Tyler Cowen on Inequality
In today’s NY Times, Tyler Cowen (economist at George Mason) makes the following astonishing claim about economic inequality:
The broader philosophical question is why we should worry about
inequality — of any kind — much at all. Life is not a race against
fellow human beings, and we should discourage people from treating it
as such. Many of the rich have made the mistake of viewing their lives
as a game of relative status. So why should economists promote this
same zero-sum worldview? Yes, there are corporate scandals, but it
remains the case that most American wealth today is produced rather
than taken from other people.
What matters most is how well
people are doing in absolute terms. We should continue to improve
opportunities for lower-income people, but inequality as a major and
chronic American problem has been overstated.
The notion that we should only care about “how well people are doing in absolute terms” appears to be completely untethered from any plausible conception of human flourishing and its relationship to distributive justice. One reason that Catholic teachings on economic justice are so powerfully persuasive is that they are rooted in a realistic conception of human nature that rejects the unstated individualistic premises about human nature underlying Cowen’s op-ed.
Cowen is surely correct that “life is not a race against fellow human beings.” But neither is it the case that individual lives are hermetically sealed pursuits in which our absolute well being can even be measured in isolation from what happens to others. For starters, as Cornell economist Robert Frank has argued, most people actually care about their relative position in society — so making someone at the top even better off than they already are by itself makes other people less well off in a real and measurable sense.
The connection between our own well being and the well being of others does not depend just on the fact that we might be envious of the wealthy, but also on the fact that conventions of social participation are sensitive to the well being of others. Adam Smith understood, for example, that what we legitimately consider to be a necessity will depend upon our particular cultural and social context. Drawing on Smith’s insight, Amartya Sen has argued that — even for someone who accepts an objective and universal account of human flourishing — the resources human beings need to flourish will vary from culture to culture and, within the same culture, from era to era. As societies become wealthier, what each individual needs in order to meaningfully participate in that society will also become more elaborate and expensive.
So, for example, not having indoor plumbing in this country in the mid-19th century or a telephone in the early 20th century did not make you shamefully poor. Today, when our society as a whole is much wealthier and virtually everyone has indoor plumbing and a phone, not having either one would inescapably place you on the margins of society, substantially hindering your ability to participate meaningfully in the social life of your community. Insensitivity to inequality — reflected in Cowen’s insistence that we should focus narrowly on absolute well-being — ignores the social dimension of human flourishing and, by extension, the social dependence of the answer we give to the question which resources we need in order to flourish.
Relatedly, but perhaps more deeply, Cowen ignores the extent to which society is a joint venture — that we are all, rich and poor, in this together. Maintaining this joint venture as a going concern requires a degree of social cohesion and other-regarding concern, what the Church calls “solidarity.” And, as the Second Vatican Council put it in Gaudium et Spes, excessive economic inequality, by itself, undermines that solidarity, and therefore weakens the viability of the social order:
[E]xcessive economic and social differences between the members
of the one human family or population groups cause scandal, and militate against
social justice, equity, the dignity of the human person, as well as social and
international peace.
When the richest are allowed to rise too high above the poorest, even when those poorest are not thereby made worse off in absolute terms, they tend no longer to see themselves as having anything in common with the rest of us or having much at stake in the satisfaction of the needs of the poorest. When inequality exceeds certain bounds, the rich are able to structure their lives so that they never have to interact with the poor and so that the poverty of the poor has almost no impact on their own well being. They insulate themselves from life in society and can come to fool themselves into thinking that their fate is not bound up with the rest of us. You see this very concretely when you travel to highly unequal societies, where the rich live their lives in little bunkers and simply try to keep the poor from intruding. I think you can see similar tendencies emerging in this country.
In the 1980s, the American Bishops forcefully addressed the problem of inequality in the specific American context, arguing:
Catholic social teaching does not require absolute
equality in the distribution of income and wealth. Some degree of
inequality not only is acceptable, but also may be considered desirable
for economic and social reasons, such as the need for incentives and
provision of greater rewards for greater risks. However, unequal
distribution should be evaluated in terms of several moral principles
we have enunciated: the priority of meeting the basic needs of the poor
and the importance of increasing the level of participation by all
members of society in the economic life of the nation. These norms
establish a strong presumption against extreme inequality of income and
wealth as long as there are poor, hungry, and homeless people in our
midst. They also suggest that extreme inequalities are detrimental to
the development of social solidarity and community. In view of these
norms we find the disparities of income and wealth in the United States
to be unacceptable. Justice requires that all members of our society
work for economic, political and social reforms that will decrease
these inequities.
