On InequalityPrinceton University Press, 2015, 120 pp., $14.95
Professor Harry Frankfurt’s basic claim in his new book On Inequality is that inequality per se is of no moral significance. His arguments in defense of this claim are clearly and often elegantly stated—but they are also unpersuasive.
He begins with the implicit assumption that objecting to today’s inequality levels implies an endorsement of complete equality. (“Economic Egalitarianism is, as I shall understand it, the doctrine that it is desirable that everyone should have the same amount of income and wealth.”) But not even the most uncritically enthusiastic egalitarians favor that position. Equalizing incomes completely would require taxing away each person’s entire income, then redistributing the resulting revenue in equal shares to everyone. Under such a regime, people would quickly discover that their incomes wouldn’t decline perceptibly if they stopped working, so many would. Others, seeing their neighbors having much more leisure time yet no less income, would follow suit, and soon per-capita income would plummet to just a tiny fraction of its former level. No sane person would voluntarily choose to live under a regime of complete equality.
Those who object to inequality argue not that incomes should be equal but rather that things would be better if inequality were reduced from its current level. They often disagree about how much of a reduction would be best, but no one is advocating complete equality. If that’s Professor Frankfurt’s target, it’s a straw man.
He concedes that things might be better if there were less inequality, but stresses that this is only because inequality may have bad side effects, such as giving some people too strong a voice in political decisions. Inequality does have that particular bad side effect, but it also has many others. And as I’ll try to explain, something can be morally objectionable even if its only negative features are bad side effects.
Professor Frankfurt devotes much of his attention to the distinction between poverty and inequality. He grants the moral significance of poverty, urging today’s egalitarians to focus not on whether some people have less than others, but instead on whether people have “enough.” But because “enough” is an inherently context-dependent concept, distributional issues cannot be ignored. As the economist Richard Layard once wrote, “in a poor country a man proves to his wife that he loves her by giving her a rose, but in a rich country he must give a dozen roses.” There is simply no way to speak intelligibly about how much people need—about what constitutes “enough”—without taking explicit account of the environments they inhabit. In particular, the incomes and spending patterns of his neighbors and associates have very real implications for what a person needs to achieve specific goals that we all acknowledge to be important.
Rational job seekers, for example, reasonably aspire to land the best position for which their skills qualify them. But information in the hiring process is notoriously imperfect. In many labor markets, therefore, first impressions are extremely important, and, as placement counselors are wont to say, you don’t get a second chance to make a first impression. Each candidate wants to look good, but looking good is a quintessentially relative concept. How much you “need” to spend on an interview suit thus depends on how much rival candidates for that same job are spending. Interviewers may not be able to recall even what color suit a candidate wore, much less whether it was finely tailored. But for certain kinds of positions, a candidate in a $2,000 suit is nonetheless more likely to get a callback if his rivals were wearing suits costing only $500. Yet when all candidates spend more on suits, none is more likely to be hired than before. Each candidate’s incentive to spend more is thus analogous to each nation’s incentive to spend more in a military arms race. Those incentives lead to pure waste, similar to the waste that results from other collective-action problems. Only in a world without scarcity might such waste not be considered morally objectionable.
Similarly, most parents want to send their children to good schools, but here too their goal has an important positional dimension. Our evaluation of a school depends not just on its absolute quality but also on how it compares to other schools that our children could feasibly attend. In virtually every political jurisdiction around the world, the better schools are those serving more expensive neighborhoods. The upshot is that the median family must spend roughly the median house price for its area or else send its children to below-average schools. If other similarly situated families start spending more on housing, they face a difficult choice: They can continue sending their children to schools of average quality, but only if they too spend more on housing. But if they continue to spend the same as before on housing, their children will go to inferior schools. Most middle-income families today face a choice like the one just described, and most opt to increase their spending. And yet when all bid more vigorously for houses in better school districts, they succeed only in pushing up the prices of those houses. Half of all children must attend bottom-half schools, just as before.
