Gravity Payments

Perhaps the most striking illustration of economic inequality in this country is the pay gap between C.E.O.s and workers at their company. Gretchen Morgenson writes (Times 4/10/15) that despite federal regulations most companies fail to report this measure.

She cites an academic study that reported the C.E.O pay as a multiple of the average worker ‘s pay increased “from an average of 20 times in 1965 to 295.9 in 2013!”

Acknowledging that their estimates are imprecise, two labor economists, Dean Baker and Nicholas Buffie, have nevertheless calculated pay gaps in specific companies. They found that the Walt Disney had the widest pay gap in 2014. Their CEO received $43.7 million last year, while the median worker received $19,530, a C.E.O. worker ratio of 2,238!

Microsoft was next on the list. Their C.E.O. pay package last year was $84.3 million, 2,012 times the estimated median employee earnings of $41,900 at Microsoft.

And so it goes, down the list of enormous compensation for C.E.O.s and comparatively modest salaries for their employees. Is it any wonder public companies fail to report the C.E.O. pay ratio comparison with their workers. While efforts have been made to require them to do so, not surprisingly the rule met an avalanche of opposition.

Occasionally you read about a company that significantly increases the salary of the people who work there. The most recent example is the decision of Dan Price, the founder of Gravity Payments, a credit-card processing firm, to raise the salary of even the lowest-paid clerk to a minimum of $70,000.

A company spokesman said the salary of 30 of the 70 employees will double. The average salary at the company is $48,000 a year. So with one exception, the salaries of all the employees will increase. The exception is the salary of Dan Price who will pay for the wage increases by reducing his own salary from nearly one million to $70,000.

How many other C.E.O.s would be willing to follow suit? Clearly there aren’t many, a sad commentary on the state of capitalism in this country.

So who would have believed that Dan Price’s policy of guaranteeing each of his employees a minimum salary of $70,000 would cause the backlash it has? At least, I never imagined the controversy it has produced as described in Patricia Cohen’s article in the Times (7/31/15).

First, several long time clients withdrew their business because they didn’t agree with Price’s new policy. Others left because they anticipated a fee increase, in spite of assurances there wouldn’t be one. In addition, other companies in the Seattle area complained it made them look stingy.

Then employees started to leave because long serving staff members only received small or no raise. A few others left because of burnout, they simply didn’t much like Price or because it shackled high performers at the expense of less motivated staff.

Worst of all, Price’s older brother and Gravity co-founder filed a legal suit that threatened the company’s existence. Price simply didn’t have the money to pay the eventual legal fees. So he would had to scramble or consider borrowing heavily.

Even though the new minimum $70,000 salary plan generated many new clients, a great deal of publicity, and thousands of job applications, the effort to deal with all this was exhausting and distracting.

Price’s original goal had simply been to take a stand against income inequality in the only way he could. He had no idea of the brouhaha it would give rise to or that it would affect his personal life and financial condition so greatly.

Note: Dan Bertolini is the only other C.E.O. that I know about who has taken a somewhat similar action. I quote his example from an essay I wrote on economic inequality.

“It was a breath of fresh air to read that Mark Bertolini, Aetna’s C.E.O, announced (New Yorker, 2/2/15) that his lowest paid workers would receive a substantial raise, as well as improved medical coverage.

Even more remarkable was the reason he gave for the decision. He framed it in terms of the growing economic inequality in this country, mentioning Thomas Piketty’s influential Capital in the Twenty-First Century and that he had given a copy to each of his top executives.

Bertolini also said it wasn’t “fair” for a company as successful as Aetna for its employees to be struggling to get by, while his senior personnel were paid lavishly.

Companies are not just moneymaking machines. For the good of the social order, these are the kinds of investments we should be willing to make.

I suspect that an employee who is paid more will work harder, remain in the company longer, be absent from work less often, and, in turn, that the company’s productivity and profits will increase. Bertolini’s decision is an investment with an immediate and highly beneficial outcome for his company, as well as its many workers.

