Northeastern University Economics Society
Reflection by Lea Bourdages and Chris Wise
Almost all income inequality discussions start the same, with staggering statistics that immediately bring about a sense that something is deeply wrong in this country. Stephan Nathanson’s presentation at the 2015 Northeastern University Economics Symposium began in this familiar way but quickly separated itself from the precedent. In a thought-provoking introduction Nathanson offered that although the problem is income inequality, income equality is not necessarily the desirable remedy. This one idea shed an entirely new light on the controversial topic—while many of us have discussed every horrifying fact and figure of inequality, most have likely never stopped to consider the natural alternative and its implications. Income equality could destroy all incentives for productivity and innovation, a potentially darker reality than the one we reside in today.
Professor Nathanson at the symposium.
Nathanson continued with brutal honesty, proposing the idea that people do not really want equal opportunity, we want more opportunity for our own children than for others. This excruciatingly honest sentiment forced us to reexamine our own desires surrounding the eradication of income inequality, and exposed the fact that, although the sentiment of income equality is noble, it is not practical. If equality is not the solution, then what is? Nathanson proposes the “decent level view”, a clever approach to eliminating poverty without equality, one achieved simply by implementing an income floor but not a ceiling. This proposition appealed to our desire for rational solutions and showcased the possibilities that lay before us with the right policies in place.
Nathanson’s theoretical suggestions provided some unique insights into the dialogue surrounding inequality, laying the groundwork for NYU Professor Jonathan Morduch to discuss the very thing economists love: empirical research and cold hard facts. When economists talk about income inequality, many fail to understand the fundamental problems and choices that low-income families face. Morduch broke apart the theory of average income versus average costs used by many economists, asserting that annual data misses the story on the personal level, with most families living in the reality of piece-by-piece income, not one of averages.
Professor Morduch compiled “financial diaries” by meeting with families several times a year to collect data on their income and behavior, similar to the study he had completed in parts of Bangladesh, India, and South Africa with another group of researchers for Portfolios of the Poor: How the World’s Poor Live on $2 a Day. Using this data, Morduch was able to break down the audience’s view of income to a month-by-month level, revealing the real choices and struggles that low-income families face every day. Through his study, Morduch has been able to find that rising and falling work hours are the main contributors to the plague of piece-by-piece or sporadic income. This idea reveals important implications for the ways economists look at the problem of income inequality: poverty is not a matter of self discipline in consumption, but instead a much deeper and more complex issue—one where good jobs and better money management tools are desperately needed. The data that Morduch describes has wide implications for the economists: if we ever want to make an impact on inequality, we need to look beyond averages, and go a little bit deeper to examine real human behavior before deciding on proper policies.
The economics symposium on income inequality brought new perspectives to the issue that is often analyzed through a tired old lens and approached with ineffective solutions. We now understand that creativity and innovation are desperately needed to solve one of the world’s most pressing problems. Nathanson and Morduch reinvigorate the long-standing discussion, and offer an inspiring start with the hope that we could one day face a world without overwhelming income inequality.
All photo credit: NEU Economics Society
