Arnold Kling

Envy, Happiness, and Social Policy

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Freeze - Statistics Police!... Tax Reform...

Brad DeLong serves,


I'm enough of a touchy-feey sociology-lover to believe that a good chunk of the utility the rich derive from their conspicuous consumption is transferred to them from the poor: the happiness America's working poor and middle class derive from the compensation distribution--given their compensation, the compensation of the rich, and the lifestyles of the rich and famous--seems to me to be certainly less than that of their counterparts back in 1973.

The easiest and most important thing the government can do to neutralize the adverse consequences of rising inequality is to make the tax system more progressive, not less. A reality-based government would react to growing pretax inequality by taxing the rich more, and subsidizing the poor more (through policies like the EITC) as well.


Megan McArdle volleys,

Beauty, like wealth, is relative--it benefits its possessor only insofar as they are lovelier than the women, or handsomer than the men, around them. Presumably, if we disfigured all the good looking actors in Hollywood...Just think how happy America could be made if Cindy Crawford had saddlebags and a squint.

...why is this so much more horrifying than the idea of taking the fruits of people's labours--most of which were gotten fairly honesty, by dint of hard work and delayed gratification


Point Megan. Read her whole post.

Rather than beauty, I like to use the example of height. Should we try to improve social equality by doing things to tall kids to stunt their growth? Hear, hear. Comes the revolution, Tyler Cowen and I will make all-state in basketball.

While we're on the subject, Megan is rather tall. Height and intelligence were recently found to be positively correlated. She thought that finding deserved a blog post. I did not. Neither did Tyler.


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TRACKBACKS (12 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/555
The author at Cafe Hayek in a related article titled Status Won't Go Away writes:
    Alex, Arnold, Greg, and Megan each mention solid reasons for questioning the wisdom of reducing envy by taxing the rich and giving the proceeds to the poor. (Brad DeLong recently offered such a proposal.) It bears repeating that monetary wealth [Tracked on September 3, 2006 4:17 PM]
The author at Economic Investigations in a related article titled In Defense of Conspicuous Consumption writes:
    Let me recapitulate the recent discussion regarding the alleged pleasure (NOT utility) “the rich” obtain from showing the poor what they can’t afford. Lyndon Johnson, Yes. William Jennings Bryan, No., Prof. DeLong’s original pos... [Tracked on September 3, 2006 5:26 PM]
The author at Club for Growth in a related article titled Feeling Spiteful? writes:
    There's a fun discussion going on in the academic corner of the blogosphere this weekend. The topic is spite. Are poor people envious of the rich, or vice versa? If so, should public policy address the concerns? The discussion first started on Friday m... [Tracked on September 4, 2006 4:56 PM]
The author at Acton Institute PowerBlog in a related article titled Wealth, Envy, and Happiness writes:
    In the modern classic Tombstone, Wyatt Earp, played by Kurt Russell, asks Val Kilmer’s Doc Holliday why the sinister Johnny Ringo is so evil: “What makes a man like Ringo, Doc? What makes him do the things he does?” “Why, Johnny Ringo! You look [Tracked on September 5, 2006 10:12 PM]
COMMENTS (23 to date)
mcwop writes:
On the other hand, I'm enough of a touchy-feey sociology-lover to believe that a good chunk of the utility the rich derive from their conspicuous consumption is transferred to them from the poor:

Can someone explain this to me in more understandble terms?

The easiest and most important thing the government can do to neutralize the adverse consequences of rising inequality

What are the adverse consequences? Envy? Jeoulousy? How do you outlaw thought? And who really believes that more taxes will somehow make those with lower income feel better?

It seems that Kurt Vonnegut was all too prescient when he wrote Harrison Bergeron. I nominate Brad Delong to head the new Department of Handicapper General.

Brad Hutchings writes:

Things are worse with DeLong's argument than they appear. If you could somehow ask DeLong to figure out the optimum level of taxation for this economy, with an optimal budget and deficit/surplus, then ask him to distribute taxation fairly so as not to overly punish success, but do it "in a knowledge vacuum".... what would happen if it suggested raising taxes on the poor or lowering taxes on the rich, or some combination of rearranging the tax burden that ends up being fairly wealth-neutral? The problem with a populist approach is that DeLong would then be accused of raising taxes on the poor or giving tax cuts to the rich, because the political argument is not about what's more optimal or more fair, but about who the derivative affects and how.