Economic Inequality: What Can Be Done?

The question of what can be done about the enormous economic inequalities in this country will conclude my discussion of this topic.

No sooner had I posted my first blog on the subject than Nicholas Kristof wrote a short note, “An Idiot’s Guide to Inequality,” in the Times. He reminds us that economic inequality has become increasingly worse in this country, impeding economic growth and creating large “fissures” in our society between the very rich and very poor. Moreover, the very wealthy have gained increasing control of the electoral process and reduced job opportunities for countless individuals.

Kristof concludes: “Inequality and lack of opportunity today constitute a national infirmity and vulnerability—and there are policy tools that can make a difference.”

This leaves wide open just what these policy tools are and, even more uncertain, just how they are ever going to be implemented.

The very next day, echoing the theme of my blog, Eduardo Porto wrote a note, “Why Voters Aren’t Angrier About Economic Inequality,” also in Times. He believes there are several reasons for the public’s passivity.

1. The poor vote less than the rich and they don’t necessarily vote on the basis of their economic interests.

2. Like Kristof, he says the rich have far more political power.

3. And he reviews another study (this one in Germany), reporting that individuals don’t grasp the magnitude of inequality. “Evidently, nobody has a clue.” He claims people in the United States not only seem to accept one of the largest gaps in the developed world but our government ranks among the “stingiest” in doing anything about it.

Two days latter the Russell Sage Foundation reported that the average U.S. household experienced a significant decline in net worth in the ten years ending in 2013. Then it was reported that 35% of U.S. individuals have credit card debts and unpaid bills large enough to be reported to collection agencies. As Caroline Radcliffe of the Urban Institute said, "Roughly, every third person you pass on the street is going to have debt in collections.”

But what can be done, what can realistically be done given the equally large political polarization in this country? Why is this question so rarely asked?

Perhaps it’s because all too many people believe the poor deserve to be poor and those who are rich have earned it. Or they believe we are focusing on the wrong problem, with the real problem slow growth, or education, or that “thwarting the people at the top” will have no effect on the people at the bottom, other than worsening their condition with as the economy comes tumbling down.

Meanwhile, in a bold post on the New Yorker Web site (1/28/14) John Cassidy did make ten proposals that Obama should mention in his State of the Union address delivered earlier this year, if he is genuinely serious about reducing economic inequality. Among the ten, five deal with taxes.

1. Abolish the payroll tax
2. Raise the top rate of income tax
3. Introduce a consumption tax
4. Tax wealth properly
5. Introduce a financial-transaction tax

In my view, each of these changes is desirable. Obama didn’t mention any of them and, even if he had, this Congress will never approve a single one, nor can the President issue an executive order to implement them.

Would they narrow the gap between the 1% and the 99%, if he could? Not everyone is convinced they will. The Nobel laureate Robert Solow commented at a seminar on inequality,

“I am very pessimistic about the capacity of the American political system to redistribute income within a reasonable period of time…I simply don’t think that legislation either to support the safety net or to tax high incomes stands a chance in Congress.”

In a word, income disparity between the rich and the poor in this country will continue, perhaps even deepen, until the Democrats or progressives of one ilk or another gain control of both houses of the Congress. But even then, it’s not a sure thing.

The other five of Cassidy’s proposals include:

1. Establish a guaranteed minimum wage
2. Give “ordinary Americans” grants to spend as desired
3. Nationalize the public education system
4. Expand technical education
5. Abolish private schools and legacy admissions to private universities

Like the Cassidy’s tax proposals, these additional five seem rather fanciful given the current political realities in this country. But what I find most remarkable about his post is how rarely we hear about any concrete proposals for narrowing the Great Divide(s) in this country.

Eduardo Porter asks (Times 11/4/2014) “Are we condemned then to largely futile efforts to reduce the widening gap?” He wonders if there are better tools that government redistribution to reduce inequality—education, increasing the minimum wage, reducing tax benefits for corporations and the wealthy. At present we have no data to determine their effectiveness. My hunch is that if we ever do, it will be a long time in coming.

