
• They note the caste/status evidence as evidence of causation for income inequality – actually it is just evidence of status.  Note:  Removing the inequality does NOT necessarily solve the status seeking.
• Push to state that the chain of logic is inequality hits social capital – therefore it worsens outcomes.

Chapter 14

• Focus switches to “how greater equality is attainable” – stated that greater equality, in of itself, is now proven to be desirable.
• “Far from being impractical, the implications of our findings are probably more consistent with the institutional structures of market democracy than some people would like to believe”.
• “We need to understand how … greater equality allows a more sociable human nature to emerge”.  Note:  This link should have been made earlier.
• “Systems of material or economic relations are systems of social relations” – again no shiz tbh
• “The egalitarian preferences people reveal in the ultimatum game seem to fly in the fae of the actual inequalities in society” – aha this is nonsensical.  Ultimatum game shows an inherent preference for “some” level of redistribution, society DOES involve “some” redistribution.  They are working too much in “absolutes” with their description which makes the argument misleading.
• Make claim that “modern inequality arose with the development of agriculture” – they are taking this as evidence that society is less egalitarian than it was with hunter-gathers.
• “Our tendency to feel a common sense of identity and interdependence with those with whom we empathize and share a sense of identity” – implying that income and resource equality causes people to view themselves as part of a group.  This is essentially the thesis – very likely backwards!
• State, effectively, that morality and fairness views about society are formed when a child.
• “Many of the problems which we have seen to be related to inequality involve adult responses to status competition” – this seems to be the more general cause, Si.
• Then state that inequality impacts upon children – surely this actually indicates that active policies for children are actually what is more important rather than indirect redistribution?
• Lots of loosely related blah about chemicals stimulating pleasure and how not having friends makes you sad.

Chapter 15

• Note:  They still haven’t said “how” to redistribute at this point – even though they promised
• Here is what I am guessing this chapter will say – reducing inequality reduces “status good” competition (Veblen goods), and leads to easier “co-operation” thereby solving global warming
• I can’t really be bothered reading this chapter – and it is standalone, so skipping.

Chapter 16

• State that thinking about inequality domestically doesn’t mean ignoring global inequality – a more trusting society will be more generous.  Note:  I would be more careful with the margin, but agree we can separate the question UNLESS there is a common cause (labour mobility).
• Some stuff about transformation – this isn’t particularly “clear”
• “It is often said that greater equality is impossible because people are not equal.  But that is a confusion: equality does not mean being the same” – no the confusion is between a change and a level, and it is on the authors part.
• “Nor – as often claimed – does reducing material inequality mean lowering standards or levelling to a common mediocrity”  Ok, you haven’t show this and the real evidence suggests this is wrong.
• “Wealth, particularly inherited wealth, is a poor indicator of genuine merit” – this is mixing issues again
• “People are now more likely to see psychosocial wellbeing as dependent on what can be done at the individual level …. However it is clear that income distribution provides policy makers with a way of improving the psychosocial wellbeing of the whole population”.  This is their claim – it is unproven.
• “The glaringly obvious fact that these problems have common roots in inequality and relative deprivation disappears from view” … sigh
• They state that, since income inequality has risen so much between the 1970s and the 1990s we can easily make it change back.  Note:  This does depend on the cause right.
• Notes that Krugman blames changes in “institutions, norms, and political power” as cause of changes in US income inequality.  Arguing against changes in relative skills essentially.
• Can have redistribution through taxes and benefits and “through a large welfare state, countries like Japan manage to achieve low levels of inequality before taxes and benefits”.  Note:  I thought they rule out the impact of social expenditure earlier?  They go on to note that social expenditure can in turn be increase as you “pay to deal with harms” … hmm
• Problem is that society and politicians have “lost touch with what really matters”, surveys say.  Note:  I bet, if there were surveys about this 40 years ago, people would have said the same thing dudes.
• They note 60% of Americans want more redistribution.  Note:  middle class wants more middle class welfare – no way!
• Corporates owning govt, blah blah blah.
• State they think more co-operatives, non-profits, and government run organisations will lower inequality – surely this is a “industrial economics” issue a bit more!  Lens of competition necessary.
• Some stuff about increasing progressivity of tax system – yup by definition this should reduce inequality.
• Weird stuff on “employee ownership models”.  Ok, if they want to purchase the capital and land that is fine – that stuff aint free guys.  They really like employee owner firms …
• Attacking idea that freedom and income equality contradict, fair enough.  “The truth is that modern inequality exists because democracy is excluded from the economic sphere” – ok that is a pile of horse shiz.  Do they NOT UNDERSTAND individuals are heterogeneous!
• Complaint about the current structure of patents – this is true.  Their solutions are naff, but many economists are concerned about that.
• ‘History is on our side bullshiz’