Politically, the only way to justify cutting taxes for wealthy people is to argue what has become the supply-side view. Sometimes it holds up and sometimes it doesn't. Justifying soaking the rich simply requires increasing spending (and resulting deficits) and a little class envy.

I wish there were some way to change the debate toward actual values and away from deltas. Well, there is by replacing income taxes with a national sales tax (or even a VAT), but that's just a libertarian's fantasy at this point.

Patri Friedman writes:

The classic on this subject is of course the SF short story "Harrison Bergeren".

My take on it from awhile back was |Big Breasts|, which is the most popular archived post on Catallarchy, due to it being in the top 10 on search results for "big breasts" and similar searches.

I think this is a very interesting topic - and one that won't go away.

Humans are social animals with an evolved desire for high status, and a resentment of those of higher status. In hunter gatherer societies, the primary social ethic is equal 'sharing' - in which the majority gang-up to demigrate anyone who seems likely to become too dominant.

But inequality is vital to modernizing societies for all kinds of reasons - some to do with efficiency, and others to do with inevitability and the Hayekian argument that any 're-distributor' of wealth/status powerful enough to do the job is also powerful enough (and motivated) to favour themselves.

So I would say - yes! inequality leads to misery of the have-nots (although the size of inequality may be much less important than other factors); but no! we should not try to amelioriate this by redistribution.

This is just one of the many intractable trade-offs that modern humans have-to 'work around'. One work-around is that modern societies like the USA are so individualistic that we can plausibly regard ourselves as unique, and therefore (in an ultimate spiritual sense) the best at whatever we are - I personally find this a consolation... ;=)

Tom West writes:

A few points:


  • The suffering caused by inequality is quite real, and it shows up in primates as well. It's part of our evolutionary make up. Saying we should ignore it is hopeless. (Note: this is not the same thing as saying we must make policy decisions to alleviate it)
  • There is a tradeoff between equality and growth (to a certain point: too much inequality can hurt growth).
  • We live in a democracy. When the suffering caused by inequality exceeds the perceived benefits of greater growth you are likely to see a drive towards far more draconian redistributionist policies than smaller steps taken to prevent us from reaching that state. Removing the redistributions that occur now (as is advocated by many on this board) would certainly re-ignite that drive.
  • The benefits of redistribution are to society at large. One of the things that is rarely talked about it the fact that a huge differential in status (in modern terms, wealth) is that those without status are perceived as less human. Modern western society is based on a concept of basic human equality, but that concept of equality is almost impossible to maintain in the face of huge status differentials.
  • It's no coincidence that societies with huge status differentials (the US is not anywhere near there yet) rarely respect human rights. For those in power, it is difficult to conceive of the lower status individuals as deserving of those rights. Increasing inequality by removing redistributionist policies currently in place may well have the unintended consequence of eventually degrading the rights that we see as essential to all members of society (police protection, access to government, voting rights, etc.).

    Worrying enough, we do see some of the beginnings of that in American society (gated communities and the like).

  • One thing that I've noticed about Libertarians is that they assume that power would naturally concentrate in hands that have Libertarian leanings. I've not seen any evidence of that in real life. Wealth (=power) may initially concentrate in the hands of those who believe that the government must be level playing field, but history provides fairly solid evidence that when power is concentrated in the few, those few (within a few generations) inevitably protect themselves using the tools of government. Consider it the flipside to point 3. I don't think a strongly Libertarian government is a stable equilibrium.
  • It's quite possible that such an understanding motivates the actions of Messrs. Gates and Buffet.

    Mcwop writes:

    Tom, what exactly is the suffering caused by inequality? I sincerely want to know.

    mcwop writes:

    My other question, which I posed at Brad Delong's site (and was summarily deleted), is that why does government policy have to be the mechanism to deal with income differences?

    I used Wal-Mart for example. If people have a big problem with WM, then why not compete with it. Form an alternative company that pays high wages, provides great benefits, encourages unionization etc... It could be made non-profit, which enables it to offer low prices.

    Their marketing plan could be "Shop with us we treat our employees right." Their high wages should steal labor from WM. Consumers can choose the better store. Some stores do this to a certain degree - Whole Foods, Starbucks.

