In a prior blog post on privileges and incentives, I argued that thinking about “privileges” as a source of unfairness in society is not a very helpful construct. This is part of a more basic belief I have: namely, that inequality is not that important.
I’ve always believed that, from a public choice perspective, making everybody better off is better even if it comes at the cost of increased inequality. Surprisingly, I have found that many intellectuals and scholars have often taken opposing views. So, it was a pleasure for me to spot, earlier this week, a policy analysis by Will Wilkinson at the Cato Institute that looked at some aspects of income inequality and came to conclusions somewhat similar to my intuitions.
What do people want?
It’s always good to ask whether people prefer a more unequal, richer society to a more equal, poorer society. One philosophical framework I’m aware of that addresses this is as follows: if a worker agrees to an increase in her income with a simultaneous increase in somebody else’s income of a much greater amount, would she accept? In other words, would a worker trade higher income for more inequality? If she would, then she cares more about equality than about her absolute wealth. If she wouldn’t, then she cares more about her absolute wealth than about her inequality.
Do people make these kinds of choices? At the atomic level, in the marketplace, we see such choices being made every day. A poor person buys a product from a rich corporation, making the corporation and its major shareholders richer and making herself “poorer” in financial terms (though presumably richer in material terms because of possession of the product). Such a purchase may result in an increase in inequality. People often choose to work for richer employers who offer better wages than poorer employers, thus increasing profits for the richer employers and possibly widening the gulf between the rich employers and the poor employer.
As Wilkinson’s Cato Institute paper points out, people’s viewpoint on progressive taxation often runs counter to their own financial interest. Wilkinson points out that people earning over $200,000 were more likely to vote for the “increase-taxes-on-the-rich” candidate Barack Obama in 2008 than they were to vote for John Kerry in 2004. This suggests an interesting possibility (not suggested by Wilkinson):
Poor people may prefer more inequality if it allows them to improve their absolute standard of living. Rich people may prefer more equality even to the detriment of absolute standards of living, because they are rich enough to have time to worry about social issues like inequality.
I’m not claiming that this possibility is true or that there is strong evidence for it, but it may well have a partial ring of truth. So-called “intellectuals” I have encountered both in India and in the United States (most of them reasonably well-off) denounce the significant inequalities in wealth and income, and the hypocrisy of the rich. But other poorer people seem much less concerned about the huge wealth of people like Bill Gates, since they are more keen on improving their financial position. This anecdotal evidence makes me suggest, tongue-in-cheek, that the best way of eradicating inequality is to ensure that there are enough rich people, or perhaps a few super-rich people, who have the luxury to think about issues of inequality.
Wired for equality?
There has been much recent literature on prosocial behavior. Prosociality is the trait by which people often deprive themselves in order to uphold some moral principle rooted in social welfare and justice.
A typical example of prosociality is the “ultimatum game” with two players. One player is given some money and is asked to decide how to distribute it among the two players. The other player can then either agree to the distribution or disagree. If the second person agrees, the money is distributed. If the second person disagrees, neither player receives money.