Instead, we hear only one description after another about the growing economic gap between the rich and poor. Some accounts try to explain this, drawing on historical and political trends, as well as social policy comparisons with other nations. But more than anything, we hear the rhetoric.

Tom Perkins is one of the 1%, probably the.01%, one of the founders of a large venture capital firm. When asked recently what should be done to improve the lives of the 99%, he replied:

“I think the solution is less interference, lower taxes, let the rich do what the rich do—which is get richer, and along the way they bring everybody else along with them, when the system is working.”

There you have it, in a single, breathtaking sentence.

Executive Salaries

Last year the Times published a table showing the 2012 pay of the chief executives of public corporations with revenues of at least one billion. It is fascinating and depressing.

The median compensation, including salary, bonuses and other perks was $14 million. You are reading that correctly, $14,000,000 last year. Of course, many CEOs received much more. At some of these corporations those who were not the chief executive also received more.

Larry Ellison the CEO of Oracle was the highest paid: $78.4 million, more than six times the median. What has he done to justify this shocking sum? Has he done that much more than the workers who produce or design his products?

CEO total compensation for last year was about 3% higher than it was the year before. Base pay increased by 16% over the previous year. Did your salary increase by that amount?

Consider what 3% means on a meager $1 million: $30,000. It is $420,000 for the median CEO compensation. Are you earning that much more this year? Why not? As George Packer writes on the New Yorker website, There must be a social or economic theory somewhere that explains why all this is necessary and just. The well-informed Packer doesn’t know what it is. I sure don’t either. I wonder if Ellison or the top paid CEOs do?

The chief executive of JPMorgan Chase, Jamie Dimon, was awarded $20 million in compensation for 2013. That’s a $20,000,000 bonus for a year in which the company was assessed stiff ($13 billion) penalties for what is referred to as “soured mortgage securities.” And, mind you, that’s in addition to his yearly salary of $1.5 million.

It is said that it is the innovators, the creative types, the job creators who deserve to earn the most. But what about all those hedge fund managers who rake in those multimillion dollar salaries year after year? The 25 highest paid hedge fund managers took in a total of $21.15 billion in 2013 according to Institutional Investors. And that was a year in which most hedge funds fell short of market returns.

David Tepper, the founder of Appalossa Management earned $3.5 billion last year. Hard to believe, isn’t it? According to Paul Krugman (Times 5/8/14) “Last year, those 25 hedge fund managers made more than twice as much as all the kindergarten teachers in America combined.”

They don’t create jobs or useful innovations. They are in the business of financial investment, of increasing the wealth of the already rich shareholders, including themselves, of course.

So why is the American worker, indeed, the general public, so passive in the face of these enormous instances of financial inequality? Where are the groups that are expressing outrage or seeking legislative remedies? Sure, the chances for any change are close to zero. But that is often true of most large-scale protest movements.

Perhaps Americans don’t fully appreciate the magnitude of the enormous gap between the rich, including the very rich, and the poor. If they did, maybe there would be less silence and more outrage. To find out Michael Norton and Dan Ariely undertook a study (Perspectives on Psychological Science, 6, 2011) of popular beliefs and the distribution of wealth in this country.

They asked a nationally representative sample of 5,222 individuals, equally divided between males and females, to estimate the current distribution of wealth in the US and then their ideal level of inequality. Before beginning the survey they asked each person to read the following definition of wealth:

“Wealth, also known as net worth, is defined as the total value of everything someone owns minus any debt that he or she owes. A person’s net worth includes his or her bank account savings plus the value of other things such as property, stocks, bonds, art, collections, etc., minus the value of things like loans and mortgages.”

