Is there an optimal amount of inequality? Americans seem much more disposed than Western Europeans to tolerate inequality: indeed, the American dream presupposes inequality, because the notion that a person can work hard and “get ahead” means not only getting above the economic station one was born into but also getting ahead of others.
Americans seem unbegrudging of the fortunes made by tech entrepreneurs like Bill Gates and Steve Jobs, of sport greats like Michael Jordan and Tiger Woods, and the more modest wealth of the doctors, lawyers, and accountants in their communities.
It’s not inequality per se that riles Americans, but today there is much ferment about “the 1 percent” and complaint—even by the president—about “the rich.” This is puzzle: why is it that Americans, historically tolerant of some people prospering more (even much more) than others, are now grumbling about the rich?
Harvard behavioral economist—and MacArthur Genius Award-winner—Sendhil Mullainathan, writing in the New York Times last weekend, suggests that the chief causes are the ugly and primal emotions of jealousy and envy, and that those who are angry about the 1 percent should get over these feelings:
Our passion about the widening disparity in wealth and income is easy to understand. After all, studies often find that unequal incomes reduce happiness. Of course they do: Jealousy and envy are strong emotions. They are also very basic ones that develop as early as 4 months of age. There is even evidence that great apes are averse to inequality. And though there is debate about that point, at least it produces enjoyable videos. Our outrage at inequality is primal.
The grown-up thing to do, he suggests, is to focus on policies and proposals that will benefit the lowest-earning Americans.
In effect, Mullainathan is saying, the relative standards of living of Americans don’t matter—it’s the absolute standard of living of those at the bottom that merits attention.
The idea that we should focus on the absolute standards of those at the bottom rather than the relative standards of the poor vis-à-vis the rich has a long tradition in political theory. The nub of the argument is that what truly counts is the standard of living individuals themselves experience. The poor today live better than kings did a few centuries ago—if their income has not grown as much as the rich’s has, that doesn’t truly matter.
The argument that only the absolute standard of living for those at the bottom matters is a serious one; but the rival argument that relative standards of the poor vis-à-vis the rich matters is also a serious one—and one needn’t be motivated only by jealousy and envy to take such a stand.
For example, the notion of the American dream presupposes inequality of outcome—but also that people have a fair shake at trying to “make it big”—and the more America develops a tier of stratospherically rich people who share networks, memes, and resources that the lower- and middle-class folks are cut out of, the less credible will be the notion of the American dream. The argument that relative standards of living matters is premised on the assumptions that there should be enough opportunity for wealth to spur on entrepreneurs whose innovations bring social and economic benefits, but not so much wealth that the gap between poor and rich is unbridgeable.
Even in the Gilded Age of the late nineteenth and early twentieth centuries, there was a sense that there was a bounds beyond which income inequality was a problem for American democracy: for example, the financier J. P. Morgan is said to have asserted that the compensation of a company’s chief should not be more than twenty times the average salary (a ratio far exceeded at many companies today).
The question is not whether or not inequality is tolerable—Americans plainly think it is. The key questions are: is there an optimal amount of inequality in American society, and should we try through public policy and philanthropy to limit inequality? The concern with the optimal degree of inequality means that the attention given to the 1 percent is not motivated, as Mullainathan suggests, only by jealousy and envy (although there’s plenty of that too) but by legitimate questioning about whether or not the degree of inequality today has grown beyond what is appropriate to a country that prides itself on being a country of opportunity for all.