Misery Loves Inequality
posted by Frank Pasquale
Economist Robert H. Frank notes that Congress is finally considering alternatives to GDP as measurements of economic well-being:
This week, Senator Byron Dorgan . . . will hold a hearing exploring whether traditional economic measures like per-capita income accurately capture people’s sense of well-being.
[S]urvey findings [show] that when everyone’s income grows at about the same rate, average levels of happiness remain the same. Yet at any given moment, the pattern is that wealthy people are happier, on average, than poor people. Together, these findings suggest that relative income is a much better predictor of well-being than absolute income.
In the three decades after World War II, the relationship between well-being and income distribution was not a big issue, because incomes were growing at about the same rate for all income groups. Since the mid-1970s, however, income growth has been confined almost entirely to top earners. Changes in per-capita G.D.P., which track only changes in average income, are completely silent about the effects of this shift.
The chart above, from Lane Kenworthy’s blog Consider the Evidence, shows the trend graphically.
Of course, many of those at the high end of the scale have brought us extraordinary innovations in the financial markets, as this video explains:
Nevertheless, I hope that the Congressional hearing considers works like Dorff and Ferzan’s Miscalculating Welfare, which makes the following points:
We turn to the empirical evidence that legal economists should take fairness concerns seriously. This evidence ranges from the recent happiness research that calls into question the correlation between wealth and happiness, to studies of the capuchin monkey who rejects unequal pay, to cross-cultural results of the ultimatum game. We argue that given the growing body of research revealing that individuals value fairness over their own rational self-interests, it is incumbent on legal economists to take preferences for fairness into account.
Hat Tip: Crooked Timber.
March 11, 2008 at 10:54 am
Posted in: Law and Inequality
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Responses (6)
Daniel S. Goldberg - March 11, 2008 at 11:45 am
To beat my drum: how about the growing evidence base for the proposition that income inequality is robustly correlated with population health? And that some causal mechanisms, both on the social level — i.e., violence — and the molecular level — neuroendocrine changes — are promising.
If we want to make our society healthier, we should redress inequality.
KipEsquire - March 11, 2008 at 11:59 am
The fact that, in a free and capitalist society, these percentiles are not a static caste system (e.g., yesterday’s “Top 1%” are not tomorrow’s “Top 1%” and yesterday’s “Bottom 20%” are not tomorrow’s “Bottom 20%”) makes these data worthless at best and maliciously deceitful at worst.
Or are you instead advocating that we indeed move to static caste system?
Frank - March 11, 2008 at 12:36 pm
Daniel: absolutely right.
Kip: I’d love to see your sources. Maybe you’re thinking about the Treasury study debunked here:
http://www.urban.org/publications/406722.html
“The impressive degree of mobility found in the Treasury study has been attributed largely to two factors. First, the restriction of the sample to only those households that paid taxes in all ten years introduced a bias toward the economically successful, as only half of all households met this criteria. Second, the study compared the 1988 incomes of those in the sample to the incomes of the population as a whole in 1988, thereby capturing the natural tendency of earnings to increase as individuals grow older, and identifying this as economic mobility. That is, the average income of the sample would be expected to rise each year simply as a result of the individuals in the sample growing older and gaining more work experience. The average income of the population as a whole, however, would be expected to remain constant. To count this increase in income as a component of “mobility” is to use a significantly different definition of mobility than was employed in . . . other studies . . . .”
But seriously, you think someone advocating for reduced income inequality is advocating a caste system? That’s a genuinely bizarre assertion.
eisegetes - March 11, 2008 at 12:49 pm
But see.
KipEsquire - March 11, 2008 at 10:23 pm
Will Wilkinson, an expert on debunking so-called “happiness research,” responds to Frank here.
Maryland Conservatarian - March 14, 2008 at 1:18 pm
“Of course, many of those at the high end of the scale have brought us extraordinary innovations in the financial markets,…”
Are you referring to George Soros’ famous multi-billion short of the British pound in the early 90′s?
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