The individuals in the study vastly underestimated the actual level of wealth believing that the wealthiest “quintile” held 59% of the wealth when the actual number is closer to 84%. It may very well be that this widely divergent perception from reality accounts for the lack of widespread public objections to the large and growing economic inequalities in this country.

Norton and Ariey also asked their subjects to state their ideal distribution of wealth in the US. They found a slight preference for some inequality, rather than perfect equality, but by no means close the degree currently present in the US.

When given examples of the distributions in other countries, they expressed a preference for the distribution that most closely resembled Sweden’s, where the top wealth quintile holds 36% of that countries wealth and the lowest 11%.

Finally, Norton and Ariely noted there was a considerable, and to them surprising, consensus among different demographic groups in this country--gender, income level, voting history, etc. in both their estimates of actual and ideal wealth distribution in this country.

These findings were recently confirmed (Perspectives on Psychological Science, Vol. 9, 2014) in data from 16 countries that revealed that people dramatically underestimate actual pay inequality. This was also true regardless of demographic group and political beliefs.

The study also reported that underestimation was particularly pronounced in the US. The actual pay ratio of CEOs to unskilled workers (354:1) far exceeded the estimated ratio (30:1), which in turn exceeded the ideal ratio (7:1).

Janet Yellen on Economic Inequality

Speeches by government officials on economic inequality are rare. You recall the speech President Obama delivered some time ago in which he said it was the defining issue of our time. We haven’t heard a word from him since, let alone any major policy changes to remedy the situation.

But Janet Yellen, Chairman of the Federal Reserve, spoke out forcefully on this issue last week (10/17/14). In her speech to the Federal Reserve Bank of Boston she said:

"The extent of and continuing increase in inequality in the United States greatly concerns me. … It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity."

From all accounts this is the first time a Chairman of the Federal Reserve devoted an entire speech to economic inequality in this country. In 2007 when he was Chairman, Ben Bernanke did talk about the issue but lamely concluded,

“I will not draw any firm conclusions about the extent to which policy should attempt to offset inequality in economic outcomes; that determination inherently depends on values and social trade-offs and is thus properly left to the political process.” Talk about passing the buck.

In contrast, Yellen identified a number of areas that called for action. She said it was the Federal Reserve’s responsibility to do all it could to promote economic opportunities in this country, called for efforts to reduce the enormous debt students incur in attending college, as well as promoting early education and affordable higher education. She noted that mobility is lower in the United States than most other advanced countries and urged the creation of new businesses that would give individuals a chance of moving up.

All in all, a very concrete set of proposals, an impressive statement from the Chairman of the Federal Reserve. Let’s hope it isn’t Yellen’s last word on this issue. She obviously cares about the problem, so I don’t think it will be.

Yellen alluded to the possibility that income inequality could be a significant factor in the overall weakness in the economy. According to Neil Irwin (Times, 10/17/14) the logic of this conjecture goes like this:

"The wealthy tend to save a large proportion of their income, whereas middle and low- income people spend almost all that they earn. Because a rising share of income is going to the wealthy, spending—and hence aggregate demand—is rising more slowly than it would if there were more even distribution of income."

If true, this hypothesis provides additional support for using fiscal policy and congressional action to lessen the extent of economic inequality in this country. The benefits are clear. Other than fiscal policy, the likelihood of congressional action now is virtually nil, an outcome that is deeply distressing to this writer and I imagine to Yellen too.

Capital in the Twenty-First Century

Thomas Piketty’s Capital in the Twenty-First Century has been on the Times Hardcover Best Seller list for the past 20 weeks and is currently ranked #15. The book is a dense, lengthy treatise on the distribution of income and wealth in more than twenty countries. Piketty attempts to explain its underlying mechanisms and future dimensions. Who would have believed that a rigorous economic analysis like this would be so popular?

I also wonder how many purchasers actually read the entire book, 577 pages plus another 177 pages of detailed notes. But Piketty, who has become something of a rock star, does provide a cogent Introduction that pretty well outlines his major points. A summary follows:

Discussion about economic inequality has been largely based on prejudice, opinions and very little on facts or research. Piketty calls it a “dialogue of the deaf.” At the same time he acknowledges that even research is always provisional and tentative.

