<>Societies with great inequality are more prone to poor health, social hostility and crime.
<>Listener: 29 August, 2009.
<>Keywords: Distributional Economics; History of Ideas, Methodology & Philosophy;
When I was working on the problems of inequality and poverty in the 1970s, my colleagues joked I was a social economist, even if they spent more time in bars, for social economics was seen as peripheral to the centre of economics. Never mind that it covers about three-quarters of Government spending.
But my colleagues’ jesting also reflected a discomfort with the issues that social economics raises. Homo economicus is an isolated being, whereas humans (including even economists who don’t go to bars) are intensely social. As economics spread its interests, it needed to broaden its account of how humans behave.
Recent research on inequality has increasingly confirmed this challenge. Richard Wilkinson’s book The Impact of Inequality notes that societies with great inequality are more prone to poor health, social hostility and crime. The cause seems to be stress, because those lower in social rankings suffer from the comparisons (the stress of keeping up with the Joneses) whereas those at the top are keen to show off. In a more equal society, the rankings are not as clear, conspicuous consumption is less effective at driving spending, and there is less stress, better health, less crime, less hostility and more social cohesion.
My initial research into recent trends in New Zealand society suggested economic inequality diminished after World War II, probably because we had full employment and as a society we cared about fairness.
However, from the mid-1980s economic inequality increased sharply, caused mainly by a tax regime more favourable to the rich and by lower real (inflation-adjusted) welfare benefits. More recently, the inequality has increased slowly. The more-market economy seems to be favouring skilled workers and senior managers, while we do little to even up their gains. (Not maintaining the wage relativity for benefits has not helped.)
Some evidence suggests the turmoil of the late 1980s increased the mortality rates of the poor. A scientist might hypothesise that recent increases in violent crimes were a result of the rising inequality, but would do so cautiously.
A second source of discomfort arises because the issue of equity gives policy advocates some tricky issues to grapple with. The giant of distributional economics, University of Oxford’s Tony Atkinson (I’ll break a column rule and mention he was knighted; social economics has a higher status elsewhere), reminds us that economics is a moral science. “Many of the ambiguities and disagreements about economic policy stem not from differing views about how the economy works but from differing values.”
The mantra “cut taxes for the rich” looks less attractive if one has to say “cut taxes for the rich and increase inequality”. Better to avoid it, especially in the form “cut taxes for the rich, increase inequality and imprison the criminals”.
So assessing social inequality involves deep philosophical issues that add to many of today’s economists’ discomfort because, with a few exceptions, they are not conversant with philosophy, despite some of the profession’s greats, such as John Stuart Mill and Amartya Sen, having contributed to it.
Which makes Dunedin student Sophie Elliott’s essay “Why Measure Inequality? A Discussion of the Concept of Inequality” all the more remarkable. It was published on the Oxonomics website (oxonomics.typepad.com) shortly before her murderer was convicted. Written as an University of Otago term essay when she was only 21 – a baby in economic terms – it was described by her teachers as “easily the best essay on equity and equality either of us had ever read”. Atkinson wrote: “Sophie’s essay is a testament to the way in which clear thinking and hard analysis can contribute to advancing our understanding of these crucial issues.”
We cannot measure the loss to Elliott’s family and friends, and to those she would have made had she the future she deserved. She is also a great loss to the economics profession.