Is Inequality Bad in Itself?
posted by Frank Pasquale
As the AMT debate heats up, there are a lot of efforts to justify the trend in income distribution represented in the chart above (which appears to only be getting more pronounced). But few economists have chronicled the rise of inequality in America as insightfully as Robert Frank.
Twenty years ago, Frank’s groundbreaking Choosing the Right Pond focused on the importance of status in everyday life, eloquently documenting the hidden injuries of class. Ten years later, in The Winner Take All Society, Frank questioned the myths of merit so often used to justify high levels of inequality. He showed how technology could exponentially increase returns to “superstars” who were marginally (or perhaps not at all) better performers than “also-rans.” Frank’s Luxury Fever chronicled the disastrous effects of “spending cascades” unleashed by the new inequality: as the near-rich strived to emulate the ever-wealthier rich, so the middle class strived to emulate the near-rich, leading to extraordinary levels of indebtedness. Each book developed the theme of “positional competition“–the wasteful race for goods that are valued to the extent others are denied them.
Between these books, Frank has also published fascinating works on moral psychology (such as Passions Within Reason and What Price the Moral High Ground), and has formalized his insights in leading economics journals. In the tradition of Albert O. Hirschman and Jon Elster, Frank is one of few leading social scientists capable of enriching economic thought with philosophical, psychological, and sociological insight.
But Frank’s work has also attracted an array of critics. . . .
–In The Substance of Style, Virginia Postrel argued that Frank deeply misunderstood the meaning of luxury spending. To Postrel, luxury spending reflected less Veblenesque conspicuous consumption than deep appreciation of style and aesthetic pleasure.
–Many libertarian critics saw Frank’s concerns about status as an unduly subjective way of assessing social outcomes. If people at the bottom resent those at the top, isn’t that their problem? Why don’t they just snap out of it?
–Tyler Cowen has claimed (in What Price Fame) that Frank has overstated the “superstar effect” in sports and entertainment. He sees a world of “proliferating fame,” and proliferating status competitions generally, where virtually everyone has the chance to achieve high status in something.
–Finally, some believe that there is no such thing as a purely “positional good”-only goods with positional aspects. While Frank deems competitions ranging from litigation spending to test preparation as positional, society as a whole may benefit from the striving that goes into them. For example, the South Korean Supreme Court held legislation against “cram schools” there unconstitutional, in part because it felt the frenzy for top rank in exams helped the country advance economically.
Frank has responded to some of these criticisms, and I have earlier tried to take on Postrel’s views on fashion and glamour. But Frank’s most recent work, Falling Behind, has led me to believe that Frank relies too much on subjective self-reports of well-being in crafting his case against inequality. In the next post in this series (How Not to Argue Against Inequality), I’ll look at some of the weak points of Frank’s work. I’ll then focus on Frank’s genuine contributions to philosophical and economic debates over inequality.
A sneak preview of my take: power differentials are the fundamental issue raised by inequality, as Thomas Scanlon’s discussion of procedural fairness suggests. As commodification advances, inequality becomes increasingly important.
July 22, 2007 at 10:30 pm
Posted in: Articles and Books, Behavioral Law and Economics, Economic Analysis of Law, Empirical Analysis of Law, Law and Inequality
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Responses (12)
Patrick S. O'Donnell - July 22, 2007 at 11:57 pm
As usual, your heart and mind are in the right place Frank. I look forward to more.
Patrick S. O'Donnell - July 22, 2007 at 11:57 pm
As usual, your heart and mind are in the right place Frank. I look forward to more.
Michael Risch - July 23, 2007 at 7:29 am
Interesting post – I recall dealing with these issues 20 years ago as well – I took “Economics of Inequality” with Ken Arrow. It was an interesting class.
Questions:
1. Even though there are power differentials caused by inequality, won’t that always be true? Unless you have an entirely equal society won’t there always be a bottom fifth?