And the inequality the American bishops found unacceptable in the 1980s has only worsened in the ensuing years.
on January 25th, 2007 at 5:43 pm
Here’s how Larry Summers once posed a similar issue:
“If there were some policy that would make the rich poorer without affecting the income of anyone else, would you want the government to flip this switch?”
http://gregmankiw.blogspot.com/2006/09/are-rich-form-of-pollution.html
I believe that at least some of those who would answer “yes” to that question would be motivated by nothing more noble than envy and needless to say that kind of response should be discouraged.
on January 26th, 2007 at 10:17 am
Thank you, Eduardo, for bringing the NYT article to our attention and directing attention to the prophetic but sadly neglected Economics Pastoral.
Your mention of Robert Frank reminded me of his citation, in Luxury Fever, of the Whitehall Studies. Epidemiologist Michael Marmot explored the health of reasonably well educated and well paid British civil servants. Among males 40-65 he found that the higher one’s rank on the employment ladder the lowe one’s risk of death. He also found that the incidence of long illnesses among women in the lowest employment grade was almost four times as high as for women in the highest grade.
While we can’t be certain the path from relative deprivation to less robust health, we do know that low relative position is experienced as stressful and that stress has a deliterious impact on our immune systems.
on January 26th, 2007 at 11:48 am
Eduardo,
Are you saying that inequality in and of itself is a basis for concern?
If that is true, I side with Cowen on this – at least as I understand his argument. If you look at the bishops’ statement it is predicated on inequality that has harmful consequences (e.g. “basic needs of the poor and the importance of increasing the level of participation by all members of society in the economic life of the nation” and “as long as there are poor, hungry, and homeless people in our midst.”)
Fifty years ago there was far less inequality in wealth worldwide, but there was much more poverty. Is it somehow more Christian to have equality with greater poverty than to have less equality with much less poverty? For example, if we could eliminate all poverty and give everyone in the world at a minimum a basic US-style middle class existence, but the top 10% had 70% of the wealth, is this immoral? More importantly, is it moral to redistribute wealth for the sake of equality if everyone is worse off in absolute terms?
I will buy that certain things that were luxuries may be necessities – the modern example may be access to computer technology, but some things are just luxuries. If I am living in an 1800 sq ft ranch with my wife and kids and my vacation is a car trip to the shore, why should I care that Bill Gates lives in a 20,000 sq ft. mansion and flies to Tahiti in a private jet?
My ultimate goal is to get to heaven, not to “flourish.” Where is the distinction between participation in society and materialistic idolatry? Who decides what a just distribution is?
on January 26th, 2007 at 11:58 am
Sean — you left out the most important sentence from the U.S. bishops passage:
“They also suggest that extreme inequalities are detrimental to the development of social solidarity and community. ”
I suppose that on some level you’re right that inequality is not a problem in and of itself if it has no negative consequences, but the point of the Bishops (and the Council, and Frank), and of this post, for that matter, is that — contra Cowen — excessive inequality does generate its own negative consequences.
on January 26th, 2007 at 1:10 pm
It’s interesting that the concepts used to encourage a narrowing of income inequality (sociality, solidarity, civil community) are often forgotten when issues like, say, flag burning, gay marriage, drug use or pornography arise. Then people are encouraged to adopt a “live and let live” attitude. It is asked: how does flag burning, gay marriage, etc. truly harm others? The individualist assumptions of a John Stuart Mill are freely invoked and appeals to community standards, solidarity or public morals are seen as majoritarian oppression.
But deviation from the income distribution of the New Deal, even if absolute income levels rise, is seen as grounds for community regulation. The “live and let live” formula is quickly jettisoned.
on January 26th, 2007 at 2:21 pm
Fair point, Patrick, but also demonstrating a strategy that is, unfortunately, extremely typical of commenting on this blog, as Margaret observed in another thread. How about sticking with this issue, even if just for a bit? After all, it’s a two way street you’re on.
In any event, several points to make here: solidarity is clearly not the only relevant value. For example, even in this context, the Bishops say inequality can be accepted because of its beneficial effects on incentives. Freedom and privacy are also important values. All these values must be balanced, and none of them are all-encompassing.
