Inequality Is Bad for the Rich

Robert FrankI’ve been studying inequality for more than 30 years, and for most of that time it’s been an issue well out of the limelight. And so I’ve been delighted to see it enter the political conversation in a big way recently.

But something major is missing from that conversation, which centers on questions of fairness. Fairness clearly matters, but focusing on it presupposes a zero-sum competition between different classes. That’s consistent with the conventional view that inequality is good for the rich and bad for the poor, and so the rich should favor it while the poor should oppose it. But the conventional view is wrong.

High levels of inequality are bad for the rich, too, and not just because inequality offends norms of fairness. As I’ll explain, inequality is also extremely wasteful.

It’s easy to demonstrate that growing income disparities have made life more difficult not just for the poor, but also for the economy’s ostensible winners — the very wealthy. The good news is that a simple change in tax policy could free up literally trillions of dollars a year without requiring painful sacrifices from anyone…

—Robert Frank
Why Have Weddings and Houses Gotten so Ridiculously Expensive? Blame Inequality.

4 thoughts on “Inequality Is Bad for the Rich

  1. The lovely thing about Frank’s consumption tax idea is it’s very simple to grasp. I explained it to a non-political co-worker and she grasped it immediately. “Oh, you just use your W-2 and your bank statement.”

    It’s a political impossibility, as despite what Frank claims in the article, it wouldn’t be universally beneficial — it would harm the super-rich in the short term (and the super-rich do not care about long-term benefits to the economy.)

    We need more good ideas like this that are easy to explain (just as the other side has horrible ideas which are easy for them to explain, like the flat tax.) The more of them we have, the better the likelihood some eventually start being discussed, maybe at state levels.

    Good Frank interview in “Too Much”:

    • I actually have a major disagreement with Frank. The rich would never accept the idea that they would be just as “rich” with a Porsche as with a Ferrari. He doesn’t appreciate the psychology of this. Yes, in a reasonable world, people would only care about how good something would make them feel. But we live outside that theoretical world where expectations are lower. The rich can look and see that they would be richer in that world with a Ferrari. Yes, most people would be thrilled with the Porsche, but they would be that much more thrilled with the Ferrari. Thus the society must allow them to have a Ferrari — or two or three or a dozen! They would never accept this deal.

      But I think it is important work. And maybe one day democracy will be strong enough that we will be able to force it on the rich. But as long as they have a say in it, they will never agree.

      • Righto. It’s a bit of fantasy thinking on his part — I imagine, aimed more at policy makers than actual rich assholes. “Why, it’s perfectly possible to benefit the rich and poor at the same time! So you can go against what the rich want because it’ll be better for their emotional sanity in the long run!” As indeed it would. However, the emperor will disagree.

        What Frank’s doing, and what Pickett/Wilkinson are doing, is extremely useful, not for convincing the rich or the policy makers, but for convincing everyone who’s bought into this notion that wealth is really born of some sublime plane and those who have it are more bequeathed of genius than the rest of us. In every decision they make.

        No doubt some of them are geniuses in some ways. Like celebrities are often geniuses in specific areas. I am quite good at doing my own plumbing, a necessary skill acquired from years of living in crappy apartment buildings. I am no genius at plumbing, any certified plumber is better. However I’ll bet I am better at plumbing than most rich people and celebrities acclaimed as geniuses are at plumbing.

        Because of how Americans have been trained to think, we don’t respond well to “this will help the poor and hurt the rich.” Wait a minute. Should we hurt the rich? After all, aren’t they really, really smart? About everything?

        When you can put reform ideas in terms of “what the rich are doing is hurting themselves” I’ve found that poor people react to this logic. They can buy that rich people are super-smart in some areas (something I don’t believe to be true of most rich people, although I’ve learned to shut up about it) and not-so-bright in others. Because everyone knows people more talented than themselves in many ways who are less talented in other ways.

        The rich and the policy makers have done such a good job of isolating themselves that many working people don’t think of them as normal humans with normal blind spots. Show the blind spots, and you show that not everything they say needs to be taken as gospel.

  2. Another problem — and I recall von Mises talking about this — is that the poor accept that the world is unjust. (Von Mises, of course, thought it was good.) So they don’t image that the world can be better. The rich love this, which is interesting given that they think the world is very just.

    Yeah, I have little use for “intelligence.” I read a comment thread over at Brad DeLong’s website about just how intelligent Andrew Sullivan is. That was very funny given the whole The Bell Curve thing. But really, who cares?

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