His goal is to provide comprehensive and historically accurate data on income, inheritance and taxes in every country where it is available. It is also supplemented by historical data from other investigators.

Piketty’s findings point to a sharp rise in overall income taken by the top ten percent of households after the decade following the Great Depression. During World War II until 2007, the income of the top 10% and within that group the top 0.1 stayed relatively constant and then rose sharply to its steadily increasing level.

In addition to income, he believes it is essential to assess the distribution of wealth. Wealth is determined by the amount of unexpended income and inheritance that accrues to individuals and families on a year-to-year basis. Piketty believes wealth contributes far more to rising inequality than most people had realized. His analysis of wealth may be the most original contribution of his work.

People with inherited wealth and surplus income are able to save a fair amount of capital each year. Piketty then suggests that, “When the rate of return on capital significantly exceeds the growth rate of the economy then it logically follows that inherited wealth grows faster than output and income.”

This is the condition in the developed world today and the reason the income levels of the top 10% and higher is rising so rapidly. In a sense we have become a “patrimonial society,” of the sort that existed in the mid-19th and early 20th centuries when inherited wealth and family dynasties played such a dominant role in the economy.

It also suggests that great wealth brings with it considerable political power that only reinforces the increasing concentration of wealth at the higher brackets. This is also a feature of current political reality that, in my view bodes ill for breaking the cycle of the rising political power of the rich and very rich.

Then there are the rest of us--the not-so-very-rich, the middle class and the poor, whose economic conditions have stagnated and continued to decline in recent years.

Paul Krugman, Nobel Prize winning Economics professor at Princeton says Piketty “gives something we didn’t know we needed—a sweeping, elegant integration of growth theory…and the personal distribution of income and wealth.” He also confesses to a certain jealousy that he didn’t write the book that Piketty did.

I am left with the question when and how is economic inequality going to be reigned in and, thereby, making possible a more equitable distribution of the economic resources of this country. Piketty does suggest a worldwide wealth tax but implementing this idea is utterly fanciful in today’s political climate.

Piketty concludes on a modest tone: “Since history always invents its own pathways, the actual usefulness of these lessons from the past remains to be seen. I offer them to readers without presuming to know their full import.”

Moral Dimensions of Economic Inequality

There has been an enormous erosion of opportunities for people who are at the lower end of the scale. We have faltered in our commitment to create communities where everybody gets a share of the good life. A. Kornblum

While the subject of economic inequality has of late become more prominent, the defining issue of our time as the President once called it, there is scarcely any discussion of the moral issues posed by the enormous and growing disparities between the super-rich and the poor.

Instead, we have charts and tables, data and observations, liberal and conservative disputes, historical trends, recent findings and occasionally a proposed solution. And we have the widespread discussion of Thomas Piketty’s frequently discussed, frequently purchased, and, I suspect, not so frequently finished treatise, Capital in the Twenty-First Century.

However, I am not overwhelmed with discussions of the merits, the morality or fairness of the “Great Divide.” Perhaps its moral unfairness is simply assumed. It’s hard to be sure about that. Are not the struggles and yes they are daily struggles of the poor even more important than all the oft-repeated facts? Have we grown to accept, desensitized, to the degree of economic inequality that currently exists in this country?

But is it right? Is it unjust? Is it cruel? What moral principles does it violate? Do we have to study philosophy all over again to answer these questions? Or can they be swiftly answered on grounds of simple fairness, commonsense moral arguments for justice?

Why such widespread silence on this issue? Where is the outrage, the protest, the demand for change?

William Sundstrom, an associate professor at Santa Clara University is one of the few who has confronted this issue head on (Santa Clara University Mark Kula Center for Applied Ethics, Vol. 9, Fall/Winter 1998).