    But, that would be too difficult, to some it seems much easier to use the heavy hand of government, which does not always get the intended results.

    dearieme writes:

    You are not the first to report some ancient result from psychology and brand it "recently found". Does economics also keep rediscovering old truths? Or indeed untruths?

    David N. Welton writes:

    McWop: the "suffering caused by inequality" is a reference to studies that have shown that, under certain conditions, people prefer to get smaller, equal rewards rather than get a larger reward that is, however, less than that given to another participant in the study. Here's the first thing I found on google, which cites other studies:

    http://www.hbs.edu/research/pdf/06-033.pdf

    My other question, which I posed at Brad Delong's site (and was summarily deleted)

    Yeah, ha ha, Megan better watch out what she's suggesting to DeLong. Given his penchant for conspicuous consumption of intellectual resources, and his obvious hatred for anyone who might demonstrate to him that he isn't as smart as he thinks he is, he might be open to taking his 'delete button' to a wider population.

    dearieme writes:

    If you don't much care for the fellow, Patrick, might I suggest that you refer to him in future as Broad DeRound? We might succeed in making it fashionable.

    Tom West writes:

    Mcwop asks for examples of suffering caused by inequality. Mr. Welton kindly provided a general answer about refusal of low status rewards.

    This is one good example, however, I was referring to the health effects of low status individuals. Here is an example of a study indicating that from a health perspective it is better to be high status in a poor country than low status in a wealthy country even when your absolute wealth is greater in the latter case.

    From the wikipedia article on population health: Lower socioeconomic status has been linked to chronic stress, heart disease, ulcers, type 2 diabetes, rheumatoid arthritis, certain types of cancer, and premature aging.

    The article is worth reading as an indication as to the costs in inequality on low status individuals. Of course, it doesn't cover the cost of complete equality in what would otherwise be high status individuals :-) Of course, you don't want to the take the article as absolute gospel, but it pretty much summarizes the generally accepted wisdom (except among the "any suffering due to inequality is attributable solely to character flaws" crowd).

    As an aside, you can find an example with *primates* refusing smaller rewards than their peers here. The health effects of low status (elevated cortisol levels, etc.) have also been observed in primates. The aversion to inequality has been around for a *long* time.

    As usual, the human solution towards redistributionist policies is somewhere in the middle (as opposed to the philosophical solutions which tend to cluster around either end and fail :-)).

    liberty writes:

    Brad: "I wish there were some way to change the debate toward actual values and away from deltas. Well, there is by replacing income taxes with a national sales tax (or even a VAT), but that's just a libertarian's fantasy at this point."

    -- Sadly, as soon as anyone suggests such a tax the debate becomes about how "regressive" the sales tax is, using static state models that assume away the actual effects of the change in the tax policy (greater economic growth). Hence the debate on that side never changes - its always socialist rhetoric and broken models as support.


    Tom: "There is a tradeoff between equality and growth (to a certain point: too much inequality can hurt growth)."

    How can inequality hurt growth? I have never heard a satisfactory explanation of that, nor a shred of evidence. The greatest inequality in the western world was probably pre-industrial revolution, and once private property was protected and markets could begin to flourish - but before they had created the great wealth for the masses - inequality was the gulf between barely subsistance, at a level unimaginable today (a shack with no utilities, no water, no heat, nothing, and meager rations of farmed food) and kingly wealth among an elite few. Yet, that was the starting point of the greatest economic growth in history -- and longest lasting. Unimaginable growth year after year, during which time we built the amazing standard of living that we have today. So, its actually pretty absurd to propose that inequality could stunt growth.

    "It's no coincidence that societies with huge status differentials (the US is not anywhere near there yet) rarely respect human rights."

    You are doing the typical liberal thing of conflating "inequality" seen in societies that do not protect property and free markets with inequality in those that do. There was great inequality under communism too you know, though not on the books. In a feudal society with serfs you have inequality - enforced by government; in a free market you have inequality - and free mobility between the different income levels. The two have nothing in common. Most of the "poor" in America today are young; the median income of those in theri 30s and 40s is about $60,000/yr. The minimum wage jobs are mostly filled by 16-25 yr olds. etc.


    "One thing that I've noticed about Libertarians is that they assume that power would naturally concentrate in hands that have Libertarian leanings. I've not seen any evidence of that in real life. Wealth (=power)"

    Wealth != power. Without government intervention, wealth can only buy you things - not power. You can have some dominance in markets using your wealth -- the Bill & Melinda Gates foundations has influence in the international medical arena, for example; along with corporate power in markets - but its *transitory* and *incomplete*. Bill Gates cannot force you to take his Malaria drugs, he can't force you even to buy Windows, and as soon as Apple or IBM or Red Hat comes out with something good enough to win over customers, Bill loses some of his market share. To concentrate power among the rich, a society must allow wealth to influence laws, and that means a non-free market where a rich businessman can get laws passed to destroy his competition -- the exact thing that libertarians are against.

    Libertarians don't have to assume that the power will be in libertarian hands (the way that the communists, for example, do have to assume the power they want to see centralized must stay in communist hands) because they want to see power distributed across the market and not conglomerated and always dynamic.

    Tom West writes:

    So, its actually pretty absurd to propose that inequality could stunt growth.

    Um,. I think you're the first person who I've encountered who called the middle-ages "high-growth" :-).

    Wealth != power. Without government intervention, wealth can only buy you things - not power.

    There is no way of building a society that cannot be manipulated by those living in it. Thus, you cannot protect a society against itself. Wealth is power and pretty much always has been. When inequality reaches a certain point, both the winners and the losers have an interest in changing society rather than allowing it to continue in its present form. The former to cement their success permanently, the latter to seize what they cannot get otherwise.

    It is folly to assume that you can build a society that can be proof against the power of wealth by abolishing government power. You can only build a society in which it is in the interests of the powerful to maintain. I'd say Western society fits that bill pretty well. But do you think that the same could be said of the entrenched elites of many other countries? In those countries, the level of inequality is *so* great that were the playing field made level, they could not do anything but decline. In such fashion does massive inequality beget manipulation of the government. (And the present is powerless to stop future government from making itself bigger to suit those in power.)

    We cannot control the future. We can simply build the present to make the future we would like to see more probable.

    liberty writes:

    "Um,. I think you're the first person who I've encountered who called the middle-ages "high-growth""

    Who said anything about the middle ages? I was talking about the start of capitalism, the middle ages were anything but capitalist. I'm talking about the start of the industrial revolution, eg 1700s-1800s, when private property began to be protected and there was silmultaniously a huge spurt in growth -- even while there was great inequality.


    "It is folly to assume that you can build a society that can be proof against the power of wealth by abolishing government power."

    Are you saying it was folly for our founding fathers to attempt to limit the power of government? They recognized that man was only free if governmental tyranny was strictly limited. They understand that a small government, restricted by a strong constitution - could allow men to be free to pursue their own interests, rich and poor alike. That only such a limited government and free society, with rights such as property protected, would allow men to be free and not held captive by those who seek power, and allow men to prosper, for poor men to become rich.

    It is not folly - it is folly to assume that giving government more power to regulate men will help men; rather only the constitutional limits on the power of government will allow men to be equal.

    Tom West writes:

    I'm talking about the start of the industrial revolution

    My mistake. I'm not really familiar enough with the politics of that era to comment meaningfully...

    Are you saying it was folly for our founding fathers to attempt to limit the power of government?

    It is folly to assume that the existence of the constitution is proof against future manipulation. If the constitution of the USA was deemed to no longer be in the interests of the majority those who held power in society, how long to you think it would last?

    Limitations on governments last as long as it is in the interests of those holding power to see those limitations enforced. In modern Western societies, that has been generally the case. (Conspiracy theories aside, there's really not been any real incentive for those in power to take the steps necessary to mangle the constitution.)

    My thesis here is that such a limitation of government power would not be in the interest of those holding power if wealth became extremely concentrated in the power of a small number of people (think Russian Oligarchs, for example).

    liberty writes:

    Tom,

    Sure, thats why they have been expanding government power since the 1930s, and mangling the constitution in order to so. And this is what libertarians are against.

    (-_-) writes:

    I have onequestion: How do the rich become rich?

    Aside from inheritees, the rich become so by having a market accept their products. Thus, both the consumer and producer benefit. To prevent any sort of Zero-sum thinking (or atleast zero sum thinking in practice) one must say that no one loses money or gains money in a consumer-producer relationship. It is but a trade-- product, for the currency equivalent to that product. This trade is deemed favorable from both sides, and thus the transaction made.

