City Journal
Not income equality, but mobility and opportunity
The United States is a rich nation getting richer. According to the U.S. Census, between 1993 and 2003 the average inflation-adjusted income in the top quintile of American earners increased 22 percent. But prosperity didn’t end with the top earners: those in the middle quintile saw their incomes rise 17 percent, on average, while the bottom quintile enjoyed a 13 percent increase. This isn’t a short-term phenomenon, either. In the 30 years leading up to 2003, top-quintile earners saw their real incomes increase by two-thirds, versus a quarter for those in the middle quintile and a fifth among the bottom earners.
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Edwards is one of a group of liberal politicians, policymakers, and social activists who want to reduce economic inequality through greater taxation and redistribution of wealth. And their plan draws inspiration from a particular academic theory: that inequality is socially destructive because it makes people miserable. As a scholar working in the field of public policy, I have long witnessed hand-wringing about the alleged connection between inequality and unhappiness. What first made me doubt this prevailing view was not some new scholarly study but rather that when I questioned actual human beings about it, few expressed any shock and outrage at the enormous wealth of software moguls and CEOs. On the contrary, they tended to hope that their kids might become the next Bill Gates.
Were these people somehow unrepresentative of America? Or was the academic consensus wrong? I set out to discover which it was. What I found was that economic inequality doesn’t frustrate Americans at all. It is, rather, the perceived lack of economic opportunity that makes us unhappy. To focus our policies on inequality, instead of opportunity, is to make a grave error—one that will worsen the very problem we seek to solve and make us generally unhappier to boot.
The egalitarians’ argument usually starts with the assertion that prosperity is all relative. So long as we are above the level of basic subsistence, they say, we care more about our financial position relative to others than about our absolute income. Experimental evidence, they continue, supports this claim. In one study, two-thirds of subjects said that they would be happier at a company where they earned $33,000 while their colleagues earned $30,000 than at one where they earned $35,000 while their colleagues earned $38,000. In another, 56 percent of participants chose a job paying $50,000 per year while everyone else earned $25,000, rather than a job paying $100,000 per year while others made $200,000—forgoing $50,000 per year simply to maintain a position of relative affluence. In a world of economic inequality, the egalitarians point out, some people have less than others—and as these studies seem to show, that very fact will make them unhappy, even if they are suffering no actual deprivation. The solution to their unhappiness is to impose greater economic equality.
And the way to do that, of course, is to tax the haves and redistribute their income to the have-nots. Cornell economist Robert Frank, a major critic of income inequality, adds that such a move might not make the rich as unhappy as you’d think, since they tend to use their income on things they don’t really want or need. “We could spend roughly one-third less on consumption,” Frank writes, “and suffer no significant reduction in satisfaction.” Some egalitarians even make the astounding argument that we should tax the economically successful in order to discourage them from working, since their work will only make them richer and thus sadden the less successful. According to British economist Richard Layard, “If we make taxes commensurate to the damage that an individual does to others when he earns more”—the damage to others’ happiness, that is—“then he will only work harder if there is a true net benefit to society as a whole. It is efficient to discourage work effort that makes society worse off.” Work, according to this postmodern argument—contrary to millennia of moral teaching—is no different from a destructive vice like tobacco, which governments sometimes tax in order to discourage people from smoking.
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But there is another, more fundamental, reason that the arguments linking economic inequality to unhappiness are mistaken. If the egalitarians are right, then average happiness levels should be falling. But they aren’t. The GSS shows that in 1972, 30 percent of the population said that they were “very happy” with their lives; in 1982, 31 percent; in 1993, 32 percent; in 2004, 31 percent. In other words, no significant change in reported happiness occurred—even as income inequality increased by nearly half. Happiness levels have certainly shown some fluctuations over the last three decades, but income inequality explains none of them.