This simple relationship between relative value and rising costs illustrates the powerful if indirect link between rising income inequality and increased financial hardship among middle-income families in the United States. Since 1970, income gains in the United States have gone almost exclusively to families at the top of the income ladder. Extra income leads people at all income levels to build bigger houses, and the rich are no exception. There is no evidence that middle-income persons resent the larger mansions of the rich. But bigger mansions have changed the frame of reference that shapes the housing choices of the near rich, who travel in the same social circles. In order to be able to entertain in the manner now expected of them, they too build bigger. An expenditure cascade ensues, resulting in larger houses for families up and down the income ladder. Without reference to how rising inequality has shifted people’s frames of reference in this way, it’s difficult to explain why the median new house built in the United States grew from 1,600 square feet in 1980 to more than 2,300 square feet today. But one thing is sure: It didn’t happen because the median earners have become dramatically more prosperous. On the contrary, the median hourly wage of American men, adjusted for inflation, is actually lower now than it was in 1980.
In short, one effect of rising income inequality has been to make it far more difficult for middle-income families to make ends meet. Census data reveals a strong connection between growth in income inequality and increases in symptoms of financial distress.1 In the 100 largest U.S. counties, for instance, those where income inequality grew the most were also those experiencing the largest increases in bankruptcy filings. Those same counties also saw the largest increases in long automobile commutes (another symptom of financial distress, because cash-strapped families often respond by moving farther from the center, where housing is cheaper). Personal relationship difficulties are another indirect measure of financial distress. The counties that experienced the largest growth in income inequality were also the ones that saw the largest increases in divorce filings.
Professor Frankfurt does not mention wasteful expenditure cascades as a side effect of growth in inequality. But others have dismissed the invocation of positional concerns, which they characterize as “keeping up with the Joneses”, a description that unfortunately suggests that the cascades involve insecure people who are trying to appear wealthier than they are. That portrayal makes it easy for many to dismiss the phenomenon because they know they don’t care about keeping up with the Joneses. In fact, however, positional concerns mainly reflect the strong link between context and evaluation. Everyone likes nice things, and few are ashamed to admit it. But what counts as nice is always and everywhere highly context-dependent, and that fact alone is sufficient to spawn wasteful cascades.
Perhaps Professor Frankfurt would concede that growth in income inequality has the negative side effects I’ve described but go on to argue that it is the side effects, not the growth in inequality itself, that is morally objectionable. But that raises the question of what apart from its direct or indirect effects could ever make a phenomenon morally objectionable. To a consequentialist, the morally correct choice is the one that leads to the best consequences overall. So, under the consequentialist paradigm, if the practical policy question is whether we should take steps to restrain the growth of income inequality (for example, by adopting a slightly more progressive tax structure), the answer would be “yes” if the consequences of that change would be positive on balance. And in that case, we would say, uncontroversially, that reducing inequality was a moral imperative, even if it did nothing other than eliminate side effects of inequality.
Changing the tax structure would of course have many complex consequences that would be difficult to predict precisely. But available evidence suggests that a slightly more progressive tax structure would have positive effects on balance. With less disposable income to spend, the wealthiest families would not be able to increase the size of their houses as rapidly as in the recent past. But since the wealthy are long past the point at which relative, rather than absolute, house size is what really matters, slower mansion growth would not reduce their well-being in any significant way. And if the mansions grew a little more slowly, people further down the income ladder would experience less indirect pressure to increase their own expenditures on housing. That change would count as a clear benefit for those families, most of whom now have little savings and carry large amounts of personal debt. The additional tax revenue could be used to help to tackle the country’s massive infrastructure backlog, to the benefit of families all along the income scale. In short, even in the absence of more detailed empirical evidence, consequentialist moral reasoning strongly suggests that taking steps to limit income inequality would be the morally correct thing to do, even if inequality’s side effects were the only matter of concern.
But what if there were no “real” negative side effects of increased income inequality? That is, what if the only negative consequences were the negative feelings experienced by those whose relative incomes declined? It’s hard to image a world like that. But for the sake of discussion, consider a society with such a well-developed social safety net that increased income inequality would have no negative ramifications for people’s health, or for their ability to compete for good jobs, or for their ability to achieve other important life goals. In such a society, would it then follow, as Professor Frankfurt implies, that increased income inequality would not be morally objectionable? Clearly, it would be less objectionable than in our world, in which rising inequality limits people’s ability to achieve important life goals. But it would still be morally objectionable.
