I got this tweet from @gappy3000

In this NYT discussion on US inequality http://nyti.ms/fIIb1N nobody mentions the Benaou-Tirole paper. Depressing. http://bit.ly/fbUek8

I won’t rectify the omission but I will talk about an earlier paper “Social Mobility and Redistributive Politics” by Thomas Piketty which has a similar idea and is based on a much simpler logic.  The idea is that these three characteristics seem to come in a bundle:

  1. Wealthy family
  2. Belief that individual effort matters for success
  3. Opposition to redistributive social policy

and that less wealthy families are characterized by support for redistribution and the belief that family background (i.e. social class) matters more for success.

Piketty developed a simple theory for why these distinct worldviews can coexist in the same world even though one of them must be wrong and even though all households have the same intrinsic preference for equity. It’s based on the observation that there is an identification problem in sorting out whether family background or individual success matters and once a family falls into one of these categories, no amount of experience can change that.

To see the problem, suppose that your family’s history has led you to believe that individual effort matters very little for success.  Then you have little incentive to work hard and you will be relatively unsuccessful.  You will notice that some people are successful but you will attribute that to the luck of their social class. (However it easily could be that you are wrong and their success is due to their hard work.) Indeed even in your own family history you will record some episodes of upward mobility, but because your family doesn’t work hard you rightly attribute that to luck too.  In a world with such inequality and where effort matters little you see a strong moral justification for redistribution and little incentive cost.

On the other hand if your family has learned, and teaches you, that effort matters you will optimally work hard.  You will be more successful than average and you will attribute this to your hard work.  (It easily could be that you are wrong and in fact the source of your success is just your social class.) You will see that other families are less successful on average and as a result you see the same moral reason for redistribution, but you think that effort matters and, understanding how redistribution reduces the incentive to work hard, you favor less redistribution than the median voter.

How does this contribute to the debate in the link above?  This indeterminacy in attitudes toward redistribution means that differences across countries and over time are essentially arbitrary and due to factors that we can call culture. Inequality is high in the United States and low in Europe.  You are tempted to say “and yet there is less outrage about inequality in the US than there is in Europe” but in fact you should say “precisely because there is…”

Homburg Haul to Pierre Yared who first told me about the Piketty paper.

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