The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [56]
This is how the line of argument will go.
The first section will look at the evidence on the existence of a sense of fairness as part of human nature, and on the evolutionary origins of a fairness instinct. This includes a diversion into how this understanding of human nature ties in with the standard assumption made in economics that people act in a self-interested way. I argue that economics is not only consistent with an appreciation that we have a fairness instinct but is actually fundamentally making the same assumption as the evolutionary sciences. “Self-interested” should not be interpreted to mean “selfish”—certainly not “selfish and rationally calculating at all times,” as a typical (and sometimes deserved) caricature of economics would have it.
The following sections will look at the statistics available on the degree of inequality in incomes—first, at inequality at the global level between nations; second, at the degree of inequality within different nations, and what has happened over time. There is a much smaller amount of evidence on the distribution of wealth, but it indicates that wealth inequality is greater still.
Then I will turn to the explanations economists offer for the pattern of inequality, and how well the evidence supports them. The main point of this section is that no single universal cause can explain differences in how income distribution has changed in different nations, so marked are the divergences. Even if there is one important economic cause (and it does seem to be technology that plays the main role), the wide variety of political and economic institutions means that the underlying forces play out in country-specific ways. Inequality is fundamentally a political and moral choice, although the politics involved is as much a matter of the acceptable long-term norms of the society as of short-term election issues such as top tax rates and welfare spending.
The final two sections will go on to consider the consequences of “too much” inequality. One considers the evidence—incomplete as it is—on the relationship between inequality and growth. The other looks at evidence on the impact of inequality on well-being and the long-term strength of society. One of the most important issues is how inequality affects social capital. This is, as will be discussed in the next chapter, fundamental to any economy and more so now than ever before as technology increases the complexity and interconnectedness of the global economy. In some countries—the United States and United Kingdom foremost among them—income and opportunities have become so unequal as to corrode the social fabric. The trend toward greater inequality is, if not yet unsustainable, well on its way to being so.
THE FAIRNESS INSTINCT
The evidence for the existence of a fairness instinct in humans comes from psychological experiments, evolutionary psychology, and primatology.
Some of the experimental results have become well known, thanks to the fashion for behavioral economics. One example is the “ultimatum game.” One of two players is given some cash to divide between the two of them. The second player can take or leave the offer, but if he rejects it, neither of them gets any money. Typically, offers that are too low are rejected, with the threshold being about a quarter or a third, even though the second player punishes themselves as well as the insufficiently generous first player. Much has been made of the fact that this contradicts the assumption in economics of rational self-interest—taken to its logical conclusion, this would suggest the second player should accept even a cent as better than nothing. This experiment and others indicate that a sense of fairness, and unfairness, trumps this strong version of the rational self-interest assumption.2
Too much weight is placed on this experimental psychological evidence, however. Behavioral economics