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July 22, 2008

Harvard misunderstands America

My father used to say that you had to be really smart to be really stupid. This article about a bunch of Harvard professors would have confirmed him in that wisdom.

The thrust of the article is that there is a wide and growing gap in income in the United States between rich and poor. This is what keeps professors at the nation's richest university awake at night.

Disparities in health tend to fall along income lines everywhere: the poor generally get sicker and die sooner than the rich. But in the United States, the gap between the rich and the poor is far wider than in most other developed democracies, and it is getting wider. That is true both before and after taxes: the United States also does less than most other rich democracies to redistribute income from the rich to the poor.
There we go: redistribution of income. I guess it's time for poorer universities to start grabbing some of Harvard's endowment.

Our failure to redistribute income adequately is a huge problem, according to the folks at Harvard:
The level of inequality we allow represents our answer to “a very important question,” says Nancy Krieger, professor of society, human development, and health at HSPH: “What kind of society do we want to live in?”
Obviously, a society that rewards economic risk-taking and hard work with confiscatory taxes. Far better than what Professor Lawrence Katz fears we're creating -- "something like a caste society." That must be why so many Indian engineers have moved here.

But what kind of inequality do we really have in this country if there is so little true poverty? It turns out that it's not so much actual poverty that's important but "relative deprivation."
The idea is that, even when we have enough money to cover basic needs, it may harm us psychologically to see that other people have more. When British economist Peter Townsend developed his relative deprivation index in 1979, the concept was not new. Seneca wrote that to be poor in the midst of riches is the worst of poverties; Karl Marx wrote, “A house may be large or small; as long as the neighboring houses are likewise small, it satisfies all social requirement for a residence. But let there arise next to the little house a palace, and the little house shrinks to a hut.”
Ah, yes, Karl Marx. That worked out well, didn't it?

As most non-academics understand, the United States is both the most prosperous country in the world and the one with the smallest amount of serious poverty -- certainly when you consider countries with large populations. The explanation is also pretty obvious outside of academia: We have a generally capitalistic economic system; we have an economic and social system that encourages entrepreneurialism; we have a relatively low level of discrimination in the economic realm; and we have a general attitude (again, outside of academia) that people can reach for the stars. We have some redistribution of income, but we don't see government solutions to every problem. Americans are notoriously generous with their own money. ("The United States is 'a land of charity,' says Arthur Brooks, an expert on philanthropy and a professor at Syracuse University's Maxwell School, who sees charitable giving and volunteerism as the signal characteristic of Americans.")

The Harvard professors don't seem to get it. The article cites "Americans’ unique attitudes toward inequality," but it immediately proceeds to caricature those attitudes:
It makes intuitive sense that those who view poverty as a personal failing don’t feel compelled to redistribute money from the rich to the poor. Indeed, Ropes professor of political economy Alberto Alesina and Glimp professor of economics Edward L. Glaeser find a strong link between beliefs and tax policy: they find that a 10-percent increase in the share of the population that believes luck determines income is associated with a 3.5-percent increase in the share of GDP a given nation’s government spends on redistribution (see “Down and Out in Paris and Boston,” January-February 2005, page 14).
These professors also caricature Americans as racist: "Those U.S. states with the largest black populations have the least generous welfare systems." Another professor agrees:
And in a nationwide study of people’s preferences for redistribution, Erzo F.P. Luttmer, associate professor of public policy at the Harvard Kennedy School (HKS), found strong evidence for racial loyalty: people who lived near poor people of the same race were likely to support redistribution, and people who lived near poor people of a different race were less likely to do so. Differences in skin color seem to encourage the wealthy to view the poor as fundamentally different, serving as a visual cue against thinking, “There but for the grace of God go I.”
But my personal favorite caricature is this one:
The Constitution is structured in such a way that it is harder to change than the constitutions of Europe’s welfare states, where left-leaning groups have succeeded at writing in change. By and large, Alesina and Glaeser write, the U.S. Constitution “is still the same document approved by a minority of wealthy white men in 1776.”
In case you missed their point, let me explain: The Constitution protects property and is difficult to amend. This was done because the Constitution was written by a minority (in the bad sense of the term) of "wealthy white men" who favored their own interests over those of non-wealthy white men, as well as wealthy white women, and wealthy non-white men, all of whom were too busy watching reruns of 18th-century sitcoms to rise up against the protection of private property. What's worse, this system unfortunately prevents "left-leaning groups" from solving poverty through redistributive schemes.

So why haven't Americans risen up against this staggering inequality? First, apparently, non-rich Americans suffer from false consciousness: "The prospect of upward mobility forms the very bedrock of the American dream." Unfortunately, says the article, this bedrock is based on quicksand.
In fact, a recent Brookings Institution report cites findings that intergenerational mobility is actually significantly higher in Norway, Finland, and Denmark—low-inequality countries where birth should be destiny if inequality, as some argue, fuels mobility.

In the United States, the correlation between parents’ income and children’s income is higher than chance: 42 percent of children born to parents in the bottom income quintile were still in the bottom quintile as adults, and 39 percent of children born to parents in the top quintile remained in the top quintile as adults, according to the Brookings analysis.
This is really the wrong question, though. The right question is whether individuals themselves remain in the same quintiles through their working careers. That is, is there economic mobility in the United States? The answer is that there is substantial mobility, as the data in this analysis show. Pay attention, in particular, to the discussion of mobility out of the bottom two quintiles and the information on these charts from pages 17 and 18:

The second reason the article offers for Americans' failure to rebel is that the political deck is unfairly stacked against the poor. Sure, we no longer have property ownership as a qualification for the vote. Sure, everyone's vote is equal, regardless of income. Sure, there are a lot more non-rich than rich. But money's still a big factor in politics.
More than half of households make less money than average, so, broadly speaking, more than half of voters should favor policies that redistribute income from the top down. Instead, though, nations—and individual states—with high inequality levels tend to favor policies that allow the affluent to hang onto their money.

Filipe R. Campante, an assistant professor of public policy at HKS and a former student of Alesina’s, thinks he’s discovered why. After investigating what drives candidates’ platforms and policy decisions, Campante has concluded that donations are at least as influential a mode of political participation as votes are.
You might think that some below-average-income voters would accept that everyone is entitled to his own money and not demand redistribution. But let's indulge the Harvard academics their assumptions. The theory is this:
Candidates, naturally, target voters with money because they need funds for their campaigns. And since the poor gravitate toward parties that favor redistribution and the wealthy align themselves with parties that do not, campaign contributions end up benefiting primarily parties and candidates whose platforms do not include redistribution. By the time the election comes around, the only candidates left in the race are those who’ve shaped their platforms to maximize fundraising; poor voters, says Campante, have already been left out.
I think my father would have been shaking his head and grumbling at this explanation. The wealthy in the current electoral cycle are actually favoring the Democrats, whose pitch is far more redistributionist than the Republicans'.

In any event, Campante's explanation makes little sense. Both of the major political parties are awash in campaign contributions, so how can it be that "campaign contributions end up benefiting primarily parties and candidates whose platforms do not include redistribution"? Is Campante saying that the poor are harmed because no one's contributing to socialist third parties?

I have a radical suggestion that might actually explain things: Americans, by and large, think the system is fair. They like a system that lets poor people get rich and rich people become poor. They like the freedom. They know the system is imperfect, but they also doubt that the government knows better who deserves to keep his money and who deserves to have it taken from him.

Maybe I'm way too optimistic about this, but I think I have a stronger sense of reality than the Harvard professors interviewed in that article.