Jonathan Rothwell on Market Egalitarianism
2019-11-09 · Guest: Jonathan Rothwell (Gallup principal economist) · 51:57
Income Inequality and Market Exclusion in America
Bob Zadek interviews Gallup principal economist Jonathan Rothwell about his book, A Republic of Equals. They discuss how a significant portion of American income inequality is driven by political interference and market exclusion—such as occupational licensing and zoning laws—rather than natural differences in talent or merit.
Topics: Income Inequality, Market Egalitarianism, Occupational Licensing, Zoning Laws, Public Choice, Meritocracy, Economic Policy
Speakers: Bob Zadek, Jonathan Rothwell
The Procrustean Bed of Income Equality [00:17]
Bob Zadek: Hello, everyone. Welcome to The Bob Zadek Show, the longest-running live libertarian talk radio show on all of radio. Thank you so much for listening this Sunday morning. We are, today and always, the show of ideas, never, ever once the show of attitude.
A long time ago, I was an undergraduate at Syracuse University, an astonishingly mediocre college, and I was the poster child for mediocrity in that undergraduate school. One of the—the only course I got an F in, although I loved it, was Greek mythology. I took a one-credit course in Greek mythology because it was what’s known at the time as a football player course, even though I was an accounting major. Everybody took that course because it was so easy. And I liked it. And the only reason I got an F was the day of the final, everybody else was taking it and I was studying for it because I had the wrong date in my calendar—if I had a calendar.
In that course, there was a Greek god called Procrustes. A rather sinister fellow, Procrustes was. He was a mean-spirited blacksmith, and his role in mythology was he had this sinister bed, and he was determined to make sure everybody was exactly the same height. And if he captured you as you walked by, or whatever you did when you were dealing with a Greek god, he would put you in his bed. And if you were too short, he would—forgive me—stretch you. And if you were too long, he would amputate part of your legs so that everybody was the same height at the end. He met his fate when another god who wasn’t crazy about what he was doing put him in his own bed and killed him.
What in the world does that have to do with libertarian talk radio? Well, Procrustes’ goal was height equality—a rather absurd concept, but no more absurd than income equality or its converse, income inequality. Many in public life today, many political figures, have as their goal undoing inequality, which is as sensible as undoing height differences among humans. The subject of income inequality is born of, I suspect, envy and a desire to take from people who, for one reason or another, whether it’s luck, good fortune, or skill, have more than you, and you want some of it. So there’s envy, there’s greed—pretty ugly motivations.
Introducing Jonathan Rothwell [03:40]
Bob Zadek: Income inequality is worthy of at least one show, and that show is this morning. I’m happy to welcome to the show Jonathan Rothwell. Jonathan is Gallup’s principal economist. He’s an economist by training. He has lived his entire life in the world of politics and public policy. Most relevant to this morning’s show, he’s author of A Republic of Equals: A Manifesto for a Just Society, where Jonathan has studied—no surprise—with enormous data to support his conclusions and statistics because he’s trained to do that, his views on income inequality. Is inequality a bad aspect of society or just a fact of it, which is neither good nor bad? If it is bad, should it be fixed? Do politicians have to all take an oath to become Procrustean in their policy? Hard questions. No one better to answer them than this morning’s guest. Jonathan, good morning and welcome to the show.
Jonathan Rothwell: Good morning, Bob. Thank you for having me.
Bob Zadek: Now, you have spent your life, or your adult life, much of it, in the world of acquiring, refining, and learning what conclusions can come from enormous amounts of data. You take data, the big goo, all these numbers, and you can see what others cannot see. You can see conclusions and policy issues that others cannot because you are talented and skilled in handling of data. When you set out to write A Republic of Equals, in doing the work for that, did you discover aspects of economic life in America that surprised you, or did it confirm conclusions you had before and they merely were confirmed, and now in the book you’re sharing them?