Sundstrom doesn’t explore the claims he makes in any depth or provide their philosophical foundations. Rather he simply lists a set of moral concerns with a sentence of two describing each one. Conceivably he imagines they are self-evidently true. They include:

Compassion: As members of a larger community, we ought to care about individuals who are struggling to get by.

Fairness: Drastic inequalities between individuals in a market economy are incompatible with basic principles of human welfare.

Deservingness: A person’s income should have some relationship to what they deserve. “The low-skilled worker who puts in a long, hard day’s work may in the sense be as deserving as the high-powered lawyer or CEO.”

Opportunity: The limited opportunities of the poor to obtain an education, employment or exert political influence are inconsistent with a free, democratic society.

Individuals who seek to redress economic inequalities in this or other country might be well served by turning to these moral principles. In turn, those who wish to do nothing about the current and apparently growing differences between the rich and poor are obliged, in my mind, to formulate reasonable objections to those who believe the Great Divide violates basic principles of a just society.

Public discourse about the economic inequality seems to wax and wane. Piketty’s book stimulated interest for a while, as did the speech that Obama gave earlier this year. But he has not returned to the matter in any forceful way, preoccupied as he is by both large and small concerns elsewhere.

What will it take to focus public attention on this issue and, above all, its solution? Piketty’s book for all its intelligence and data is too academic. The broad economic policy speech the President delivered is all but forgotten. The economy seems to have recovered a bit from the Great Recession. The Occupy Wall Street movement has come and gone. Again, what is it going to take?

Economic Inequality Silence

Where is the outrage, the indignation, the protesting over the enormous gap between the rich, especially the very rich and the rest of us? What ever happened to the spirit of Occupy Wall Street? Why is the country at large so serenely quiet about the rising economic inequality in this country, the outrageous annual pay of some CEOs and Hedge Fund managers? Other than a very few economic scholars and media commentators, there is scarcely any effort to confront the problem head on.

In a review of Pierre Rosanvallon’s new book The Society of Equals, Paul Starr writes (5/22/14): The passive consent to inequality is the point of departure for the French historian and political theorist Pierre Rosanvallon in his new book, The Society of Equals. As Rosanvallon writes, there is a generalized sense that inequalities have grown too large or even become scandalous, but that sense coexists with tacit acceptance of many specific forms of inequality and with silent resistance to any practical steps to correct them.

Even the President, who professes to find it the defining issue of our time, doesn’t do much about it. Of course, he is constrained, cannot apply the major remedies without the consent of Congress. And that isn’t going to be possible for the unknowable future.

Perhaps Americans don’t fully appreciate the magnitude of the enormous gap between the rich, including the very rich, and the poor. If they did, there might be less silence and more outrage. To find out Michael Norton and Dan Ariely undertook a study (Perspectives on Psychological Science, 6, 2011) of popular beliefs and the distribution of wealth in this country.

They asked a nationally representative sample of 5,222 individuals, equally divided between males and females, to estimate the current distribution of wealth in the US and then their ideal level of inequality. Before beginning the survey they asked each person to read the following definition of wealth:

“Wealth, also known as net worth, is defined as the total value of everything someone owns minus any debt that he or she owes. A person’s net worth includes his or her bank account savings plus the value of other things such as property, stocks, bonds, art, collections, etc., minus the value of things like loans and mortgages.”

The individuals in the study vastly underestimated the actual level of wealth believing that the wealthiest “quintile” held 59 percent of the wealth when the actual percentage is close to 84 percent. Perhaps this divergent perception from reality accounts for the lack of widespread public outcry to the enormous and growing economic inequalities in this country?

Norton and Ariey also asked their subjects to state their ideal distribution of wealth in the US. They found a slight preference for some inequality, rather than perfect equality, but by no means close the degree currently present in this country

When given examples of the distributions in other countries, they expressed a preference for the distribution that most closely resembled Sweden’s, where the top wealth quintile holds 36 percent of that countries wealth and the lowest 11 percent.

