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:
- Wealthy family
- Belief that individual effort matters for success
- 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.
Cheap Talk 
13 comments
Comments feed for this article
March 23, 2011 at 11:22 am
Assorted links
[…] 2. Attitudes about inequality. […]
March 23, 2011 at 1:08 pm
KevinH
I’m with you right up until the end.
It seems that the only people to think that inequality is unfair is those who believe background is the dominating factor who are poor. Under Piketty’s model more poor should equal more belief in the power of background, which should mean more outrage. This is ofcourse opposite of the observed phenomenon.
Do you interpret the model differently?
March 24, 2011 at 9:07 am
jeff
in the model the level of redistribution is determined by the median voter. so if we have settled on an equilibrium in which people believe in the incentive power of low taxes, taxes will be low and inequality will be relatively higher.
March 23, 2011 at 1:29 pm
Jim
Let’s visit Paris sometime. After we’re done chatting with the wealthy elite in the city center we can go talk to the “youths” in the suburbs who torch, on average, one hundred cars PER NIGHT.
Then we can reflect on how low inequality is in Europe.
And this is to say nothing of Luxembourg vs. Slovenia.
March 23, 2011 at 1:40 pm
twicker
Re: the attributions: Welcome to the self-serving bias (discussed in the psych literature going back before the ’70s; I don’t remember the original paper at the moment, but it’s in there).
Re:
“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…””
1. Note the causality implied – that the lack of outrage causes the inequality. Was that the causal direction you meant?
2. From what I see, if anything, there should be more outrage about inequality and a lack of income redistribution, because the differential is higher and a larger portion of the population is in the lower and lower middle classes – which should produce more agitation for income redistribution and more outrage against inequality (those few people at the top aren’t better, they’re just luckier – meaning the game’s rigged, the procedure’s unfair, and the distribution’s unfair). Shouldn’t that result in more, not less, outrage – even by Piketty’s restatement of the self-serving bias? I’m obviously missing something here, yes?
March 24, 2011 at 9:08 am
jeff
1. perhaps the best way to say it is “the inequality and the outrage are both determined by the same thing: culture.”
2. i tried to answer this in my response to KevinH above.
March 23, 2011 at 1:45 pm
Daniel
Alesina and Angeletos (Fairness and Redistribution, AER) present a similar story. In their model, a society in which people believe that individual efforts determine income is likely to choose low taxes and redistribution. In equilibrium, it adopts a system with low taxes/redistribution and income is determined largely by individual efforts.
On the other hand, a society in which people believe that luck drives individuals’ incomes is more willing to have high taxes and redistributive policies. In equilibrium, the society features high taxes/redistribution and success ends up being determined mostly by luck.
I guess the main difference between these stories is that Pikety focuses on belief heterogeneity among individuals in the same society whereas Alesina and Angeletos focus on difference across countries.
March 24, 2011 at 9:08 am
jeff
exactly right
March 23, 2011 at 1:45 pm
Right Wing-nut
In the US, there is a strong correlation between being “poor” and being obese. Our median energy consumption is TWICE what it is in Europe. I could go on.
Would you rather live in a place where the middle 90% of the people made between $35k and $45k, or where the distribution was 20% $30-$35k, 30% $35-45k, 30% $45-55k, and 10% $55-65k? Me, I’ld take the latter. I swear that those would obsess about “inequality” want the former.
March 24, 2011 at 2:59 pm
smithey
Many of our obese go hungry at the end of the month and have micronutrient deficiencies. They can afford enough calories but not nutrition. It’s hard to call that success.
I put myself through college with a scholarship and the money I made working part-time, which I partially invested. The tuition doubled went up 25% from the time I started. My family is fairly wealthy but my dad was abusive so I didn’t want to take out loans-you need parents signatures and I couldn’t qualify for government aid. I went hungry sometimes. I think hunger is a problem in this country. I’ve always been thin, but I work in public health now and I see hungry obese people all the time.
I think this study is a little weird. Personal experience should influence how we see the world. I’ve been really lucky and unlucky. I worked really hard and sometimes I’ve been lazy and lost opportunities. The tax system isn’t a very good way to redistribute though. Like my story, the problem was the tuition prices. I was treated like I was rich when I was poor.
March 24, 2011 at 1:30 pm
Dave
The problem with this argument is that it assumes that the offspring of a wealthy hardworking family will be hardworking, and the offspring of a poor and lazy family will be lazy. Instead you actually have 4 possibilities:
Wealthy and hardworking: Works hard, studies hard, learns to read early, attends top-notch prep school, gets into Harvard, passes with flying colors, and goes on to a wildly successful career, passing on an even bigger fortune to his children. He (partially correctly) sees his financial success as being due to his hard work, and opposes redistribution because that would prevent his children from benefiting from his hard work.
Wealthy and lazy: Doesn’t work hard, but is given mediocre grades at a top-notch prep school out of respect for his dad and possibly corruption. Gets into Yale in part due to his legacy, graduating with a “gentlemen’s C” while spending most of his time partying, becomes a highly-paid business executive thanks to daddy’s influence (possibly even inheriting a family business). Thanks to the Dunning-Kreuger effect, thinks that his success is due to his intelligence hard work, and opposes redistribution really on the grounds that he doesn’t want to give up the money and influence his family has accumulated.
Poor and hardworking (and a bit lucky): Works hard, studies hard, is valedictorian at his pretty lousy public school. Manages to get good scholarships, and graduates from his state university with pretty good grades (although not quite as good as they would have been had he not had to work while in school). Goes on to a moderately successful career, becoming the first college grad and homeowner in his family’s history. Believes that while individual effort has an effect, he’s been nowhere near as successful as the wealthy and lazy folks due to many circumstances beyond his control, and that more government intervention could level the playing field.
Poor and lazy: Gets mostly C’s and D’s in his pretty lousy public school system, drops out at age 17. Goes on to work flipping burgers and any other low-income job he can manage to get, sometimes getting by on charity and/or welfare, and possibly crime. Believes that his circumstances are almost entirely due to bad luck and/or racism, but supports welfare heavily because he’s depended on it in order to keep alive on several occasions.
The only thing these people’s experiences all have in common is that none of them believe they are lazy or stupid, even those who were lazy or stupid. And they all make their political judgments based on that.
March 25, 2011 at 10:25 am
walt
garbage -> model -> garbage -> hand waving, tap dancing
March 25, 2011 at 3:11 pm
jeff
It took ‘me’ a lot of practice to learn how to wave my hands while tap dancing.