Jonathan Rothwell: Well, I certainly did learn quite a bit in the course of doing this research. And I should say that I’ve been studying this topic for probably 20 years. I became, I’d say, most interested in it around the 2000 election back when I was an undergraduate studying mostly science at that point. But that motivated me to study economics—that election and the topics that it brought up, the campaign of Ralph Nader, for example, who was talking a lot about income inequality back then. And I wanted to understand what was behind it and what could be done about it, if anything. And that led me on a journey to get a couple of graduate degrees, and then I worked at the Brookings Institution in DC for seven years, and now I’ve been at Gallup since then and had the opportunity to study this in some detail, particularly in the course of preparing the book.
And one of the things that motivated me to write the book more than anything else was the sense that I was unsatisfied with the explanations that we’ve been given by politicians in particular, but also thought leaders, op-ed writers, and pundits when it comes to why there is inequality and what to make of it.
US Inequality in a Global Context [07:12]
Jonathan Rothwell: To get at the issues you raised in your introduction, I think it’s perfectly natural that there would be some income inequality. But one concern is that the United States stands out among other democracies as having what you could characterize as an extreme amount of income inequality. So if you look around the world, countries that are poor and often have authoritarian or corrupt governments have fairly extreme income inequality in that, say, the richest 1% may control 20% to 30% of the income in a given year. In European democracies and countries like Japan and Korea, it’s more like between 6% and 12% or 13% at most, usually under 10%. But in the United States, it’s 20%. So we’re closer to the authoritarian governments and non-democracies around the world than we are to the other developed rich democracies. And so the question is why.
Bob Zadek: Yeah, Jonathan, before we get to the why, which is the crux of this morning’s show, I’d like to unbundle a bit of what you said. When you referred to the profound income inequality in authoritarian regimes as compared to Western democracies, of course, the criticism of an authoritarian society is not income inequality—that’s the result of it. The criticism is the political structure to begin with: no rights, no personal property, no freedom. So authoritarianism doesn’t need income inequality as the reason why it’s bad. It’s bad because it’s bad, inherently bad.
Merit vs. Political Inequality [09:09]
Bob Zadek: So the question is as to this income inequality, as to that economic fact, what’s wrong with it? What’s wrong with some people having more than others so long as—and I know this is you’re going to have a lot to say about this, but I’ll introduce the topic—what’s wrong with income inequality so long as that inequality is the result of simple inequality in skills and drive and motivation and psychology and intelligence and energy from one person to another? That is, if it’s the natural result of people being different, what’s wrong with it?
Jonathan Rothwell: Yeah, I would say very little is wrong with it and maybe nothing is wrong with it if it’s the result of people’s underlying talents and preferences. Now, with one exception, I think most societies are oriented around taking care of the poor. So there will always be some members who have a hard time contributing for health reasons, for other sorts of disabilities they may emerge, strokes of extreme bad luck. And around the world, people have come together in various ways to figure out how to help those people, and that in a sense reduces income inequality.
But I think societies organized along those lines where people are compensated based on their productive skills and talents and energies, all the things you mentioned, but then just simply compensated people who were struggling for whatever reason—I think that would be a pretty great society that most people would enjoy living in and would consider just. My concern is that that’s not what describes the United States and doesn’t describe even many democracies to a great extent. We have income distributions that are based more on politics and political inequality than they are based on the natural distribution of talent.
The History of Guilds and Exclusion [11:25]
Bob Zadek: I knew you were going to say that. I was hoping you were going to say that, but I wasn’t nervous. Of course you were, because that is, in my opinion, one of the major contributions of your book, and that’s what I would like you to share with us this morning. One comment: you use the word “society.” And just in documents, in statutes, in language, there is often something called the rule of construction. What does a word mean? And I would just observe that society is how people live together voluntarily. It’s the neighborhood, the block, the town. That’s society, as distinguished from—and this is why I’m making the point—as distinguished from government, which is nothing voluntary about it. It’s compulsory.
So when we say, “Does society take care of the people who are less fortunate or less skillful or whatever? Does society take care of it?” I would just throw out there, without inviting discussion, that societies—most societies—have always done that. Governments haven’t, and governments shouldn’t perhaps, but societies always have. People, whether it’s fraternal groups, religious groups—people always, as much as they want voluntarily, take care of those less fortunate. Just an observation. I’m not inviting we go and distract by that, but just a thought.
