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Born Poor?

Santa Fe economist Samuel Bowles says you better get used to it

February 3, 2010, 12:00 am

More numbers, for your consideration:



The first number is the “Gini coefficient” for New Mexico. The Gini is an expression economists use to measure equality or inequality in a society.

Zero describes the ultimate level playing field, a nonexistent land in which everyone has all the same stuff. A completely unequal society, in which one person has sole control of literally everything, would have a Gini of 100. New Mexico’s Gini score (45.7) reveals this state is more unequal than most. Utah is the most egalitarian state (with a 41.3 Gini), while the District of Columbia (53.7) is the most economically polarized, according to the most recent Census report, from 2006.

The second figure, 23, is the Gini for Sweden, the world’s most egalitarian country. Whereas most of Europe, Canada and Australia have Ginis in the low 30s, the US has over the past several decades developed inequalities usually found only in poor countries with autocratic governments.

So what? Isn’t inequality merely the price of America being No. 1?

“That’s almost certainly false,” Bowles tells SFR. “Prior to about 20 years ago, most economists thought that inequality just greased the wheels of progress. Overwhelmingly now, people who study it empirically think that it’s sand in the wheels.”

Bowles can take some credit for that shift, but he hasn’t won the battle. Many economists don’t study things empirically—that is, by looking at things in the real, physical world. Instead, they stay safely within the land of theory.

Theoryland may be the only place the “equality-efficiency trade-off” really works. Just to prove it wrong, Bowles charts the concept on a whiteboard at SFI.

The vertical axis is economic output. The horizontal axis is equality. The curve shows the theoretical trade-off. “So we’re here”—point A, high on the curve—“and we want to go to point B because we’re egalitarian. And [the theory says] that’s kind of too bad because we’re going to suffer the loss of income,” he says.

Bowles draws another dot inside the curve—point C—symbolically destroying the clean, simple world represented by the model. “Basically, it assumes that the economy is already efficiently organized,” Bowles explains. “But most economies are at point C. They have both more inequality and less income than they could have because they’re inefficient.”

The fan club for Bowles’ reality-based approach to economics includes Ona Porter, executive director of Community Action New Mexico. She first encountered his work while reading the Stanford Social Innovation Review. “It’s really my job to be paying attention to what cutting-edge theory and practice is,” she says.

Among other projects, Community Action lobbies the New Mexico Public Regulation Commission on behalf of low-income residents, opposing rate increases by the Public Services Company of New Mexico. “Constantly,” Porter says, “it’s our voice against the suits.”

Her on-the-ground experience supports a message Bowles has pushed all these years in academia.

“Inequality,” she says, “really holds us back.”

Bowles offers a key reason why this is so. “Inequality breeds conflict, and conflict breeds wasted resources,” he says.

In short, in a very unequal society, the people at the top have to spend a lot of time and energy keeping the lower classes obedient and productive.

Inequality leads to an excess of what Bowles calls “guard labor.” In a 2007 paper on the subject, he and co-author Arjun Jayadev, an assistant professor at the University of Massachusetts, make an astonishing claim: Roughly 1 in 4 Americans is employed to keep fellow citizens in line and protect private wealth from would-be Robin Hoods.

The job descriptions of guard labor range from “imposing work discipline”—think of the corporate IT spies who keep desk jockeys from slacking off online—to enforcing laws, like the officers in the Santa Fe Police Department paddy wagon parked outside of Walmart.

The greater the inequalities in a society, the more guard labor it requires, Bowles finds. This holds true among US states, with relatively unequal states like New Mexico employing a greater share of guard labor than relatively egalitarian states like Wisconsin.

The problem, Bowles argues, is that too much guard labor sustains “illegitimate inequalities,” creating a drag on the economy. All of the people in guard labor jobs could be doing something more productive with their time—perhaps starting their own businesses or helping to reduce the US trade deficit with China.

Guard labor supports what one might call the beat-down economy. Community Action’s Porter sees it all the time.

“We have based almost everything we have done on the idea that we always need a part of our workforce that is marginalized—that we can call this group into action at any time, pay them nothing and they will do anything that needs to be done,” she says.

More discouraging, perhaps, is the statistical fact that a person born into this workforce has little chance of rising beyond it.

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