Inequality: Confusing the Issue
March 22, 2011
Mark D. White
The topic of today's "Room for Debate" feature at The New York Times is inequality, prompted by a recent paper by Mike I. Norton and Dan Ariely that shows a large number of Americans would prefer to live in a society with a more equitable distribution of wealth (like Sweden). Norton himself starts the discussion, followed by Tyler Cowen, and then five other notable figures.
Norton's point in the debate (and, to a lesser extent, in the paper with Ariely) is that Americans underestimate the degree of wealth inequality in the US, lulled into a false sense of security by easy credit (which ended several years ago) and unrealistic beliefs in social mobility (according to the authors), and therefore oppose policies such as redistributive taxation that would lessen the gap between rich and poor.
Cowen offers some alternative explanations for the survey results, such as that people don't compare their well-being to Bill Gates and Michael Bloomberg, but instead to their neighbors and peers, so they don't grasp the full extent of wealth inequality. Also, many people who aren't at the top of the scale nonetheless live very well, so they aren't concerned as much with how they compare to the super-rich (and they likely compare very well to the superrich of previous generations in terms of standard of living). He comes close to the real issue when he says that people distinguish between earned and unearned wealth rather than simple, raw numbers, and some people realize that they have not earned the higher standard of living that innovators like Mark Zuckerberg have). In other words, it is not the simple fact that the wealthy earn more, but a sense that they don't deserve it, that drives envy and resentment.
And this leads to the real issue with inequality, which is completely glossed over in Norton and Ariely's paper and Norton's commentary in the Times. It is not the pattern of wealth distribution that people care about, but the process by which it results. Fine, the wealthy have more--but did they earn it? Was the game rigged? Or did they compete fair and square? Any opinion on this is valid, and good arguments have been made on both sides, but this is the real issue with inequality: process, not outcomes.
At the end of his piece at the Times, Norton says:
My colleagues and I are now exploring whether educating Americans about the current level of wealth inequality (by showing them charts and pictures) might increase their support for policies that reduce this inequality. In addition, we are assessing whether different forms of redistribution – for example, raising the minimum wage, or longer term interventions like reducing disparities in education – are less likely to evoke heated opposition, and perhaps increase advocacy for greater wealth equality.
But even if people do recognize the true nature of wealth inequality, that does not imply that they will automatically support redistribution, which changes the end result without addressing the core problem with the process that generates it. Raising the minimum wage is redistribution, but reforming education is process reform; this difference needs to be appreciated. People may believe the system is unfair, but they may believe that increasing the progressivity of the income tax (for example) is unfair also, even if it might reduce wealth inequality. They want an even playing field, not one riddled with redistributional wankery. (We already have the U.S. income tax code, thank you very much.)
To put it simply, people want a fair system, which will generate (by implication) fair results. (Note that I haven't specified what system people "should" think is fair--mine is a more general point, and is open to many different interpretations regarding what is fair and is the U.S. there.) It is irrelevant whether people favor the current pattern of wealth distribution--do they think the process is fair? If they don't, that is what they will want to change. And if they do think it's fair, that would explain their reticence to introduce policies that limit its operation, regardless of the inequity of the results.
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