So your premise of your book—and I knew you were going to say that, and I was hoping you would—is that the income inequality is not necessarily or exclusively the result of differences among humans, but rather there is an artificial influence, which is government. And that’s a great amount of the scholarship in your book. So tell us what you mean by that or give us some examples.
Jonathan Rothwell: Sure. So I talk a lot in the book about the importance of providing equal access to markets. I believe that’s a right that has been largely ignored in political science theory and scholarship, but it’s really important once you start thinking about it. And there are a few historical examples I think really illustrate how lack of access to markets, created by government laws and rules, has created inequality throughout history.
So in Medieval Europe, one of my favorite examples is the guild system. In these cases, you’d have distinguished occupations that were highly skilled, required years of training and preparation in an apprenticeship-like system to develop the craftsman-like skills that were valuable in cities throughout Europe. These guilds regulated who was allowed to provide these services in very strict ways. You had to, in many cases, be the son of somebody who was a guild member. If you moved towns and tried to relocate in a new town, it was very difficult to gain the status of being part of a guild. There were ethnic discriminations, discriminations based on ethnicity. Women couldn’t be guild members. So there were a lot of groups that were excluded from being guild members. And that created benefits for the members at the expense of the public who had to pay higher costs for everything that they were making.
In more recent examples in the United States, African Americans were denied membership to important guilds as late as the middle of the 20th century. So the American Bar Association didn’t allow African American lawyers to be members into the 1950s. The American Medical Association had state-level organizations, and they didn’t allow African Americans in the South to become members until the 1960s. So that’s a political regulation that has nothing to do with the inherent talents of the people who are trying to be members. And those are two illustrations of how that works.
The Modern Licensing Regime [16:22]
Bob Zadek: And what’s interesting is, of course, you mentioned the American Medical Association and the American Bar Association. They are the mother of all guilds today, of course, right alongside. My regular listeners will know that I have done more than one show complaining bitterly with my then-guest about the licensing regime for occupations in our country. There are about 1,400 economic activities for which you need a license. Now, we all know that “license” is one of the most hateful words in the language. It suggests permission from the government to do an otherwise lawful act, like offering your services to somebody else at a price they’re willing to pay.
So we should also mention, I think, Jonathan, we don’t have to go to the American Bar Association and the American Medical Association and their counterpart, but rather just the licensing regime where you need a thousand school hours of training to be a cosmetologist, to be a hairdresser, to be a barber, which has the effect of keeping out mostly low-income people from getting into one of those occupations, which is the first rung of the economic ladder.
Jonathan Rothwell: Yes, I think there are real concerns about licensing in general. I don’t take the view that there should be no licensing or no regulation whatsoever, because I do think that to have mutually beneficial exchanges, you need to have informed buyers, and some kind of licensing system can serve to reassure people that at least basic criteria have been met. And so I think the underlying motivation is not terrible and can make markets work better if done appropriately.
I think the bigger problem that I have is that the licensing system has been corrupted by member organizations, and particularly the most powerful member organizations operating usually at a state level where it’s fairly easy to influence legislators and even just the specific divisions or committees that regulate occupations and professional services. So it doesn’t require a great amount of spending to be the leading campaign contributor in state elections. And it’s often, if you look at who these leading contributors are, it’s usually the state bar association, the state medical associations. And so in many ways, you could say they’re writing the laws that control the licensing process.
And we have good reason to be suspicious of what’s happening there, not that doctors and lawyers have any desire to exploit the public, but when they have so much power and there’s no countervailing force checking what they’re doing, it’s very easy for the laws to drift toward a process that is overly restrictive and ends up shutting out many extremely competent and well-trained people from providing even basic services.
Quantifying Political Inequality [20:00]
Bob Zadek: So now, you are summing up what you have said so far is that income inequality, in part, is the result of conscious governmental action. It’s not the result of the operation of the free market, which produces anything unfair. At least in part, it’s an unintentional consequence—maybe intentional consequence, who knows, who cares—but it’s an unintentional consequence of governmental action playing favorites with one group at the expense of another.
Now, can you reach any conclusion, even if it’s a gut reaction, as to how much of the complained income inequality in our country would go away if these unfair statutes which contribute to it or cause it were collectively repealed? Is that the primary driver of income inequality, an incidental driver? Where does it fit in in scale?
