If People Were Paid by Ability, Inequality Would Plummet

on Nov8
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Consider that the top 1 percent of earners in the United States score one-third of a standard deviation (or 5 IQ points) above the average adult on cognitive and workplace skills — measured from an assessment of adults by the Organization for Economic Cooperation and Development. Not bad, but not that unusual, either: Roughly 45 percent of adults score that high. To see this from another perspective, the average African-American adult with a graduate degree demonstrates the same level of cognitive ability in this international assessment as the average person in the top 1 percent of income. Yet 99 percent of African-Americans with graduate degrees do not have incomes high enough to be in the top 1 percent.

In the early 20th century, researchers have found, African-Americans were among the most inventive people in the world as measured by their likelihood of holding a patent. Racism, of course, blocked access to markets and other opportunities. For instance, black physicians were barred in many states from entering the American Medical Association until 1968, and the American Bar Association refused membership to black lawyers in any state until 1950.

When it comes to rising inequality, those on the left tend to cast blame on multinational corporations, and they see inherent flaws in markets. Those on the right tend to believe that inequality arises from differences in talent; they are more likely to say that market outcomes are intrinsically fair.

Both tend to miss how powerful interest groups (often local ones) can distort markets, creating rules to benefit their members at the public’s expense. Homeowner associations and the zoning boards that they elect routinely block legitimate market transactions in real estate, leading to higher housing prices and social segregation and isolation. (Townhomes, duplexes and apartments are essentially forbidden in many neighborhoods.) In many cases, state legislators have become dominated by regional lobbying associations, driving up the price of services. For both the left and the right, and everyone in between, it can be hard to see the true benefactors of rising income inequality: professional elites.

Beyond a commitment to equality, possible remedies include expanding access to high-quality public services like early-childhood education and community health services for needy families. But the evidence also suggests the need for expanding access to markets and defending their integrity. Both the right and left right would have to make compromises; it would seem to be a fair trade, with big gains for all.

Jonathan Rothwell is the author of “A Republic of Equals: A Manifesto for a Just Society,” which is published this week by Princeton University Press. He is the Principal Economist at Gallup, a nonresident senior fellow at the Brookings Institution and a visiting scholar at the George Washington University Institute of Public Policy. You can follow him on Twitter at @jtrothwell, and listen to his podcast, “Out of the Echo Chamber.”

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