Postscript

• They state that some studies cited did estimate impact of inequality allowing for the impact of changes in income.
• They state academic sociologists were surprised the book focused on income inequality and not social class classifications – they defend this on the basis of incomparability of data.  Fair in that respect.  However, the underlying issue of “cause” isn’t touched – that classifications are the cause of observed inequality rather than being a product of.
• They compare themselves to a bunch of other areas saying that criticisms are just trying to fight against scientific evidence – ahhh hmmmm
• “It is now extremely difficult to argue credibly that these relationships don’t exist” – have any of the 200 papers actually gone along the road of causation.  You are suggesting “policy intervention” based on something you don’t “understand” – there is still an implicit structure that isn’t being thought about!
• Stuff about dataset structure – this is an issue I am leaving to the side both ways
• They argue the “cultural difference” perspective is relatively flawed.  “Culture” is used as a catch all description without definition.  I agree here.  Homogeneity of culture is a different story – and they don’t seem to touch it.
• Defending outliers and statistical significance:  “Our results are, sometimes sensitive to exclusions simply because we are looking at a limited number of countries, but the fact that so many relationships with inequality are statistically significant, despite the limits to the data, is an indication of how powerful the underlying relationships actually are”.  Go to town on this Matt – holy moly
• “There were several reasons why we chose not to include other factors.  First, we wished to present the simplest and most understandable picture of the correlation between income inequality and health and social problems, so the readers could see the strength of the relationship for themselves.”
• “Second, it is a fundamental methodological principle of epidemiological analysis that you should not control for factors which form part of the causal chain – in this case explaining how inequality causes a particular problem.  For example, if we think – as we do – that societies with greater income inequality have worse health because poorer social relations increase chronic stress, then we would need to be cautious about how to analyse that particular causal sequence.  Simply including measures of trust and social cohesion in a statistical model could remove the association between income inequality and health, even though it is likely that inequality actually leads to poorer health because it is socially divisive.”
• “Third, including factors that are unrelated to inequality, or to any particular problem, would simply create unnecessary ‘noise’.
• They note some studies have tried to account for other variables.
• Reiterating – “relationship between inequality and various … problems are not reducible to the direct effects of people’s material standard of living”.  Fair, and I don’t think anyone would disagree per se – income is not the only cause of these things, and even if you don’t believe inequality “did it” it is likely that causal variables that are positive related to the problem will have a positive relationship with inequality!
• Introduction of UK, Aussie, NZ, and Canada increases fit on mental illness link – not they are all pretty close together.
• More data for “social mobility”, negative relationship weaker but less due to outlier.
• “Reducing inequality in OECD countries would prevent upwards of 1.5 million deaths per year” – reducing it by how much, and how.  FFS.
• Social relationships matter for health.  No shiz.
• “Economists sometimes suggest that the market is like a democratic voting system … If this is true, someone with twenty times the income of another effectively gets twenty times as many votes”.  Link to myself – also note that not thinking about the “web of prices” and what that income genuinely means in terms of goods and services is being confused here.  Twenty times the income doesn’t mean twenty times the claim on goods and services, as relative prices will shift as that ratio rises.
• Something about inequality causing financial crisis – I will leave this to the side, not relevant to thesis.

• Mainly macro on helicopter money at the ZLB.
• Noahpinion on DSGE models.  Brennan McDonald adding some points on judging policy.
• Update:  On DSGE models, this result from the NY Fed is surprisingly positive for them! (ht Economist’s View) and update again, Noah Smith comments.
• Isomorphismes on recognising the role of sarcasm as a linguistic device in economics.
• Groping to Bethlehem on psychotherapy, psychology, and science.
• Anti-Dismal on why is there no Friedman today – I am surprised at the strength of some of Solow’s comments.  Also here is Sumner – who I largely agree with.
• Offsetting behaviour on confounding variables, addiction, and substance abuse.

And in case I forget, my opinion is that I agree with these posts.  If I come back later and I don’t think I agree with them anymore, then my view on something has changed and I should figure out why

I think it is pretty obvious to everyone what has to be done here … we need to legalise other drugs.

From what I can tell, K2 is inferior to other drugs for the person consuming them, and causes higher externalities than other drugs.  The only reason people are choosing it is because other drugs have been made prohibitively expensive – by being made illegal.

You may say “no no, we should just ban it”.  But isn’t the point that we really have a mental health issue here – people feel that they need to consume something to deal with the inane nature of life.  If we keep banning the things we are consuming, we are just pushing many of these people towards other more harmful forms of consumption/addiction.