In a world with a perfect social safety net, the best response to people who feel bad about having less than others might be to say, “mind your own business and stop fretting that others have more.” Most parents already offer similar advice to their children, notwithstanding the gaping holes in our current safety net. But given the competitive environments we inhabit, few parents would want their children to be stripped of positional reasoning entirely. In those environments, success requires periodic self-assessment, and the “how am I doing?” question can’t be answered without a suitable frame of reference.
Our brains evolved over millions of years as instruments for guiding us to take those actions most likely to project descendants into future generations. Through the ages, relative resource holdings were by far the strongest predictor of which family lines would survive. During frequent famines, for example, there was always some food available, and it was those with the highest relative incomes who got fed. High relative income was also the strongest predictor of success in the competition for mates. Imagine two genetic variants: one that was indifferent to relative position, the other that valued it strongly. On the plausible assumption that valuing high relative position makes someone more likely to expend the effort required to acquire and maintain it, selection pressure would have strongly favored the latter variant.
Living in a society with the best imaginable social safety net would greatly lessen, perhaps even eliminate, the real negative consequences of having low relative position, but it would not alter the brains we inherited. And so people with significantly smaller incomes than their peers would still feel a measure of agitation and distress about that fact, even if they knew that there would be no other real consequences of having low relative income. Their bad feelings would of course count as a cost in a consequentialist moral analysis, but that by itself would not establish that inequality was morally objectionable. Those who had high incomes would enjoy good feelings because of that fact, and those feelings would be reckoned as an offsetting benefit. And any system would have to permit at least some income inequality, lest a complete absence of work incentives result in universal poverty. But even taking these additional issues into account, a consequentialist reckoning would almost certainly conclude that inequality beyond some point would be morally objectionable.
One factor in support of that claim is the well-documented asymmetry in human reactions to gains and losses: People reliably fight much harder to avoid a loss than they would to achieve a gain of the same amount. This asymmetry also applies to gains and losses of position. It implies that departures from complete equality produce net losses in the domain of feelings, since the good feelings of those who gain position are outweighed on balance by the negative feelings of those who lose position.
Again, this analysis does not imply that complete equality should be our moral objective. Up to a point, stronger work incentives created by departures from complete equality produce material gains sufficient to compensate for any resulting bad feelings. But incentive effects are subject to sharply diminishing returns. Available evidence suggests that work incentives don’t change much over a broad range of possible income tax rates. It would thus be altogether plausible to view inequality past a given point as morally objectionable even in a world with a social safety net that eliminated all possible consequences of inequality except hurt feelings.
But that’s, of course, not the world we live in. Inequality is already near record levels, and further increases will surely lead to real injuries in millions of lives. That prospect suggests yet another reason for skepticism about inequality’s moral neutrality. Although some moral norms may have been handed down upon tablets from on high, many others have a more humble origin. They sprang up spontaneously in the course of social interaction and have persisted because they helped solve important practical problems for the groups that embraced them. Suppose it could be shown that inequality per se is not objectionable but that its numerous side effects cause a multitude of costly social problems. Professor Frankfurt’s suggestion would be to use regulation to ameliorate each of those side effects directly. In the highly polarized American political climate, that approach appears unpromising, since each of the many necessary remedies would face stiff political opposition. To be sure, limiting inequality through the tax system would also be challenging in this climate. But it would involve only a single battle. And embracing a norm that held acute inequality to be morally objectionable could only boost the odds of winning that battle.
Professor Frankfurt almost surely did not intend for people to view income inequality as a matter of indifference. Yet the arguments he advances, if accepted uncritically, can only strengthen the hand of those who favor policies that would increase inequality still further. Such increases would cause enormous harm, and the irony is that they would do nothing to help their ostensible beneficiaries. Wealthy families would be able to build bigger mansions and stage more elaborate coming-of-age parties for their children. But those steps would merely raise the bar that defines what’s enough, even for them.
1Robert H. Frank, Adam Seth Levine, and Oege Dijk (2014), “Expenditure Cascades”, Review of Behavioral Economics, Vol. 1, No. 1–2, pp. 55-73.