Jonathan Rothwell: So I think that’s a great question, and I embarked on a thought exercise to take a stab at calculating that, though to be honest, it’s an extremely difficult conceptual and empirical exercise. But let me describe what I did and your listeners can decide for themselves how plausible it is.
So if you take the attributes of individuals that are measurable and strongly predictive of income, health status, other indicators of a successful, happy life, and put them all together—so these would include IQ, these would include the personality traits that have been identified with success, which would include conscientiousness, emotional stability, and enthusiasm—and you include experience in the workplace and the amount of education, the years of education that someone has obtained, all those things are predictive of higher income later in life. And you measure them when someone is a young adult—and this is done, by the way, by the Bureau of Labor Statistics National Longitudinal Survey of Youth—you can calculate what their expected income would be if they were paid only based on those attributes and compare that to the actual income that they have. And then when you do that for the entire country, you can have two alternative measures of the income distribution: one based only on measurable talent, another based on the actual income distribution we have.
And what I find is that income inequality would fall by roughly half if we paid people based on those measurable skills and talent. So that suggests that the remaining income inequality is a result of those political factors that involve access to markets and the way that they’re regulated and the way that certain professional occupations, which tend to be overly represented in the 1%, doctors for example and lawyers are two of the professions most heavily represented in the top 1% of all income earners. If those were removed, I estimate that income inequality would fall by roughly half. And so that would make the United States much more like Sweden in terms of the level of income inequality we have. And I think that’s much more—that’s more closely aligned to what one could consider a natural distribution of income if it were based on talent. In hunter-gatherer societies, anthropologists have calculated that the distribution of wealth was roughly equal to the distribution of income in Sweden today. And so there you have it.
Public Perception of Fairness [24:17]
Bob Zadek: You know, Jonathan, that fact and that analysis, I almost have goosebumps. That is so interesting and so relevant to all of the conversation we’re having today because it’s one thing to complain about the result, income inequality. It’s quite another to say what caused it, because you can’t fix it by simply with the point of a gun taking money from A to give it to B and say we fixed it. That’s Procrustean. That’s cutting off legs or stretching people. It’s almost—it has an air of dishonesty, immorality to it. But what you just taught us is fascinating to me because I would sit here before we had the pleasure of speaking this morning and I didn’t know how to get to the next step. I was opposed to steps that politicians have—these artificial steps of Liz Warren taking from the rich to give to the poor, all that stuff. But I couldn’t in my brain draft exactly why it was so wrong, even while conceding it would be nice if we had less income inequality. And you have like opened the door. There is a way to understand it and to present the issue to the public and to the politicians in a way that since it’s data-driven, it’s not appealing to greed or envy. It’s data-driven. It has me just double my respect for your profession. Thank you so much. That was a fascinating explanation.
And it gets us—it helps us to start to get our arms around the cause and therefore how you fix, if it needs fixing, income inequality. This is Bob Zadek. I’m speaking this morning with Jonathan Rothwell. He’s with Gallup’s principal economist. Gallup is, of course, the worldwide known polling organization. Jonathan has written A Republic of Equals: A Manifesto for a Just Society. And who among us doesn’t want a just society? The subtext is we are talking about income inequality. And when you talk about income inequality, you divide the conversation into two pieces, in my opinion. Number one, is it good or bad or just a fact? And if it is bad, what is the cause? And once you understand the cause, you then can set about fixing it.
So Jonathan, income inequality has—is inherently, it seems to be something bad, something to fix. Well, we don’t consider differences in height to be bad, just a fact. So what is bad about income inequality? What is inherently bad? That is, why does it have to be fixed if it’s only a neutral fact?
Jonathan Rothwell: I would say nothing is inherently bad about income inequality at low, moderate levels. What concerns me about income inequality is when it’s not based on merit and when it’s unfair. So just to put this in perspective, Gallup just partnered with some economists at the Norwegian School of Economics and they conducted a fascinating new study in 60 countries with roughly 70,000 people around the world. And they gave people different scenarios to assess how fair they believed income inequality was in their country and under different scenarios.