2. Some would say that so long as the entire pie grows we shouldn’t be concerned. Seeing the above numbers doesn’t really persuade me on that view, but I am wondering whether there is any research on how much growth we would see in the bottom three fifths by reduction in the top 2 fifths or even the top 1%.
3. While jumping into the top 1% requires the superstar/luck effect, is that really true for jumping from the bottom 2 tiers up a tier? Is it really spending and indebtedness and positional jockeying that are the cause of the ills for the bottom 40%?
Daniel Goldberg - July 23, 2007 at 9:05 am
Great post. You know I am currently interested in some of the work being done in social epidemiology, and one of the central insights of some of the work being done in the subdiscipline is that poor health is strongly correlated with a relative socioeconomic gradient. This suggests that reducing socioeconomic inequality — or pursuing policies that ameliorate some of the root causes of such disparities — is one of the best ways to improving public health.
Patrick S. O'Donnell - July 23, 2007 at 11:37 am
Those interested in Daniel’s research on inequality and health/health care in comparative terms and on a global scale might consult the following titles:
Anand, Sudhir, Peter Fabienne, and Amartya Sen, eds. Public Health, Ethics, and Equity (2004).
Dasgupta, Partha. An Inquiry into Well-Being and Destitution (1993).
Dreze, Jean and Amartya Sen. Hunger and Public Action (1989).
Dreze, Jean, Amartya Sen and Athar Hussain, eds. The Political Economy of Hunger: Selected Essays (1995).
Farmer, Paul. Infections and Inequalities: The Modern Plagues (1999).
Farmer, Paul. Pathologies of Power: Health, Human Rights and the New War on the Poor (2003).
Gauri, Varun. “Social Rights and Economics: Claims to Health Care and Education in Developing Countries,” in Alston, Philip and Mary Robinson, eds. Human Rights and Development: Towards Mutual Reinforceent (2005), 65-83.
Grusky, David B. and Ravi Kanbur, eds. Poverty and Inequality (2006).
Nussbaum, Martha C. and Amartya Sen, eds. The Quality of Life (1993).
Sen, Amartya. Poverty and Famines: An Essay on Entitlement and Deprivation (1981).
Sen, Amartya. Development as Freedom (1999).
Smith, Richard, et al., eds. Global Public Goods for Health (2003).
Patrick S. O'Donnell - July 23, 2007 at 11:37 am
Those interested in Daniel’s research on inequality and health/health care in comparative terms and on a global scale might consult the following titles:
Anand, Sudhir, Peter Fabienne, and Amartya Sen, eds. Public Health, Ethics, and Equity (2004).
Dasgupta, Partha. An Inquiry into Well-Being and Destitution (1993).
Dreze, Jean and Amartya Sen. Hunger and Public Action (1989).
Dreze, Jean, Amartya Sen and Athar Hussain, eds. The Political Economy of Hunger: Selected Essays (1995).
Farmer, Paul. Infections and Inequalities: The Modern Plagues (1999).
Farmer, Paul. Pathologies of Power: Health, Human Rights and the New War on the Poor (2003).
Gauri, Varun. “Social Rights and Economics: Claims to Health Care and Education in Developing Countries,” in Alston, Philip and Mary Robinson, eds. Human Rights and Development: Towards Mutual Reinforceent (2005), 65-83.
Grusky, David B. and Ravi Kanbur, eds. Poverty and Inequality (2006).
Nussbaum, Martha C. and Amartya Sen, eds. The Quality of Life (1993).
Sen, Amartya. Poverty and Famines: An Essay on Entitlement and Deprivation (1981).
Sen, Amartya. Development as Freedom (1999).
Smith, Richard, et al., eds. Global Public Goods for Health (2003).
Stuart Buck - July 23, 2007 at 10:07 pm
one of the central insights of some of the work being done in the subdiscipline is that poor health is strongly correlated with a relative socioeconomic gradient. This suggests that reducing socioeconomic inequality — or pursuing policies that ameliorate some of the root causes of such disparities — is one of the best ways to improving public health.
1) Is there any reason to think that the relationship is causal, rather than merely correlational?
