But, preferences for redistribution don't really tell us about preferences for inequality. Redistribution is one solution to reducing inequality, but it probably matters how the redistribution is undertaken. I would argue that people (rich and poor alike) want to feel like the system treats them fairly.
Fairness is something we rarely consider in economics. However, I think it was one of the more interesting aspects of Daniel Kahneman's book Thinking, Fast and Slow. In Kahneman's research, he showed that fairness was important to how people perceive economic decisions. For instance, price increases make buyers unambiguously worse off (they have to pay more for the same good or service). However, buyers are less concerned with their loss if the price increase is perceived as fair (such as the seller passing on genuine cost increases) than when the price increase is perceived as unfair (such as the seller raising the price of umbrellas on rainy days, to take advantage of increased demand).
Coming back to inequality and redistribution, fairness probably matters a great deal here too. I think Paul Bloom nailed it with the title of this article in the Atlantic last October: "People don't actually want equality - They want fairness". Bloom writes:
But in his just-published book, On Inequality, the philosopher Harry Frankfurt argues that economic equality has no intrinsic value. This is a moral claim, but it’s also a psychological one: Frankfurt suggests that if people take the time to reflect, they’ll realize that inequality isn’t really what’s bothering them.
People might be troubled by what they see as unjust causes of economic inequality, a perfectly reasonable concern given how much your income and wealth are determined by accidents of birth, including how much money your parents had, your sex, and the color of your skin. We are troubled as well by potential consequences of economic inequality. We may think it corrodes democracy, or increases crime, or diminishes overall happiness. Most of all, people worry about poverty—not that some have less, but rather “that those with less have too little.”
Frankfurt argues, though, that we aren’t really bothered by inequality for its own sake. He points out that few worry about inequalities between the very rich and the very well off, even though these might be greater, both absolutely and proportionately, than inequalities between the moderately well-off and the poor. A world in which everyone suffered from horrible poverty would be a perfectly equal one, he says, but few would prefer that to the world in which we now live. Therefore, “equality” can’t be what we really value.What we really value, according to Bloom, is fairness. We want to know that the inequality we observe is not grossly unfair. We want people who work hard (noting that this need not be paid work) to be rewarded with a larger share of the wealth (or income), but equally we want those who would have worked but were unable to do so, to not be left with nothing.
We must also want redistributions to be fair as well. Consider the Kenyan experiment described in this Economist article, also from last October:
The Busara Centre for Behavioural Economics in Nairobi, Kenya, runs experiments with participants from slums and rural areas. Its researchers looked at the results of a lottery-like scheme in rural Kenya, in which a random sample of 503 households spread over 120 villages was chosen to receive cash transfers of up to $1,525. The average transfer, $357, was almost enough to double the wealth of a typical villager. The researchers measured the well-being of villagers before and after the transfer, using a range of different methods: questionnaires about people’s life satisfaction, screening for clinical depression and saliva tests for cortisol, a hormone associated with stress.
Since not all the villagers received a transfer, the experiment sheds no light on what would happen if everyone’s wealth increased equally. But the study does mimic the distributional results of economic growth, which tends to allot gains unevenly. As expected, those who received transfers reported greater satisfaction with their lot after the money arrived. Cortisol levels and the incidence of depression fell too.
However, the satisfaction of those who did not receive anything fell sharply as their neighbours’ fortunes improved. The decline in satisfaction prompted by seeing one’s peers get $100 richer was bigger than the increase of satisfaction from getting a handout of the same size. The bigger the handouts to others in their village, the greater the dissatisfaction of non-recipients. (The handouts did not seem to have any impact cortisol levels or the prevalence of depression among non-recipients.)One problem with the experiment is that people are very concerned about relative comparisons - we like to be doing better than our peers. So while making some people in the village better off than others will be good for those that received the transfer, it will be bad for everyone else who didn't receive the transfer. These transfers might also be seen as unfair. Although the cash transfers were distributed randomly, I (and probably many others) wouldn't consider it fair to double the wealth of some people and leave their equally-deserving neighbours poor - especially if we could have given a smaller transfer to everyone instead without much loss in efficiency.
So, if we want fairness rather than equality, and we are concerned about our own (income or wealth) status relative to others, then that has implications for our views about redistribution. If a person is most concerned that redistribution will lead to a distribution of wealth (or income) that substantially removes the relative rewards for hard work, then they are less likely to support such redistribution. More so if they are likely to be one of those giving up wealth as a result of the redistribution (notwithstanding any altruistic 'warm glow' one might feel from giving to others). On the other hand, if a person believes that redistribution is the best way to provide for those who cannot do so for themselves (or to raise incomes for the less fortunate more generally), then they are more likely to support such redistribution. And more so if they are likely to be a net recipient of any redistribution. And this might go some way towards explaining the results in the U.S. noted above, especially the growing polarisation in preferences between Democrats and Republicans. As I've noted before, the results for New Zealand still require some further analysis.
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