In two scenarios, they presented people around the world with a case where a worker performs a task and gets paid $6 US, another worker performs the same task but gets paid nothing. Then they asked, “How much would you give from the worker who performed the task and got $6 to the other one?” And then they had the same scenario, but in this case, the one who got $6 was also—the people were also told that he or she worked harder and performed the work at a higher quality.
In the first scenario, people were willing to redistribute a lot of the money, as you might guess, because it was based—the differences were based on something other than merit. It struck people as unfair that one worker would get $6 whereas another would get zero when they both did the same work. But when they were told that the one who got $6 did higher quality work, they still redistributed a little bit of the money, but much less so.
And so what—the two big conclusions that come from this study for me that are relevant to this conversation are that A, a lot of people around the world think that the current distribution of income in their country is unfair, but B, they believe that compensating people based on merit is fair and they are willing to do so. And so that’s to me the key issue with income inequality. We have to understand that some of it is fair and appropriate and even desirable, while other aspects of it, when it’s based on political power, differences in political power, it’s unfair. And that’s where the focus of public policy should be, in my opinion.
The Failure of Political Rhetoric [32:07]
Bob Zadek: When you say that, it’s like all of these light bulbs are lighting up. And I want to take political figures, shake them, put my hands on their shoulders and shake them and say, “Listen to Jonathan,” and then go into the public, take your megaphone and fix the real problem. Don’t just play into emotions like envy.
Did this poll, this survey that Gallup did—was it hired to do it? Did it do it—does Gallup do these studies out of curiosity, or were they retained by various organizations because the organizations seek to use the data?
Jonathan Rothwell: It’s a mix of both. Gallup has, since George Gallup founded the organization, done polling just for the sake of acquiring information and presenting it to the public in a way to be helpful. But we do that to some extent with what we call the World Poll, which is a survey of a thousand randomly selected people in almost every country in the world that we publish every year. That’s the mechanism through which we partnered with the Norwegian School of Economics, and they received funding from several sources and contracted with us to do this on their behalf.
Bob Zadek: So does Gallup—this information, which to me is astonishingly valuable in the public conversation about income inequality, a topic which is in the news every day and which brings out the worst in people emotionally, and no part of the public conversation seems to be data-driven. And here Gallup has the holy grail, has the data. So anybody who wants to discuss the topic can do so not by appealing to emotions unless they want to, unless that’s their political goal, but if they want to simply do the right thing, Gallup and perhaps other organizations—but we are talking about Gallup and your occupation—is the place to start. Is this information—I’m going to ask one question off-topic for the minute—is this generally available to the public? Does Gallup have an open website where these findings are available to the public, much as Cato does with its World Economic Index? Cato does wonderful work on that subject. Is this generally available or is this proprietary information that one has to buy?
Jonathan Rothwell: So it’s kind of a mix. There’s some information that we post on our website through Gallup News where we summarize the findings of our polling research and we have some data that is publicly accessible on that website where you can track trends over time. For the World Poll, most of that data is not publicly available, though for a fee people can access it, and some universities allow their students and faculty to access it for free because they’ve partnered with us. This new research that I’m describing really just came out earlier this week, and the scholars behind it, who are based in Norway as I said, are going to be using it for academic publications. Some of the findings are going to be summarized on our website and on their websites, but for people who want the data, the raw data, they’d have to pay for it.
The Myth of Corporate Dominance in the 1% [36:00]
Bob Zadek: Now, in your—you study politics as much as you study the data, and your book seeks to motivate people who form public policy to understand the issue and to fix, in this case, income inequality the right way. That’s the purpose of the book itself, is to provide the data so people can understand it. In your opinion as a political observer, if politicians were to say, “I have the cure or a cure or the start of the cure for income inequality, and I can do so without taking from A at the point of a gun merely to do a wealth transfer to B. I can do so in a way that everybody benefits except for those people who have for too long been living in the protection of what amounts to a guild.” Is that a winning political argument as opposed to just taking money from A to give to B, a crass wealth transfer?
Jonathan Rothwell: I think it is the winning political argument, although it’s hard to say that because no politician has made it. But it’s kind of striking that if it were a popular argument, why hasn’t anyone really tried to do this? I mean, arguably there are politicians who aren’t famous who might have this view. It seems to me that a big part of the problem is the primary selection process tends to drive proposals to the extremes.
