Academic journal article Independent Review

Inequality: First, Do No Harm

Academic journal article Independent Review

Inequality: First, Do No Harm

Article excerpt

One aspect of the debate surrounding inequality is how problematic inequality really is. Inequality per se is presumably not a problem; rather, inequality is bad because of the problems critics claim it produces. For example, numerous authors (e.g., Ostry, Berg, and Tsangarides 2014) claim that inequality negatively affects economic growth, a claim disputed by others (e.g., Winship 2013). Some scholars argue that inequality has negative externalities that degrade social capital and health indicators (e.g., Wilkinson and Pickett 2009). Here, too, this claim is disputed by other authors (most notably Kahneman and Deaton 2010).

Whatever the merits of the various positions, the participants in this debate have not made important distinctions among how individuals perceive different forms of inequality. For example, we might be more concerned about forms of inequality that prevent people from satisfying their preferences and less concerned about forms of inequality that result from people actually satisfying those preferences. Although some philosophers (e.g., Tomasi 2012) and economists (e.g., Welch 1999) have attempted to make such distinctions, we hope to decompose inequalities more carefully into those that are socially beneficial (or at least neutral) and those that are socially harmful, especially to the least well-off.

Socially beneficial inequalities (what we call "good" inequalities) result from the satisfaction of individual economic preferences or demographic changes and have no perverse impact on economic growth. We argue that using policy to attempt to reduce such inequalities would produce a great deal of positive harm because they are desirable unintended consequences of economic progress that also improve the well-being of the least well-offor are neutral changes resulting from changes in family size, demography, and marriage patterns. Because the results of these inequalities are either good or neutral, and because they are unintended consequences of individual choice, they should at least get a prima facie assumption of not being policy relevant. By contrast, what we call "socially harmful" or "bad" inequalities are problematic because they result from limiting individual choice in ways that expand inequality by limiting overall growth and harming the least well-off. In this way, our criteria of social desirability are broadly Rawlsian (Rawls 1971) in that one key concern is whether inequalities benefit the least well-off. Our argument also parallels that of Tomasi (2012) and other recent literature arguing that inequalities created in largely free markets should be held to the Rawlsian difference principle and that they can meet that test.

We start our analysis by reviewing the extent of the rise in inequality since the 1970s and argue that although inequality has increased, various problems with measurement indicate that the extent of the growth in inequality is overestimated. If overall inequality is actually less than believed, we should be even more hesitant to adopt costly policies that are claimed to reduce inequality. Next we point out that a substantial share of the increase of inequality is explained by "good" inequalities. Then we explore the "bad" inequalities and how they result from government interventions that push down the lower end of the income distribution while pulling up the higher end. Although there are inequalities of birth or family upbringing, we argue that they are much costlier to combat than inequalities resulting from misguided government intervention and thus are far less policy relevant. Rather than combatting inequality per se, we should be looking to address the sources of inequality that generate undesirable unintended consequences. More specifically, we should focus on inequality growth that results from limiting the options of the least well-offand thereby hampering their ability to move up the income ladder. That is, inequality policy should first attempt to do no harm by removing policies that exacerbate inequality by harming the poor and not by penalizing rising inequality that contributes to economic growth and improves the condition of the least well-off. …

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