Similarly, I’m not sure raising the question about the degree to which people are fixated on gay marriage — or the cogency of arguments that it harms society — necessarily relies on a J.S. Mill libertarianism, as opposed to, say, on doubts that gay marriage — in fact — harms the family.
on January 26th, 2007 at 2:45 pm
“If there were some policy that would make the rich poorer without affecting the income of anyone else, would you want the government to flip this switch?”
Yes!
Not from envy but because money is power.
on January 26th, 2007 at 3:09 pm
Now will you pull a switch that equalizes income for everyone? Then no one would have inordinate power.
But then we still have to worry about inequalities in wealth, knowledge, health, longevity, beauty, happiness. They can lead to power differentials also.
on January 27th, 2007 at 9:21 am
The concern is over relative income inequality, not any income inequality, but I would like to add just one comment that often does not get addressed. Income inequality is not just the result of smarts and hard effort. It is often the result of policy and regulatory choices that have the result of protecting the incomes of some people and making the incomes of others highly sensitive to market forces. Thus, free trade in manufacturing has eroded both the number of manufacturing jobs and the income of those who do them. Contrariwise, professional regulation and credentialing protects professionals from serious market erosion of their incomes, and when the market does intrude, professionals fight back tooth and claw: witness the reaction of doctors to HMOs. (Maybe you don’t know much about that, but I do, and it was fierce, and ultimately, made it much harder to negotiate lower prices). These are just two examples, but there are others built into our tax code, and other ways in which we choose to subsidize activities and people: for instance, should people who don’t go to college be required to subsidize college education of others through loan subsidies and various other and substantial subsidies to places like Harvard? I’m not arguing for wholesale repeal, I am arguing with the notion that we got to where we are through the mechanisms of the unfettered market and those with greater merit who risked more are just getting their due. That’s not a credible position, not for everybody (clearly it is for some), and that what has been wrought by policy can be reshaped by better policy that would, at least, protect workers from the severest consequences of income instability, if not outright income inequality.
on January 27th, 2007 at 11:00 am
A few more thoughts:
1) Millions of immigrants to America have been willing to accept relative deprivation in return for absolute improvements in their income prospects. I believe it’s safe to say that Catholic social teachings are clearly favorable with regard to immigration even when unavoidable result is higher measures of inequality. The voluntary movement of large numbers to the bottom of the status hierarchy can be a net gain for all.
2) Richard Epstein’s offers a thoughtful and thorough critique of Sen and Frank in a chapter of his recent Skepticism and Freedom. Not surprisingly he concludes that we should adopt a “live and let live” approach to the numerous instances of relative deprivation to be found in every conceivable society. The cure is worse than the disease.
3) On the basis of reading a lot of Tyler Cowen’s work I’d have to say he’s quite willing to go beyond narrow individualist assumptions such as those that are attributed to him in the original post. If you don’t want to take my word for it I suggest that Robert Frank might well agree. In his blurb for Cowen’s What Price Fame Frank praises Cowen for “drawing from both classical and modern sources in ways that few authors would be equipped to do.”
on January 27th, 2007 at 4:44 pm
Patrick -
I’m not sure how accurate your first assertion is. A lot of immigrants are moving from from the lower rungs of societies which are vastly unequal to the lower rungs of a society which is far less unequal. The gap between rich and poor in the US, while growing, is certainly less than it is in many of the countries immigrants are coming from. I think many immigrants that come here are moving up in both absolute and relative terms.
Also, for newly arrived immigrants, they still have the memory of their former homes, and so will be comparing their new status to their old status. In that sense, then, a movement upwards in absolute terms also amounts to a movement up in relative terms, as the unit of comparison is not to rich people in the US, but to their former status in their country of origin.
on January 27th, 2007 at 7:15 pm
Philip -
I’m sure you’re right: “A lot of immigrants are moving from the lower rungs of societies which are vastly unequal to the lower rungs of a society which is far less unequal.” But I believe it’s also true that a lot are moving from higher rungs, or at least not the very lowest rungs, of a sending society to the lowest rungs of a receiving society. So I would still contend that very many, not all of course, but many immigrants fit the pattern of accepting absolute improvement in the new society even with relative deprivation. At the higher skill levels the “brain drain” phenomenon fits my pattern - a doctor in a high profile medical center in a developing country moves to a subordinate position in a developed country . At the lower skill levels examples would be, say, high school graduates from Mexico becoming restaurant workers in the U.S. Had they remained in Mexico they most likely would have had higher status jobs in their local community than they enjoy here. Another way of making my point is that migration is often positively selective. It’s not those in deepest poverty who move but those with a few decent opportunities who try to gain still higher absolute rewards by migrating. And if they enter the lower rungs of the receiving society the perfectly acceptable result is that the receiving country may look worse on a given inequality measure.