And so what we have on the Democratic side is a fairly strong distrust of markets and the sense that any kind of income inequality mitigation has to be at the expense of markets and regulating them and controlling them more, which is basically the opposite in many ways of what I’m arguing. And then on the Republican side, it seems that at least in the case of the President, I haven’t heard him talk about the issue of income inequality really, but maybe implicitly in terms of things that he’s said about the struggles of the working class and displaced manufacturing workers, he also seems to put some of the blame on markets in the form of international trade in particular, immigration perhaps.
So I’ve yet to see a mainstream politician really make the kind of argument that I’m making, but I think it would have broad appeal, particularly to independent voters and moderate voters.
Bob Zadek: Well, you pointed out that the President and many others will put—and the word you used was “blame”—will blame income inequality on markets. That’s like blaming markets for making diamonds so expensive. No, it’s not the market. The market only tells you through the price mechanism what something is worth relative to something else. The markets are simply a generator of invaluable information about relative cost. The markets don’t cause something to be valuable or not valuable; that’s a function of our old friend supply and demand. If we have a lot of something, it’s not that valuable. If we have less of something, it’s more valuable. That’s not the market causing it; it’s the amount of supply versus the amount of demand. So to say markets cause it is, as you know, it’s an absurdity. Markets never cause anything to be worth anything; they merely tell you the bad or the good news, what it’s worth relative to something else.
Jonathan Rothwell: Well, I think there’s a lot of truth to that. And one of the surprising things for me as an observer and somebody who studies economics is the focus that we’ve heard on corporations as a driving force behind income inequality. And one of the reasons this is so surprising to me is that, as I document in my book, corporations as a share of national income have really fallen as a source over the last 30 or 40 years, even as income inequality has gone from about 10% of income going to the top 1% to about 20% going to the top 1% from 1980 to the present.
So during this period of rising income inequality, corporations have become less powerful, less important in the economy. And yet we hear almost every day that corporations are the main reason there’s such a divide between rich and poor and their power is out of control. What is left out of that is that there’s been a sharp increase in the percentage of income and the percentage of people in the top 1% who are working for what are called S-corporations or partnerships. These often have one or two owners, they’re not controlled by a huge number of stock holders, they’re not publicly traded, they operate in small local markets, they’re not tapping into multinational markets, they’re not benefiting from globalization in any significant way. They’re often doctors’ offices, the offices of lawyers or real estate agents or hedge fund managers. And yet there’s been very little discussion about why they’re earning as much as they are, and all the discussion has been on Amazon, Facebook, Apple, and other major multinational corporations.
Bob Zadek: What’s so interesting about what you just said—and Jonathan, I can’t tell you, I don’t want this show to end. Every time you speak, I learn such valuable, otherwise unknown to me information. But when commenting upon the extent to which entrepreneurs—that’s a summary of what you just described as S-corps and small business proprietorships and doctors and small offices—what makes them different than Amazon is that these small entrepreneurial businesses have no individual market power. They don’t set prices. They merely try to get the most they can, and if people are willing to pay what they charge, it’s because the customers have determined it’s worth it. There’s no market power whatsoever. So that is as close to a pure market value of what services are worth as you can get. It’s the perfect market because there’s no individual power, there’s no monopoly. They just get the most they can, but what they can get is dictated of what a willing buyer is willing to pay. So that’s so significant, and that shows that capitalism, that free markets are simply—help us determine what something is worth relative to something else.
Solutions: Education and Zoning Reform [44:00]
Bob Zadek: Now, Jonathan, I would like to think and hopefully I’m right that there are a lot of influencers and market leaders and politicians and aspirants for high public office who are glued to their computers and radios listening to the show. We have some time left. What are the lessons you want them to learn so when they go and plead for votes and offer a cure for income inequality, they at least have a data-driven cure? What are the lessons of the book that you will share with all of us, including all of the influencers who are listening this morning?
Jonathan Rothwell: So I would say let’s curb bad income inequality and let’s keep the good income inequality. And so I think there are two organizing principles that we could try to think about implementing in order to do that. One is to provide equal access to public goods and services to a much greater extent than we have now, and the other is to provide equal access to markets.
