Thomas Sowell on the root causes of income inequality
by Jim Henry
Posted 12/30/14, 04:10 pm
Thomas Sowell is a preeminent economist, a senior fellow at the Hoover Institution, and author of the best-selling Basic Economics: A Common Sense Guide to the Economy, now in its 5th edition. He is one of today’s clearest voices for the benefits of free market policies and the failure of government intervention to improve the human condition. We talked about the factors that create income inequality and the reasons why some politicians look for someone to blame for poverty, rather than considering its root causes.
We’re always hearing that income inequality is getting worse. Is that the case? It depends on what time frame you’re looking at. If you’re just looking at the current administration, that’s certainly true. But these kinds of changes occur all the time. If you’re saying over the long run, no, I wouldn’t think so.
One of the problems is the statistics. The statistics really—how should I put it?—they talk as if the statistics refer to a given set of people, sometimes called the rich and the poor. But in point of fact, they do not. They refer to whoever happens to be in a particular income bracket at a particular time. And Americans who, for example, start out in the bottom 20 percent, over 95 percent of the people who start out there are no longer there 15 years later. In fact, more of them reach the top 20 percent after that period of time than remain in the bottom 20 percent. So, the stats that are normally quoted are usually very misleading.
So, in the US at least, there’s something called income mobility? Yes. … Most Americans start out at the bottom, and over the years as they acquire experience and skills, they rise up. And this happens in 95 percent of the people who start out working and earning in the bottom 20 percent.
Now internationally what factors might lead to income inequality? Well I approach it in this book differently. I ask the question, what reason was there ever to expect incomes to be even or approximately equal, given that whole groups, nations, races have evolved for thousands of years in radically different geographical environments and acquired very different cultures and so on. For example, why would you expect the people of sub-Saharan Africa to have the same income as people in Europe? Well, sub-Saharan Africa is, by definition, below the Sahara Desert. And the Sahara Desert is slightly larger than the 48 states of the United States. You could hardly be walled off from the rest of the world more effectively than by that much sand. When you add to that very few harbors, good harbors, in sub-Saharan Africa, it means that for millennia this whole region was cut off from much of the world. Not totally, and certain parts of it were less cut off. Those were the more progressive parts of Africa.
Okay, and what about here in the United States? Let me put it differently. There are no factors I’ve been able to find that lead to equality. Demographics means that you cannot have income equality. For example, Japanese Americans are more than 20 years older on average than Puerto Ricans in the United States. A 40 year old man, for example, has more than 10 times as much job experience as a 20 year old man, if you start counting from the age of 18 as adulthood. So there was never a reason to expect equality. So I go through many different complicating factors, cultures matter, demographics matter, regions matter.
Something like 10-12 percent of the world’s population lives in the mountains. That sounds like not very many people, but point in fact it’s more people than there are in the United States. And more people than there are in other places, other than China and India. And the mountains, for centuries, have been a very poverty-stricken area. That’s even in the Unites States to this day. Data from 2010 shows that people in one of the mountain counties in Kentucky, that the average man in that county has a lifespan a decade less than a man in Fairfax County, Va. And there are many more indications of poverty in the mountains, which is just one geographic region for inequality.
So should we even think of income equality as an achievable goal? Well, I try to avoid predictions, but I think if something hasn’t happened in all these thousands of years, I shouldn’t look for it next Thursday. The other thing too, getting back to the statistics, people talk about
the top 10 percent being a group apart and playing a disproportionate role in the society. But 56 percent of all American households are going to be in the top 10 percent in some point in their lives, usually when they’re older. So when we talk about the top 10 percent in any given moment, that’s a moving group. And you talk about the famous top 1 percent, and they’re even more transient. In the course of a decade, most of the people in the top 1 percent will be
there one year only. In other words, you have a spike in income, and that year you’re in the top. You might have inherited something, you might have sold off assets you’ve accumulated over the years, and that one year you’re in the top 1 percent—and the next year you’re not!
So some politicians would have us believe that there’s a finite amount of wealth and that the poor are poor because the rich are rich. How do you respond to that? I try to respond rationally, although I must say that the idea is insane. But you put your finger on one of the central fallacies of our time: when people look at questions of income and the disparity, they’re not looking for causes. They’re looking for blame. And those are not the same things.
So one of the things I do in this book and in another book that I’m writing, is say people are not poor because someone took away wealth that they had. They are poor because they did not produce as much wealth as others in the first place. Now there are cases where people have produced and it has been taken from them: slaves, sometimes conquered people, and so on. But as an explanation of most of the disparity today, that really doesn’t cover it.
Listen to more of Jim Henry's interview with Thomas Sowell on The World and Everything in It: