Some readers might be interested in this post/article just published in Nature – Human Behaviour. The title is “Why People Prefer Unequal Societies” (a slightly misleading title), and the main findings are:
Drawing upon laboratory studies, cross-cultural research, and experiments with babies and young children, we argue that humans naturally favour fair distributions, not equal ones, and that when fairness and equality clash, people prefer fair inequality over unfair equality.
Figure 1: Income inequality in Europe and the United States, 1900–2010.
Figure 2: The actual US wealth distribution plotted against the estimated and ideal distributions across all respondents:
Figure 3: Percentage of children earning more than their parents, by birth year.
9 replies on “Why people prefer unequal societies”
Back to the Future!
A Cooperative Species: Human Reciprocity and Its Evolution
Samuel Bowles & Herbert Gintis
Why do humans, uniquely among animals, cooperate in large numbers to advance projects for the common good? Contrary to the conventional wisdom in biology and economics, this generous and civic-minded behavior is widespread and cannot be explained simply by far-sighted self-interest or a desire to help close genealogical kin.
In A Cooperative Species, Samuel Bowles and Herbert Gintis–pioneers in the new experimental and evolutionary science of human behavior–show that the central issue is not why selfish people act generously, but instead how genetic and cultural evolution has produced a species in which substantial numbers make sacrifices to uphold ethical norms and to help even total strangers.
The authors describe how, for thousands of generations, cooperation with fellow group members has been essential to survival. Groups that created institutions to protect the civic-minded from exploitation by the selfish flourished and prevailed in conflicts with less cooperative groups. Key to this process was the evolution of social emotions such as shame and guilt, and our capacity to internalize social norms so that acting ethically became a personal goal rather than simply a prudent way to avoid punishment.
Using experimental, archaeological, genetic, and ethnographic data to calibrate models of the coevolution of genes and culture as well as prehistoric warfare and other forms of group competition, A Cooperative Species provides a compelling and novel account of how humans came to be moral and cooperative.
http://press.princeton.edu/titles/9474.html
Not sure how this squares with the thinking of US ‘scholarly community’. The underlying Wall Street ethos doesn’t give a damn whether inequality is fair or not: http://www.msn.com/en-us/money/markets/opinion-how-harvard-flunked-economics/ar-BBztobj?li=AA4Zjn&ocid=spartandhp
An interesting critique of the Chetty study which shows a falling share of US 30-year olds earning more than their own parents at the same age: (https://www.cato.org/blog/misconceptions-raj-chettys-fading-american-dream)
“First: Incomes were extremely low in 1940, so it was quite easy to do better 30 years later.
Second: Doing better than your parents is not defined by your income at age 30, but by income and wealth accumulated over a lifetime (including retirement).
Third: A rising percentage of young people remain in grad school at age 30, so their current income is lower than that of their parents at that age but their future income is likely to be much higher.”
and….
“Finally, switching to the Third point, a large and growing share of college grads now remain in graduate school past age 30, so (unlike their parents) they have little or no earned income. That would have been quite unusual at age 30 in 1940-80. The “average graduate student today is 33 years old. Students in doctoral programs are a bit older.” Grad students have low current incomes at age 30, but high lifetime incomes.
An Urban Institute report finds “The share of adults ages 25 and older who have completed graduate degrees rose from eight percent in 1995 to 10 percent in 2005, and to 12 percent in 2015, growing from 34 percent to 37 percent of individuals with bachelor’s degrees.””
The authors point to studies that indicate that in peoples’ “ideal” distribution of wealth the top 20% would have three times the wealth of the bottom 20%.
One of the most important determinants of wealth inequality is something we have no control over: time.
Here is the distribution of wealth by the age of the household head for the 2013 survey undertaken by the CSO:
64 32.3%
The first and last categories each make up 20% of the sample. As can be seen the wealth difference between the top 20% and bottom 20% of households by age is more than nine times.
Is there any reason why we would want these groups to have equal wealth or even for the difference to be reduced to three times as suggested by the “ideal” distribution? Why would we want to transfer wealth from those who are retired (or those in the other categories) to those who are in their twenties? Why would we expect those who have had limited opportunity to accumulate wealth just by reason of age to have wealth?
The question the authors should have asked is not why peoples’ “ideal” distribution differs from complete equality but why this “ideal” is so absurd relative to the expected pattern of wealth accumulation through the life cycle. Wealth inequality within age cohorts is something to be concerned about but inequality between age cohorts is only an issue if it differs from how we expect wealth to be accumulated as people age. Reducing a wealth gap of nine times between those aged under 35 and those aged over 64 is not something we should be getting exercised about. Maybe some effort could be committed to explaining why that is so rather than using perfect equality as a fairly useless reference point.
The distribution by age didn’t make it through for some reason.
64 32.5%
Let’s try a different tack. Households with a reference person aged under 35 have 3.5% of net wealth; households with a reference person aged 65 and over have 32.5% of net wealth. Both groups makes up 20% of the sample.
This is an interesting read and I think it accords with what seems intuitively correct. We do not begrudge the wealth of a talented sportsperson, businessperson or even that of a work colleague who earns more money than me because he makes more sales (for example) because these are objective measures of different talents. This is inequality through fairness. But we do resent the work colleague who gets a promotion over us and earns more money not because he is more talented but because he sucks up to the boss. This is inequality through unfairness.
One noteworthy point in the paper is the statement that “Areas of the United States with high income inequality also tend to have higher divorce and bankruptcy rates than areas with more egalitarian income distribution”. Correlation is not causation. One might equally argue that higher divorce rates lead to high income inequality since divorce reduces wealth – think of all the divorced people who now have to run two households.
I can’t remember the last time I read a social science paper in Nature that I was impressed with.
Aside from the problems with the economics of the paper (as highlighted by Seamus above), there are plenty of philosophical shortcomings as well: http://crookedtimber.org/2017/04/09/the-poverty-of-psychology/
Seamus Coffey is of course right in drawing attention to the life-cycle aspects of wealth accumulation which appear to get conflated with inequalities of wealth between households over their entire lives. The same caveat also applies to income, which tends to vary over the life-cycle.
Another problem is distribution is usually measured as between households, thus concealing inequalities within households. Household formation may respond to such things as batter welfare payments, which enable retired folk to live independently, whereas previously their low income was concealed as part of the income of an extended family.
Returning to wealth, what about measurement issues such as pension wealth? In a world of Defined Benefit pensions, individuals may have good incomes but does their wealth in the form of claims on the company pension fund (or the state’s social insurance “fund”) get measured? Not if you take inheritance-tax-based data: their wealth dies with them. However Defined Contribution pensions may well show otherwise similar individuals as having significant net marketable assets. This is a problem for the international comparability of wealth distributions.
None of this is to deny that the U.S. in particular has an income (and wealth) distribution problem.