    I have a feeling that most people lashing out against the wealthy fail to see this, and hurt the innocent-bystander consumer.

    Sean writes:

    Why I am not economically left-wing, part 1:

    Leftish economists seem to want us to return to a 1973 (yes, it is *nearly always* that fateful year) "utopia" that, of course, never existed. The fact that to return to the "optimal income" conditions of that glorious epoch would entail a regression in terms of today's relatively dynamic, higher-level "knowdledge economy" seems irrelevant. Yes Brad DeLong et al may feel better about being relatively wealthy and having "more than they need" but at what price?

    And why not just enact a voluntary tax? After all if federal government transfers are the best way to cure poverty then this would be the best way to show true, elective (rather than a falsely forced) solidarity with the starving proletarian bretheren that are the low income earners of the United States. Plus if Brad can convince enough of his richer friends to do it the voluntary tax itself might become a status signal.

    Dezakin writes:

    And why not just enact a voluntary tax?

    Basic game theory. You can contribute to whatever charity you want and while you squander your wealth, your competitors are spending theirs cementing their power and buying influence.

    The real problem with income inequality is counterintuitively, it causes government growth. Business interests able to afford lobbying campaigns secure special tax breaks, government pork contracts, etcetera. Those on the left propose bad solutions, while those on the right pretend there isnt any problem at all.

    Tom West writes:

    Sure, thats why they have been expanding government power since the 1930s, and mangling the constitution in order to so.

    Actually, I'd say that the growth of government is in response to what the society as an aggregate has desired. Those in power still more or less represent the will of the people.

    I'd have to argue that modern society and government might be horrifying to the founders, but it fairly well represents the wishes and desires of the majority at present. In essence, the founders don't get to dictate policy to their descendents, but they do get to influence it. And to that extent they've succeeded. For better or worse (depending on point of view), the USA is quite distinct from the rest of the Western powers in its individual freedoms and (relative) lack of government intervention.

    Tom Schofield writes:

    liberty was the first to use the word "mobility" in this exchange and it did not appear until the discussion had gone on for some time. (His construction was "free mobility" rather than the more usual phrase "social mobility".) Isn't this the concept that is credited with preventing class warfare in the U.S.? Supposedly, we do not take up arms when we learn that the CEO of Valero Oil was paid more than $95 million for his efforts in the single year 2005 because we assume - or hope - that someday we too will be paid outrageous sums for our own contributions. Recent studies indicate the the U.S. has slipped badly in the world ranking of mobile societies. When the general public wakes up to this sorry fact the subject under discussion may well assume more than academic interest. School vouchers, anyone?

    liberty writes:

    Tom Schofield:

    Thats "her" btw. But, as to slipping in the mobility department, this isn't true. There are two distinct ways of tracking economic mobility - one is often referred to as "social mobility", the other "income mobility". But you'll see why the former is not very meaningful in a free market.

    Social mobility is measured by tracking the longitudinal incomes (and social status if you like) of a group of people and then comparing their end results against *each other*.

    Income mobility is measured by tracking the longitudinal incomes of a group of a people and then comparing their end results against *society* and against their beginning results.

    Here is the difference: lets say you have a group of highschool students including some with poor parents, some with rich parents and some from the middle class. You track them and their end results are roughly in the same order (the rich kids end up richest and the poor kids poorest) but they all earn in excess of $80k. Maybe one rich kid is a millionaire but the others earn about the same as the middle class kids and the poorest kid works for a non-profit so thats why he only earns $80k. In this scenario, you will be said to have 0% social mobility.

    Meanwhile, if all those kids ended up earning about $30k, some a bit above and some a bit below, roughly random order, you would be said to have huge social mobility; but the reason you got those results was because the economy was so stagnant that it didn't matter how you started out or how hard you worked or what education you had - there were only $30k jobs to be had. You have so much social mobility that you cannot predict where people will end up, but in truth you can predict the income if not the order-- its gonna be about $30k.

    In this country we have great income mobility. Most people start out earning a low income in their twenties, and by the time they retire they earn a very high income. People move across several income quintiles in their lifetime - compared with society at large they are able to do very well, they are very mobile. Much more so than nice socialist countries like Sweden, where everyone earns $30k.

    More on this topic here:
    http://economicliberty.net/mobility_stats.htm

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