2) Even if there is any causal relationship at all, can it really be possible that the effect is so dominant that eliminating income inequality would be “one of the best ways” to improve public health — ahead of, say, reducing usage of drugs, tobacco, and alcohol; reducing intake of sugar and processed foods; increasing average level of exercise; and the like?
Frank - July 23, 2007 at 11:37 pm
Stuart: I think you raise some difficult issues about assigning relative weight to different factors in terms of explaining poor health outcomes. But I also think that poverty can also cause the “rival causes” you offer. For examples, check out the slideshow accompanying this Wired article on the game “FatLand”:
http://www.wired.com/gaming/gamingreviews/magazine/15-07/pl_games
and this discussion of the challenges of eating healthily while on food stamps:
http://www.radioopensource.org/taking-the-food-stamp-challenge/
I have been skeptical about the possibility of really distinguishing the “deserving” and “undeserving” sick, but Peter Schuck’s work on “bad apples” and “bad bets” is a good counterpoint to my view.
Michael: As for pt. 3, I think Warren’s article is a good one. I would have to study the mobility patterns more to provide a better answer about the relative ease of tier-to-tier jumping.
As for 1: yes, the “poor you will always have with you,” but the kinds of inequality we’ve recently been experiencing are pretty extreme if compared to the pattern of income distribution in the post-war period. (Frank’s book has a series of graphs indicating the percentage of income growth from about 1950 to 1975 or so, and it’s much more equal than the chart above).
Stuart Buck - July 24, 2007 at 12:44 am
I can’t figure out how the Wired slideshow is supposed to be relevant at all. Did you mean to link to an article about a cartoon game? And as for the other link, I don’t believe that it has been shown at all that buying nutritious food is more expensive, on average, than buying processed junk food (which is really rather expensive compared to a bag of rice or apples, for example). In any event, to the extent that being poor makes it harder to eat nutritiously, it’s being poor that’s the problem — not inequality per se. Right?
Frank - July 24, 2007 at 9:58 am
Stuart: The key to FRank’s work is his characterization of rich, middle class, and poor households being in a bidding war for desirable property–in places with good parks, schools, public transit etc. When, say, one wealthy family can buy whole buildings in desirable areas and evict the tenants, then it is the inequality that has effectively exacerbated the scarcity. Here’s one example:
http://www.nytimes.com/2005/06/26/realestate/26cov.html?ex=1185422400&en=b593a708ca7ccf18&ei=5070
Now perhaps that is a uniquely big-city type of story. But Frank also writes on how the growth of the exurbs leads to longer commutes and all the stress they entail. Again, the buying power of those who get larger and larger lots can contribute to a longer commute for all because it decreases density.
Stuart Buck - July 24, 2007 at 12:31 pm
I’m not arguing with any of that. I’m just saying that I don’t see how it could be the biggest cause of poor physical health in this country, or anywhere near it.
Daniel Goldberg - July 26, 2007 at 12:31 am
Stuart,
(1) Correlation is not causation. But the correlation is incredibly persistent and robust, and exists even when all conceivable confounding variables have been controlled for. Nevertheless, our ability to draw causal inferences about as dynamic and complex a social phenomenon as health obviously cannot depend on deduction. Daniels et al, and other social epidemiologists, submit lengthy arguments explaining what they perceive to be the causal pathways.
(2) Is this a rhetorical question? If the social epidemiologists are correct — and of course this is a big if — then the implication is exactly what you suggested, that there is good reason to believe that reducing socioeconomic disparities is likely to have a greater aggregate impact on public health than virtually any other conceivable policies.
This, of course, hardly requires any kind of false forced choice analogy. No one is arguing that we should cease working to increase smoking prevention and cessation, etc. The argument is simply that reducing inequalities should be given a much higher priority as a public health strategy than it currently enjoys.
Finally, I’d add that making such policies a cornerstone of evidence-based public health practice may be foreign to American discourse, but is at the very core of many WHO public health initiatives.
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