NCPA - National Center for Policy Analysis


July 19, 2007

The general view among liberals is that economic inequality is socially undesirable because it makes people miserable.  But in reality, actual human beings aren't shocked and outraged at the enormous incomes of software moguls and CEOs.  They tend rather to hope that their kids might become the next Bill Gates, says Arthur C. Brooks, visiting scholar at the American Enterprise Institute.

The egalitarian argument says that we care more about our financial position relative to others than about our absolute income.  Experimental studies are often cited that appear to bear this idea out:

  • In one experiment, 56 percent of participants chose a hypothetical job paying $50,000 per year while everyone else earned $25,000, rather than a job paying $100,000 per year while others made $200,000.
  • Thus, the very fact that some people have less than others leads to unhappiness, even without deprivation.

But the egalitarians misinterpret the experimental evidence, says Brooks:

  • The study above doesn't necessarily tell us that people would be happier in a world of total equality.
  • Rather, they indicate that if there is no apparent prospect for getting ahead themselves (as there indeed was not in the experiment), people will focus instead on having more than others -- even to the point of neglecting their financial interests.

Perhaps in a world where there is no opportunity for advancement, an important concern is how one's income measures up to others.  In the real world where people believe there is opportunity, however, one's own income potential matters a great deal more than what others are earning, says Brooks.  Some studies even find that the happiness of workers rises as the incomes of others climb relative to their own, because they see the incomes of others as evidence of what they themselves can achieve.

Source: Arthur C. Brooks, "The Left's 'Inequality' Obsession," Wall Street Journal, July 19, 2007.

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