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Inequality and the Pandemic, Part 1: Luck

Summary:
Here’s an extract from my contingent* book-in-progress, Economic Consequences of the Pandemic commissioned by Yale University Press. Comments and compliments appreciated, as always. The Covid-19 pandemic has taught us several things about inequality, or rather, it has dramatically reinforced lessons we, as a society, have failed to learn. The first is the importance of luck in determining unequal outcomes. Some of us will get Covid-19 and die or suffer lifelong health consequences. Others will lose their jobs and businesses. Many, however, will be unaffected or will even find themselves better off. Some of these differences may be traced to individual choices that are sensible or otherwise, such as deciding whether to wear a mask in public places. But mostly they are a matter

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Here’s an extract from my contingent* book-in-progress, Economic Consequences of the Pandemic commissioned by Yale University Press. Comments and compliments appreciated, as always.

The Covid-19 pandemic has taught us several things about inequality, or rather, it has dramatically reinforced lessons we, as a society, have failed to learn. The first is the importance of luck in determining unequal outcomes.

Some of us will get Covid-19 and die or suffer lifelong health consequences. Others will lose their jobs and businesses. Many, however, will be unaffected or will even find themselves better off. Some of these differences may be traced to individual choices that are sensible or otherwise, such as deciding whether to wear a mask in public places. But mostly they are a matter of being in the wrong (or right) place at the wrong (or right time).

Moreover, this isn’t specific to the pandemic. From the moment we are born, luck plays a critical role in our life chances. Our families may or may not be in a position to help us succeed, and may or may not hold together through our childhood. Moreover, this isn’t specific to the pandemic. From the moment we are born, luck plays a critical role in our life chances. Our families may or may not be in a position to help us succeed, and may or may not hold together through our childhood. A child born into the bottom 20 per cent of the US income distribution has only a 4 per cent chance of ending up in the top 20 per cent. The opposite is true at the other end of the distribution with the striking exception of Black children, especially boys.


These facts have been known to social scientists for decades. Yet until recently, in the face of glaringly unequal outcomes, most Americans comforted themselves with the idea that the United States was a land of opportunity where everyone who worked hard had a fair chance of doing well. This was true a century ago, but now there is more mobility between economic classes in European countries than in the US.

That’s not to say everything in Europe is rosy. Piketty examined the UK and France as well as the US and found growing inequality in all three. It seems likely that other European countare are on the path towards what Piketty calls a patrimonial society, where inherited wealth is the most important determinant of success.


Luck doesn’t end with the lottery of family background. Young people who enter the labour force during a recession will experience permanently reduced life chances compared to those who enter during a boom. And at an individual level, lucky or unlucky breaks of various kinds are much more important than many of us like to believe. Robert Frank provides detailed evidence in Success and Luck: Good Fortune and the Myth of Meritocracy.

The pandemic has reinforced this lesson in the most brutal way possible. As is usual, the poorest members of society have been most exposed both to the risk of death and disease and to economic hardship. But everyone is vulnerable, and it is a matter of chance whether any of us gets infected, and whether the consequences are harmless, severe or fatal. Similarly, exposure to economic damage is largely random, depending on the way in which the pandemic affects different industries and regions.

The randomness of economic success implies that concerns about the incentive effects of high taxes on those at the top of the income distribution are misplaced. If the lucky winners in the economic lottery are discouraged from working (something unlikely to happen on a significant scale until marginal tax rates exceed 70 per cent), there are plenty of unlucky runners-up who can replace them.

  • Contingent because I’m writing on the assumption that Biden wins the US election, and takes office. While a Trump win would be an object lesson in the importance of luck, it would render any commentary on responses to the pandemic pointless as far as the US is concerned and would have drastic consequences for the rest of the world for which I have no analysis to offer at the moment
John Quiggin
He is an Australian economist, a Professor and an Australian Research Council Laureate Fellow at the University of Queensland, and a former member of the Board of the Climate Change Authority of the Australian Government.

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