So on the first part, I think this will be fairly straightforward for people to relate to. We should do as much as we can to provide equality of opportunity. But what I mean by that is not that everybody should have the same genes, everybody should have the same parenting experiences when they’re raised as children, but that the things that are funded by the public, particularly education services, should be provided on an equitable basis. Throughout US history and into the present, we have what I think is a fairly unequal distribution of access to high-quality education services. So I’ve got lots of evidence of that in my book, starting in even in pre-K. African American children and to some extent Hispanic children often living in segregated neighborhoods are assigned to schools where the teachers are objectively not performing as well. This isn’t always the case; there are of course some fantastic teachers working in poor schools and poor neighborhoods. But because of the history and present reality of segregation, which is itself caused by government regulations in the housing market through zoning and other aspects of government regulations that emerged during Jim Crow, because of that legacy and that reality, access to schooling, which happens through the neighborhood, is still highly unequal. So we need to do a better job in making sure that high-quality services are provided to people living in those neighborhoods, and we need to break down the artificial barriers that keep people in segregated neighborhoods—I think the most important of which are zoning laws that make it illegal to build anything other than a single-family home on a large lot in many of the richest neighborhoods in the country.
So that’s one thing we can do better as a society in terms of providing equality of opportunity, particularly through public services. The other thing, which I would emphasize and we’ve discussed already to some extent, is the equal access to markets portion of that. And so one of the important ways that we don’t have equal access to markets is through the housing market, and that causes a huge number of problems. One way to think about this is some people think like zoning laws could be compared to an airline offering a first-class ticket and a coach ticket, but that’s not really what’s happening. It’s more like the local governments prevent an airline from even flying. Because what they say is that even if you—say you’re a rich homeowner living in an affluent neighborhood and you’ve got 10 acres and you would love to sell this to a developer who could build an apartment complex on this land and you could make a fantastic amount of money because the number of people living on this land would support a very high flow of rental income that you could benefit from—you’re prohibited in almost every rich neighborhood in the country from selling your property to a developer who would turn it into apartment building because of zoning laws. So that’s a mutually beneficial exchange that is not allowed, and it’s not allowed because homeowners associations have some influence and control over local zoning processes. And there are, I think, historic reasons that are unsavory that explain why the US is very extreme in how it regulates housing compared to other countries and we have greater economic and racial segregation as a result.
So this is something that’s bad for poor people who would like to live in better neighborhoods, but it’s also bad for everybody because it creates higher housing prices, particularly in big cities. So doing away with those laws would be a very important first step to allowing greater participation, more equitable participation in markets. And then the other reforms are some of the ones we’ve emphasized where I would try to take power away from the associations that control who provides professional services. A lot of those regulations are at the state level, but there are a few at the federal level that I’d like to discuss as well.
Bob Zadek: With apologies to my audience because I know they’ve already realized this, what you have really said in almost every syllable of your remedy is two things. I would summarize it in two ways. Number one, it is reforming governmental action in order to cure income inequality, which means you don’t have to fix the immediate problem of taking from A just to give to B, which kind of sounds immoral to me. And number two, it is—you’re saying the markets are the solution to the problem, that allowing access to markets, which is the phrase you used, will in and of itself be a great stride in curing income inequality. Let the market solve the problem itself without the need to do wealth transfers, which have a sense of immorality to it.
Jonathan, we have regretfully run out of time. I have learned so much in this hour. I want to come out to your house, spend a day just sit there and have you teach me, and along the way I will use a few minutes to explain why getting rid of all licensing, including doctors and lawyers, is a good thing. But we’ll leave that for another day, Jonathan. Jonathan, thank you so much for your time and for your wisdom and for writing the book, a must-read by all political figures running for office if they care about income inequality. Jonathan, thank you so much.
Jonathan Rothwell: Bob, it’s been a real pleasure. I appreciate this opportunity to talk to your audience.
Bob Zadek: Thanks a lot. Bob Zadek saying so long to Jonathan for the moment and so long to all my friends out there. We’ll be back again next Sunday. Have a good weekend.