2015 POWER  1A. THE MARVELOUS MAV POWER Issue 2015 - Income Inequality JPG




Income Inequality




“A Fed study shows that mean family income was up 4% between 2010 and 2013, but the median income fell 5%.” (Ed Pennock, “Morning Call”, Sept. 5, 2014.) The following example explains this statistical paradox.


Picture Mrs. Sort, an English and Guidance teacher. Each semester she is assigned 25 just-arrived immigrant and refugee adolescents. Her job is to welcome them, get them started in English and by the end of the semester assign them to one of the following ranks and programs: (1) special education (2) general (3) vocational track (4) college preparation (5) advanced placement. Usually, her allocation is 2-7-7-7-2. The average rank is 3 and the thirteenth, median child, the student that divides the group into two halves, goes to vocational track. Assume that Mrs. Sort is excellent at her job and the students are always well assigned.


Sometimes world events impinge on her distribution. For example, an intellectually advanced but repressive country may relax a border control, resulting in more academic students. The average would move toward (4) and the median student would be university bound. Alternately, there could be a natural disaster in a primitive, conflicted nation. The average would move to (2) and the median student would be general.


If both events happen at once, average rank scores go up, but the median goes down, like the U.S. income distribution. At the end of the semester, when Mrs. Sort discharges her now wide assortment of students to the high school population, her principal will go beyond worried to frustrated. Where will the resources be found to look after the increase in special education and advanced placement?


Mrs. Sort is an excellent assessor and can hardly be blamed for world events, so making her obfuscate her work is unprofessional. Not a solution. To deny survivors of disaster the support that special education provides is hardly fair either. No answer here. When resources in the short term are fixed, it therefore follows that not all the students that could have benefitted from advanced placement are going to access these programs. Problem solved.


Analogously, when income inequality becomes worrisome, the answer that makes sense is to remove wealth from the successful. In the hypothetical high school, some very bright young people will be under-challenged and lose opportunity to explore their talents. They may drop out. Let us hope a reformed tax system does not do this to the wealthy. The economy needs their confident participation in working, spending and investing.


What we cannot tolerate is goofy Mrs. Sorts. When our labor, housing and capital markets allocate resources unproductively, economies contract and individuals suffer injustice. This is really worrisome.




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