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THE DISMAL SCIENCE

THE SEARCH FOR BETTER ECONOMIC POLICY.

SEPT. 18 2015 3:45 AM

Why Income Inequality Isn’t Going Anywhere

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Rich elites—even rich liberal elites—don’t believe in redistributing wealth.

By Ray Fisman and Daniel Markovits

How much would you take? And where did you go to college?

Photo illustration by Juliana Jiménez. Photo by Lev Kropotov/Thinkstock.

F. Scott Fitzgerald and Ernest Hemingway famously disagreed about the American elite. “The very rich are different from you and me,” Fitzgerald wrote. “Yes,” Hemingway shot back, “they have more money.” With inequality in America continuing to rise, we revisited Fitzgerald and Hemingway’s (perhaps apocryphal) dispute, conducting a series of experiments designed to pinpoint the differences between the rich and those of more modest means.

The conventional view of America as a classless society has long sided with Hemingway—the only difference is the money. But our results suggest that, at least when it comes to attitudes toward inequality, Fitzgerald is right: Elite Americans are not just middle-class people with more money. They display distinctive attitudes on basic moral and political questions concerning economic justice. Simply put, the rich place a much lower value on equality than the rest. What’s more, this lack of concern about inequality among the elite is not a partisan matter. Even when they self-identify as progressive Democrats, elite Americans value equality less highly than their middle-class compatriots.

This finding has profound implications for public policy. Contemporary American politics presents an enduring mystery. Why does the public policy response to nearly five decades of rising economic inequality remain so tepid, even as large majorities of Americans consider inequality excessive, and even under a two-term Democratic president? Our study, published Thursday in the journal Science, co-authored with colleagues Pamela Jakiela and Shachar Kariv, proposes an answer: Regardless of party, the elite donors whose money dominates politics, and the elite officeholders whose decisions set policy, don’t value economic equality. When the American government abjures egalitarian policies, it is implementing the bipartisan preferences of the American elite.

We measured attitudes toward equality by asking hundreds of Americans to distribute a pot of money between themselves and an anonymous other person. Our subjects weren’t making hypothetical choices in responding to the survey—their decisions affected how much real money they would get when the experiment ended.

Each subject could keep or redistribute as much of her budget as she liked, but with a twist. Whereas the standard version of this experiment—known to economists as a “dictator game”—asks subjects to split a fixed pie, we varied the “price” of redistribution. In some cases, giving was expensive: Every dollar of her own that a subject sacrificed bought her anonymous beneficiary as little as a dime. In other cases, giving was “cheap”: Every dollar sacrificed contributed as much as $10 to her beneficiary. Most cases fell between these extremes.

Even when they self-identify as progressive Democrats, elite Americans value equality less highly than the middle class.

The choices that subjects made provide a window into their attitudes toward economic justice. First, the experiment allowed us to measure subjects’ selfishness. A “selfish” subject keeps the entire pie, regardless of the price of giving. By contrast, a “fair-minded” subject does not prefer herself over her beneficiary, so that, for example, if she keeps a lot when giving is expensive, she will give a lot when giving is cheap. This means that on average, across all prices of giving, a fair-minded person keeps and gives about the same amount of money.

Our experiment also allowed us to measure how subjects trade off equality against efficiency. Subjects who care only about efficiency respond very sensitively to changes in the price of redistribution. When giving is expensive, they give little; when it is cheap, they give a lot. By contrast, an equality-minded subject will always ensure that both she and her recipient end up with the same amount, even if it means that less money is paid out overall.

Both trade-offs play central roles in the crafting of economic and social policy. The trade-off between selfishness and fair-mindedness informs the willingness of the haves to make sacrifices in order to aid the have-nots. The trade-off between efficiency and equality speaks to the tolerance that policymakers have for redistributive programs (like taxing the rich and productive to support the poor) that might lead to lower GDP but divide our country’s income up more equally. Especially where redistribution transfers resources from the rich to the poor using what economists call leaky buckets, the trade-off between efficiency and equality determines how big a leak is acceptable.