I’m not saying don’t help people who are facing these sorts of issues, and become addicted to substances as a way of dealing with things going on in their lives.  What I am saying is that instead of criminalizing it, and making them criminals, we should perhaps look at it as a mental health issue and try to help them.  Pretending we care, then choosing policy actions (criminalization) that actually hurt the individuals involved can’t even be called good intentions – it’s just sort of silly and harmful.

Legalise, tax, use the tax money to pay for treatment and to help fund general mental health work.  At some level we all have mental health issues, just like we all have physical health issues.  Lets destigmatize and actually accept these issues, allow actions that people take when they are trying to cope to be legal, but make sure that as part of our social security net we help people who are really struggling – in the same way we do when someone finds themselves out of work, or injures themselves physically in a work place accident. If you agree with me, you can fill out an online application that takes only 2 minutes to complete, asking our government to step up and help people battling mental illness.

And when it comes to economics two things hold true:

1. Economists actually agree about a lot more things than people realise.
2. Many of the things people think we agree upon we don’t.

With this in mind I thought I’d have a quick look at the policies economists love that were put up over on Kiwiblog.

The third one states that economists would love if corporate tax was taken away – because it really is double taxation on an income stream, and an inefficient form of redistribution.  This is true.

However, I wouldn’t say that economists widely agree that we should set corporate taxes at zero – especially since there is some debate about whether we should be taxing investment/interest income.  There is an agreement that we should treat all investment classes the same, but less of a consensus about the level of taxation then there used to be.

On that note comes point four.  Yes, economists generally prefer consumption taxes to incomes taxes – but the way to view this is as a cut in the tax on interest income … as a tax on labour income and consumption are equivalent, implying that an income tax in of itself is a tax on labour and interest income.

This comment in particular is disturbing:

Eliminate all income and payroll taxes. All of them. For everyone. Taxes discourage whatever you’re taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax, designed to be progressive to protect lower-income households.

A tax on income and a tax on consumption both reduce real after-tax income – by taxing one instead of the other we don’t “magically” discourage different things … this is confusing partial equilibrium logic with a more general view of the economy which is appropriate for discussing tax.

On top of this, a switch from income to GST taxes is an immediate transfer from savers to borrowers – is this fair?

Five is tax carbon because it’s “bad”.  But is this really the reason?  I was under the impression that in a small open economy like NZ we tax carbon due to raise funds for a potential Kyoto liability – as any “externality tax from global warming” would not do anything because we are so small.  Hence why there needs to be international co-operation.

Six is legalise weed.  There is wide agreement here that something should be done, and a general swing towards legalisation and treatment of addicts as suffering from a mental health issue rather than a criminal one.  There are so many medical benefits that can be obtained from cannabis and to get more information about strawberry cough weed you can check this out. Legalising canabis can be beneficial for many people but I’m pretty sure we could also find many economists that feel that legalising may provide an inappropriate signal that could lead to worse outcomes – after all, it is well known that when you explicitly give something a price people do treat it differently.

Note:  I am pointing out there are issues here – even though many of these policies are central to my own view of what is appropriate.  See, I can attempt to be objective

The statement that we are worse off than we were is false, and society’s willingness to believe it is a clear example of the unwarranted victim mentality taken on by the middle classes in New Zealand. In truth, the middle class is better off than it ever has been – due to a mix of economic growth, and by extracting resources from the rich and poor of New Zealand.

Personally, I 100% agree with myself – which doesn’t often happen.

In fact, take this song by Janis Jopin:

Replace lord with government, and you have the attitude of a surprising number of people in New Zealand at present

Eric Crampton explained this phenomenon well in a couple of tweets:

First cut: narratives around deserving and undeserving poor resonate strongly with our moral intuitions.

Left has mushed those two groups together. WFF is classic transfer to “deserving”, hard-left says “unfair”.

Personally I find the distinction between deserving and undeserving poor to be both a poor black and white analogy, and a morally abhorrent way of viewing things.

How can anyone judge who is worthy of a better or worse living standard?  What sort of delusion do we live in if we think we can justify poverty for some, as we demand hand-outs for others who are significantly better off.  I find the entire viewpoint distasteful.

I would also note that this point of view doesn’t imply that I don’t believe there is a case for some redistribution to the middle classes – as I mention in the article.  Instead, I point out that we have had significant redistribution, the middle classes in NZ have done pretty damned well.  Increasing effective taxes on investment to redistribute to the middle classes at this point seems excessive in its costs – and in many cases (eg in terms of transportation and housing) this may merely be leading to higher prices instead of actually improving anyone’s living standards

Furthermore, the simultaneous demands for further income boosts to the middle classes and income cuts (and harsher criterion) on the poor is a massive step too far – we are going past describing anything that resembles fairness towards inappropriate punitive punishment of solo-mums and people suffering from addictions.