If the restaurant workers compare their present status to their former status they may also gain in measures of relative deprivation, as you suggest. But if they compare themselves to their current near neighbors they may feel badly. The very arbitrariness involved in choosing reference groups should give us pause before we accept relative deprivation as major problem.
One can always find groups against which one compares well and others against which one compares poorly. On my way to work I occasionally see David Rockefeller. If I spent any time thinking about our contrasting fates I might become very downcast. The person I do spend (too much) time thinking about is the knave a few doors down who makes a little more than me with a set of obviously (to me) inferior skills. The comparisons that matter to most people are made within local, not national or global, hierarchies and are quite idiosyncratic. Any attempt at the national level to change the results of these comparisons is going to produce Rube Goldberg type contraptions and will have the predictable result, I fear, of encouraging still more fevered attempts to “keep up with the Joneses.” Tocqueville’s quite perceptive observation about subjective discontent is also relevant: As conditions improve and discrepancies between groups vanish people become all the more dissatisfied as they focus on the last remaining obstacles to equality.
Sorry to be so windy. As the fellow said, I didn’t have time to make it shorter.
on January 29th, 2007 at 7:30 am
Patrick -
I don’t know where we’d get numbers to find out just how many immigrants really are moving down in the social ladder by moving here. One thing I thought about in reading your response, though, is how subjective decisions such as choosing to immigrate are. In other words, it may not matter so much whether they are in fact moving up or down, so long as they believe they will be moving up.
Perhaps rather than equality of status, it should be equality of opportunity we should be talking about. I think people are willing to accept a high level of inequality if they feel there is actual equality of opportunity. A major problem with large social inequality is that it often closes off that opportunity. Someone born into a poor family has far higher barriers to opportunity than someone born to a rich one. The fact that there is rich and poor probabaly doesn’t matter so much as the fact that social mobility may be endangered (none of this is to advocate a specific means of addressing this or to suggest it is anything less than a very complicated issue).
on January 29th, 2007 at 11:40 am
The other thing about changes in immigrant status is that, for instance, being trained as an accountant in Costa Rica (as my parking lot attendant was) does not translate into the same economic attainment as it would in the U.S. In other words, a high degree of inequality extends to those that we would not consider to be “in the lower rungs” here. This is so for a number of reasons, not the least of which is that effective schooling is not provided free of charge and, in general, if one cannot buy security and infrastructure of the type that is provided here by government, it effectively does not exist. Good roads, effective police, honest courts, insured bank accounts, universal sanitation — you need an awful lot of money in order to “get on well” without those things.
on January 29th, 2007 at 9:49 pm
I agree that an individual’s subjective views are important. And, may I add, equally important are cultural perspectives. Numerous international surveys show that Americans tolerate much more inequality than Europeans. A representative Sidney Verba study compares responses of union workers in Sweden and the US:
Favor equal pay
Sweden 68%
US 11%
Favor top limit on income
Sweden 51%
US 13%
Fair income ratio of executive to menial worker
Sweden 2:1
US 11:1
So the introduction of subjective views cuts many ways. Can we say which society has the better view on inequality? Is it always the one closer to absolute equality? Is there a principle that would allow us to say that the levels of inequality in Sweden are tolerable but those in France or the US are not? Many of the European societies are also much more deferential and show far less social mobility than the US. Do the striking public opinion differences in these countries matter or should they have no impact at all on assessing the justice of an income distribution?
My position is that redistribution to alleviate poverty (defined in some objective way even if relative to a given society - half the median income, say) may be justified, with the proviso that policies that are in the words of Becker and Posner “surpassingly foolish” (of which there are many) should be avoided. But a much higher hurdle has to be met for further redistribution simply to achieve a more egalitarian result across all classes. Robin Hood’s job was tough enough when he focused solely on helping the poor.