When American government undemocratically underdelivers economic equality, the cause is less party than caste.

We invited three very different classes of subjects to play our game and thus reveal their distribution preferences. The first came from the American Life Panel, or ALP, an Internet-based pool constructed by the RAND Corp. to resemble, as accurately as possible, the American public at large: It’s composed of Americans from across the economic and social spectrum. The second class constituted an intermediate elite. It was made up of undergraduates at the University of California–Berkeley, one of the most selective colleges in America and indeed the world, and a subset from the American Life Panel filtered to hold post-B.A. degrees and enjoy household annual incomes of more than $100,000. The third and final class constituted an extreme elite, constructed from the student body at Yale Law School. The median annual income of recent Yale Law graduates exceeds $160,000; among its alumni are former President Clinton and Democratic front-runner Hillary Clinton, as well as Supreme Court Justices Samuel Alito, Clarence Thomas, and Sotomayor. Yale Law students constitute an extreme elite if ever there was one. (By comparing the behavior of Yale Law and Berkeley students, as well as the ALP elite, with that of the general population, we can have greater confidence that the differences we are noticing relate to eliteness rather than some idiosyncratic attribute of future lawyers or students at Yale.)

The experimental behaviors of these three subject classes—once again, making real allocations with real money—revealed stark differences between attitudes toward economic justice among ordinary Americans and among the elite. To begin with, the Berkeley and Yale subjects were twice as likely to be selfish as their compatriots in general. In this respect, intermediate and extreme elites stand together with each other, and stand apart from the rest of the country.

What’s more, elite Americans show a far greater commitment to efficiency over equality than ordinary Americans. And this time, the bias toward efficiency increases with each increment of eliteness. The ALP subjects split roughly evenly between focusing on efficiency and focusing on equality; the Berkeley students favored efficiency over equality by a factor of roughly 3-to-2; and the Yale Law students favored efficiency by a factor of 4-to-1.

Yale Law students’ overwhelming, indeed almost eccentric, commitment to efficiency over equality is all the more astonishing given that the students self-identified as Democrats rather than Republicans—and thus sided with the party that claims to represent economic equality in partisan politics—by a factor of more than 10-to-1. An elite constituted by highly partisan Democrats thus showed an immensely greater commitment to efficiency over equality than the bipartisan population at large.

Elites’ preferences matter. The American elite overwhelmingly dominates both campaign finance and political lobbying, and American policymakers themselves come overwhelmingly from elite circles—the powerbroker Yale Law alumni mentioned above represent just the tip of a vast iceberg.

Top Comment

Ultimately, when classes become a multi-generational reality, you limit your society.  you only bring to bear the ingenuity of 10% of the people because they rest lack the connections to make things happen.  More...

-Open Range

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Our results thus shine a revealing light on American politics and policy. They suggest that the policy response to rising economic inequality lags so far behind the preferences of ordinary Americans for the simple reason that the elites who make policy—regardless of political party—just don’t care much about equality. Hemingway’s illusory but widely shared view that the only thing that separates the rich from the rest is their money thus disguises a central pathology of American public life. When American government undemocratically underdelivers economic equality, the cause is less party than caste.

Democracy gives the mass of citizens a path for protest when the gap between ordinary views and a closed rank of elite opinion grows too great. The populist insurgencies that increasingly dominate the contests to select both the Republican and Democratic candidates in the upcoming presidential election show the protest path in action. Elites—in both parties—remain baffled by Donald Trump and Bernie Sanders’ appeal; and they prayerfully insist that both campaigns will soon fade away. Our study suggests a different interpretation, however. These bipartisan disruptions of elite political control are no flash in the pan, or flings born of summer silliness. They are early skirmishes in a coming class war.

Ray Fisman is the Slater family chair in behavioral economics at Boston University and author, with Tim Sullivan, of The Org.

Daniel Markovits is Guido Calabresi professor of law at Yale Law School.