People Will Spend Money To Make Wealthier Poorer
Explaining the appeal of liberal economic ideas
James Fowler at UC San Diego and colleagues have performed an interesting study about the willingness of people to spend their own money to lower the wealth of others. (PDF format)
Participants in laboratory games are often willing to alter others’ incomes at a cost to themselves, and this behaviour has the effect of promoting cooperation1–3. What motivates this action is unclear: punishment and reward aimed at promoting cooperation cannot be distinguished from attempts to produce equality4. To understand costly taking and costly giving, we create an experimental game that isolates egalitarian motives. The results show that subjects reduce and augment others’ incomes, at a personal cost, even when there is no cooperative behaviour to be reinforced. Furthermore, the size and frequency of income alterations are strongly influenced by inequality. Emotions towards top earners become increasingly negative as inequality increases, and those who express these emotions spend more to reduce above-average earners’ incomes and to increase below-average earners’ incomes. The results suggest that egalitarian motives affect income-altering behaviours, and may therefore be an important factor underlying the evolution of strong reciprocity5 and, hence, cooperation in humans.
It is no wonder that redistibutive taxes are popular. Economists argue against highly progressive taxes by claiming (probably accurately) that such taxes reduce economic growth. But the participants in this experiment showed themselves willing to reduce their own net worths in order to reduce the net worths of wealthier people. The economists therefore are arguing against a harm that many people are in fact quite willing to inflict on themselves. I see this as driven by a need to lower the status of others who have much higher status. The feeling of one's status position is a relative feeling. If the money spent lowering status of others is less than the money lost by others then policies that do offer considerable appeal.
To separate motives, we use a simple experimental design to examine whether individuals reduce or augment others’ incomes when there is no cooperative normto advance (see Methods). We call these behaviours ‘taking’ and ‘giving’ instead of ‘punishment’ and ‘reward’ to indicate that income alteration cannot change the behaviour of the target. Subjects are divided into groups having four anonymousmembers each. Each player receives a sum of money randomly generated by a computer. Subjects are shown the payoffs of other group members for that round and are then provided an opportunity to give ‘negative’ or ‘positive’ tokens to other players. Each negative token reduces the purchaser’s payoff by one monetary unit (MU) and decreases the payoff of a targeted individual by three MUs; positive tokens decrease the purchaser’s payoff by one monetary unit (MU) and increase the targeted individual’s payoff by threeMUs. Groups are randomized after each round to prevent reputation from influencing decisions; interactions between players are strictly anonymous and subjects know this. Also, by allowing participants more than one behavioural alternative, the experiment eliminates possible experimenter demand effects12—if subjects were only permitted to punish, they might engage in this behaviour because they believe it is what the experimenters want.
Over the five sessions income alteration was frequent. Among participants, 68% reduced another player’s income at least once, 28% did so five times or more, and 6% did so ten times or more. Also, 74% of participants increased another player’s income at least once, 33% did so five times or more, and 10% did so ten times or more. Most (71%) negative tokens were given to above-average earners in each group, whereas most (62%) positive tokens were targeted at below-average earners in each group.
I see a lesson here that is applicable to the immigration debate: Human societies have a limit to the amount of inequality that people will tolerate. Given that many of the forces that generate inequality do so by incentivizing the most productive to generate wealth we should ask whether we should avoid other policies that generate inequality without generating much wealth.
To put it another way: Think of societies as having inequality budgets. A society has a fixed amount of inequality to spend. In my view it is better to spend that inequality on policies that cause economies to generate the most wealth per person and the most new technology and science. Policies that generate a lot of inequality with little increase in productivity of wealth creators (e.g. immigration of people who have low skills and low earnings power) essentially waste inequality that would be better spent on incentive systems for those with the most potential to generate wealth.
Beyond some level of inequality the masses will demand taxes and other measures to limit the extent of inequality. The masses probably wont' show fairness or wisdom when they demand such taxes and other restrictions on the power of wealth. But by supporting such policies they are catering to their own very deeply felt needs for higher relative status and a reduction in the feeling that wealthier people control their lives.
One of the fundamental problems I see in the world:
Globalization is making people part of much larger status hierarchies. In an earlier era of much less communications technology one could only worry about one's status vis a vis one's local community. Now one can develop an appreciation of what one's status is vis a vis all the billionaires or all the national leaders or all the corporate CEOs or all the best athletes or prettiest models around the room. This inevitably gives most people a much larger group of people who seem like they have higher status. Therefore global feelings of lower relative status might well be growing.
By Randall Parker
futurepundit.com |
