The Causes of Wealth Inequality (2): Positive Feedback

(source; more Herblock, more on “split-level living“)

Regular readers know that we often post about income inequality (which is a proxy of wealth inequality). Here‘s an overview. Although income inequality, contrary to some other kinds of inequality, isn’t a human rights violation as such (there’s no human right to equal income, nor should there be), it does have some negative consequences for certain human rights. Read more about this here.

So if we agree that income inequality is a problem (if you’re not convinced you may want to read this) it’s important to look at some of the causes. One of those is called “positive feedback“: wealth begets wealth. There’s an interesting quote about this here, and below is another one:

I think that perhaps the most important trend of the past thirty years is the increased importance of cognitive skills relative to physical labor. Obviously, this has been going on for more than just the past thirty years, but during the past thirty years we saw an acceleration. This has had a number of consequences:

1. It changed the role of women. Their comparative advantage went from housework to market work.

2. This in turn, as Wolfers and Stevenson have pointed out, changed the nature of marriage. Men and women look for complementarity in consumption rather than in production.

3. This in turn leads to more assortive mating, with achievement-oriented men looking for interesting mates rather than for good maids.

4. This in turn leads to greater inequality across households. It also fosters greater inequality among children. The children of two affluent parents are likely to have much better genetic and environmental endowments than the children of two (likely unmarried) low-income parents.

5. Inequality is exacerbated by globalization and technological change. If your comparative advantage is basic physical labor, you have to compete with machines as well is with workers from the Third World.

The net result is an economy that has improved considerably for people with high cognitive skills, but which has improved only somewhat for people with relatively low cognitive skills. Arnold Kling (source, source)

Some data on income inequality are here.