Finally, Norton and Ariely noted there was a considerable, and, to them, surprising consensus among different demographic groups in this country--gender, income level, voting history, etc. in both their estimates of actual and ideal wealth distribution in this country.

Thomas Piketty, the now well-known, highly-praised author of Capital in the Twenty-First Century, claims, in light of his data, that the great gap between the rich and poor will continue unless major policy changes are made in taxing wealth, income, and inheritance.

He admits, the future looks bleak, yet it often can surprise us. Picketty is a scholar, not an advocate and while we need both, I think it is well beyond time for widespread advocacy to take hold in this land.

Note: Results from a recent survey in France are consistent with the public’s perception of economic inequality in the United States. Nearly 90 percent of the French respondents said income disparities ought to be reduced, yet 85 percent said the differences are acceptable to reward individual achievement.

Unequal Societies

This is the 500th blog I’ve written on Marks in the Margin during the past three years. From time to time, I have taken a break and I’m going do so once gain. I hope to resume with a retooled version of the blog. After the last break, I wrote about Occupy Wall Street movement that galvanized me into action. I conclude on a similar theme as I write about the multiple effects of the ever-growing, ever-pernicious effects of economic inequality in this country and elsewhere.

In addition to wide financial disparities, what are the other, equally harmful effects that economic inequality gives rise to? This is the question posed by Richard Wilkinson and Kate Pickett in their wide ranging analysis reported in The Spirit Level: Why More Equal Societies Almost Always Do Better.

I first heard about the book in a talk Wilkinson gave in at a TED presentation and later in Andrew Hacker’s review last month. Although the assumptions built in to The Spirit Level's statistical analysis are complex, the results are straightforward. Wilkinson and Picket rank the quality of life in twenty-three countries, primarily European, but also the US, Israel and Singapore.

By quality of life they mean several indices including education, incarceration, mental and physical health, etc. These measures are then “related” to how income is distributed in each country. Consider some representative findings:

• People in more equal societies live longer and their self-rated health is better.

• People in more equal societies are far less likely to experience mental illness.

• Children do better at school in more equal societies. Measures of child well-being are also better in more equal societies.

• Unequal societies have a higher proportion of incarcerated individuals.

• Measures of obesity, drug abuse, and violence are higher in more unequal societies.

Wilkinson and Picket write, “As income gaps grow, it’s not only the poor who suffer. Unequal societies not only bear “diseases of poverty,” but also “diseases of affluence.” The latter include cancer and cardiovascular disease as well as the afflictions of well-off people who are “anxiety-ridden,” “prone to depression,” and “seek comfort in overeating, obsessive shopping and spending.”

Here is an example of the type of data reported in the book. The horizontal axis of the graph shows the level of economic inequality (The US, UK, and Portugal are the highest; Japan, Sweden, Norway and Finland the lowest). On the vertical axis is a composite measure of social problems. Wilkinson and Pickett conclude there are significantly fewer social problems in more economically equal societies. A similar relationship holds for most of the other measures they report.

However, it is important to remember that the results reported in The Spirit Level do not demonstrate a casual relationship between income distribution and any particular outcome measure. Instead, they describe societal averages in which even in unequal societies, there are individuals who are in good health, do well in school, and have few social problems. We can say that on the average individuals in unequal societies do worse on these measures and on the whole people in more equal societies do better.

Some critics have questioned Wilkinson and Pickett’s statistical model and, at present, there have been few attempts to replicate their findings. However, in one, the authors report that, “the most straightforward measure of health simply has no robust correlation to income equality when comparing industrialized countries using standard OECD [Organization of Economic Co-operation and Development] and UN statistics.”

In spite of these cautionary notes, The Spirit Level does put forward a powerful claim about the wide-ranging, seemingly interrelated consequences of economic inequality, a claim that is especially pertinent now as we enter into yet another political campaign and try to assess the future impact of unexpectedly popular Occupy Wall Street movement.