catallaxy files

catallaxy in technical exile

Norms of inequality

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Andrew Leigh’s recent paper on income shares of the very rich, which shows them taking a larger share over time, also suggests some reasons why this may have happened. The paper’s abstract, cited on Andrew’s blog, says:

We speculate that changes in top income shares may have been affected by top marginal tax rates, skill-biased technological change, social norms about inequality, and the internationalisation of the market for English-speaking CEOs. (Emphasis added)

Of these, by far the least likely is a change in social norms. And this is only partly because it’s hard to find any evidence that social norms have changed much. In an article called ‘Is there too much inequality in Australia?’, published in the December 2004 issue of Australian Social Monitor, Jonathan Kelley and his colleagues use the Australian component of the International Social Science Survey to show virtually no change in attitudes between 1984 and 2002. Using the Australian Election Study question on redistributing income and wealth to ordinary working people I can find only a little change between 1996 and 2004, and this small amount (4 percentage points) is in the direction of redistribution.

The larger reason why social norms are unlikely to be a major factor is that the level of inequality in society is the result of millions of decisions, almost none of which would factor in the consequences on overall income distribution. The famous Wilt Chamberlain example in Robert Nozick’s Anarchy, State and Utopia highlights the problem. Wilt Chamberlain was a star attraction basketball player, and Nozick outlines a scenario in which Chamberlain receives 25c for every person who attends a game he plays in. If a million people attend, Chamberlain ends up with $250,000 (a lot more when the book was published in 1974 than today). Nozick’s point is about the justice of this – if the prior income distribution was just, why is Chamberlain’s wealth unjust if a million people all voluntarily give him 25c? But also few of those million people could have known what Chamberlain’s final take-home pay would be, much less how this could affect broader American wealth distribution.

The company boards that are authorising absurd CEO pay levels are going to be a bit more conscious of the effects of their decisions than Chamberlain’s fans. Yet even these decisions will be concerned with micro rather than macro factors: what does it take to keep this CEO with the company, not what effect his pay will have on the national income inequality gini coefficient.

Even many of the measures than in practice reduce income inequality are only loosely conected to ‘norms of inequality’. For example, one reason that income inequality has not changed much during the Howard years is all the money the government is spending on family benefits. A belief in the importance of the family, not a belief in the importance of income equality, is behind these benefits.

Inequality norms can be important at a local level, where unjustified inequalities are resented. The narrowing of differences at this level can flow through to national statistics. But overall national inequality is far too complex for there to be a strong relationship between general norms and actual results.

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Written by Admin

March 18, 2006 at 2:49 pm

Posted in Uncategorized

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