Nye and Wilkinson on Inequality, Status Competition, and Domination
by Elizabeth Anderson
The Conversation
October 26th, 2009
John Nye asks, “What measure of inequality do Kenworthy and Anderson wish to observe that would lead them to say, ‘Ok. No more needs to be done’?” I can’t speak for Kenworthy. My answer was implicit in the reasons I gave for reducing economic inequality: to eliminate socioeconomic causes of vulnerability to domination, stigmatization, and state neglect of one’s interests and views. There is no a priori measure of this: since reducing economic inequality is an instrument to eliminating unjust social hierarchy, and not an end in itself, the answer can only be discovered empirically. This also means that to the extent that we can provide other means besides reducing economic inequality to enable people to escape or avoid subordination in these objectionable relationships, and empower them to relate to others on terms of equality, egalitarians should have greater tolerance for pure income or wealth inequality. For example, the more effectively we can block exchanges of money for political influence, say, through public funding of elections, the less sheer income or wealth inequality matters.
Similarly, the more avenues there are for people to attain recognition from others besides money, the less we need to worry about wealth inequality. Scandinavians tend to disdain conspicuous consumption, so even the wealthy can’t grind others under their boots by showing off. Just take a look at the spartan grounds of the Royal Palace in Oslo. Almost any middle-class American suburban home has more lavish grounds than this, and many an American home is more ostentatious, if smaller. Economic inequality is more worrisome in the United States than in Scandinavia, because conspicuous consumption is more intense and vicious here.
Nye also asks, “Let us assume you have the most generous welfare state in the world: How is that relevant to the measurement of income/wealth inequality?” A generous welfare state reduces income/wealth inequality, firstly, by bringing up the bottom. Such a state needs to be funded by taxation. Where is it optimal to tax? It pays to start where the rents are. Although there are good reasons to believe that most employed people are enjoying some employment rents (because most labor markets up and down the pay scale don’t clear at the equilibrium wage), rents get fatter the higher up one goes, so it is efficient to raise revenues through a progressive income tax. It also pays to tax where the welfare losses are smallest. Since the marginal utility of income falls as people get richer, welfare losses are also smaller at the top. Moreover, to the extent that, as people get richer, they spend more on conspicuous consumption, Robert Frank is right that this is a zero-sum game, and there is no welfare loss from taxing it. This is another reason for progressive income taxes and luxury taxes. Inheritance taxes on great wealth are also efficient, since their primary incentive effect is to force otherwise ne’er-do-well heirs to support themselves by working. And they generate negligible direct welfare loss, since they tax the dead. Hence, a generous welfare state reduces income/wealth inequality, secondly, by bringing down the top.
Wilkinson blames the poor for their self-destructive spending on status goods, while commending the market for making their access to such goods cheaper. They can even get the castoffs of the rich from Goodwill! He naively underestimates the cruel discernment of those higher up, who taunt and humiliate those wearing out-of-fashion castaways and cheap knockoffs. He also wonders how “lopping off the top decile of the income distribution” could possibly help the poor, given that people compete for status with those just above them, not with those completely out of their league. The answer is that conspicuous consumption is a form of spiteful competition, which cascades down the rungs of the income ladder. What those once-fashionable castaways yield for the poor is not a chance to save face before those just above them (since those just above know better), but rather a chance to lord it over those just below them. This is some consolation prize that economic inequality is giving them! Only it’s coming out of the hide of those even less advantaged than they are. Compress the distance between the top and bottom rungs, and there is considerably less scope for such spiteful competition, so it seems pointless and absurd. No wonder Scandinavians disdain conspicuous consumption. Reducing economic inequality, then, is a positive-sum game, because it reduces the scope for spite in society — and its inevitable counterpart, envy.
Of course, this does not eliminate status competition altogether. No doubt, the quest for recognition from others is a deep-seated trait in human beings. Wilkinson extols status competition when it motivates people to undertake “the right kinds of activities.” Quite right. But I can’t see how, when status competition amounts to purely spiteful competition, as it does in conspicuous consumption, this is the right kind of activity. Reduce the scope for spiteful consumption, and people will be more likely to seek status on the basis of worthwhile activities — achievement at work, in athletics, science, music and the arts, philanthropy, public and community service, and yes, very importantly, business — but the latter achievement will be measured in actually delivering the goods, not in executive pay packages rigged to richly reward failure and malfeasance.
Wilkinson wonders how reducing income or wealth inequality can help the less advantaged escape or avoid domination. He imagines a scenario in which Poor’s bargaining power is improved by providing Poor with reasonable alternatives, but Rich’s (post-tax?) income grows even more than Poor’s does, so inequality increases. Sure, such a scenario can be imagined, but how likely is it? A generous welfare state (or rather, social democracy) is one way to provide poor with reasonable alternatives, but, as I’ve noted, a rational funding mechanism for this will reduce economic inequality. Alternatively, Poor’s bargaining power can be increased by raising Rich’s cost of exit — say, by unionizing the workforce of Rich’s company, or the workforce as a whole. This will also tend to reduce inequality between Poor and Rich.
Still, I agree that since my case for reducing income inequality is instrumental, to the extent that we implement non-income-inequality-reducing yet effective causal routes to the same ultimate ends — enabling people to avoid or escape unjust forms of social hierarchy, and empowering them to relate to others on terms of equality — then there is less reason to seek policies that reduce income inequality. My question to Wilkinson and Nye is: what makes preserving income inequality so valuable, that we ought to seek such alternative routes?
October 26th, 2009 at 1:33 pm
[...] her most recent post, Elizabeth Anderson writes: Wilkinson blames the poor for their self-destructive spending on [...]