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But happiness does rise if people believe that their families have a chance of improving their standard of living. That belief is worth 12 percentage points in the likelihood of being “very happy.” The GSS asked respondents, “The way things are in America, people like me and my family have a good chance of improving our standard of living—do you agree or disagree?” Those who agreed were 44 percent more likely than those who disagreed to say that they were “very happy,” 40 percent less likely to say that they felt “no good at all” at times, and 20 percent less likely to say that they felt like failures. In other words, those who don’t believe in economic mobility—for themselves or for others—are not as happy as those who do.
This important fact is another reason that the two studies cited above don’t show what the egalitarians think they do: they posit a static universe, a fictional place where incomes don’t change. Perhaps in a world where you have no opportunity for advancement, the most important thing about your income really is how it measures up to other people’s. But in the real world, our attitude about the future matters a great deal. In the 1990s, economist Andrew Clark found that the happiness of British workers actually rose as their reference group’s average income rose relative to their own income—because they saw that rise as evidence of what they themselves could achieve. People take the average income in their group as a measure of their own potential. Rising inequality can even raise our happiness by demonstrating the success that our future may hold.
Believing in mobility helps make people happy, then. But does mobility actually exist in the United States? The Left doesn’t think so. Liberals, including rich liberals, are far less likely than conservatives to see a better future for people who work hard. Just 26 percent of liberals with incomes above the national average believe that there’s a lot of upward income mobility in America, versus 48 percent of conservatives with below-average incomes. And 90 percent of the poorer conservatives said that hard work and perseverance could overcome disadvantage, versus 65 percent of the richer liberals. If a liberal and a conservative are exactly identical in income, education, sex, family situation, and race, the liberal will still be 20 percentage points less likely than the conservative to say that hard work leads to success for the disadvantaged.
It is small wonder, then, that conservatives tend to be happier than liberals today. The 2004 GSS showed that 44 percent of people who identified themselves as “conservative” or “extremely conservative” were “very happy” about their lives; only 25 percent of self-identified liberals or extreme liberals gave that response. Conservatives believe that they live in a more promising country than liberals do, and that makes them happier.
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And those left behind, it’s important to note, will almost certainly not become happier if we redistribute more income. Indeed, they will probably become less happy. Policies designed to lower economic inequality tend to change the incentives of both the haves and the have-nots in a way that particularly harms the have-nots. Reductions in the incentives to prosper mean fewer jobs created, less economic growth, less in tax revenues, and less charitable giving—all to the detriment of those left behind. And redistribution can, as the American welfare system has shown, turn beneficiaries into demoralized long-term dependents. As Irving Kristol put it three years before the federal welfare reform of 1996, “The problem with our current welfare programs is not that they are costly—which they are—but that they have such perverse consequences for people they are supposed to benefit.”
Further, policies to redress economic inequality hardly affect true inequality at all. Policymakers and economists rarely denounce the scandal of inequality in work effort, creativity, talent, or enthusiasm. We almost never hear about the outrage that is America’s inequality in leisure time, love, faith, or fun—even though these are things that most of us value more than money. To believe that we can redress inequality in our society by moving cash around is to have a materialistic, mechanistic, and totally unrealistic understanding of the resources that we truly care about.
Finally, arguments against inequality legitimize envy. Americans may indeed have strong concerns about their relative incomes and may seek status as reflected in their economic circumstances. But to base our policies on the anxieties of those at the back of the status race is to bow before Invidia. A deadly sin is not, in my view, a smart blueprint for policymaking.
A more accurate vision of America sees a land of both inequality and opportunity, in which hard work and perseverance are the keys to jumping from the ranks of the have-nots to those of the haves. If we can solve problems of absolute deprivation, such as hunger and homelessness, then rewarding hard work will continue to serve as a positive stimulant to achievement. Redistribution and taxation, beyond what’s necessary to pay for key services, weaken America’s willingness and ability to thrive.
This vision promotes policies focused not on wiping out economic inequality, but rather on enhancing economic mobility. They include improving educational opportunities, aggressively addressing cultural impediments to success, enhancing the fluidity of labor markets, searching for ways to include all citizens in America’s investing revolution, and protecting the climate of American entrepreneurship. (more)
