![\"v_research_15-9165-ARFISMAN-013\"](\"\/federal\/files\/2015\/12\/v_research_15-9165-ARFISMAN-013.jpg\")
<\/a>The majority of Americans tell pollsters they think income inequality is too high. Why then, asks behavioral economist Ray Fisman, has the response from policymakers been so tepid\u2014even under popular two-term Democratic presidents? Photo (to the right) by Jackie Ricciardi.<\/em><\/p>\nMany scholars view global wealth disparities and income inequality as the defining moral, economic, and political issue of our time. Income inequality has been rising in the US for several decades, and the majority of Americans tell pollsters they think the level is too high.<\/p>\n
Why, then, has the response from policymakers been so tepid\u2014even under two popular two-term Democratic presidents? That is the question Boston University economist Ray Fisman<\/a> and a lot of other economists have been asking. One possible contributing factor, Fisman and his colleagues found in a recent study<\/a>, is that that the elites who make and influence policy care a lot less about economic equality\u2014and more about economic efficiency\u2014than do average Americans.<\/p>\n \u201cOurs is an argument that pushes back, at least in part, against the claim that politics has been captured by economic elites,\u201d says Fisman, who is the first Slater Family Professor in Behavioral Economics, in BU\u2019s College of Arts & Sciences. \u201cWe provide a less insidious\u2014but still problematic\u2014explanation for limited redistribution. Politicians are acting on their principles, but these principles\u2014which emphasize efficiency at the expense of equality\u2014diverge from those of everyday Americans.\u201d<\/p>\n Fisman\u2019s study, which was published in Science<\/em><\/a> in September 2015, notes that economic redistribution policies that benefit the middle class and poor almost always involve a cost in terms of lost, or wasted, resources\u2014known as the \u201cleaky bucket,\u201d the term coined by economist Arthur M. Okun in his famous 1975 book, Equality and Efficiency: The Big Tradeoff<\/em><\/a>. Fisman\u2019s co-authors are Pamela Jakiela<\/a>, an assistant economics professor at the University of Maryland at College Park; Shachar Kariv<\/a>, an economics professor at the University of California at Berkeley, and Daniel Markovits<\/a>, a political philosopher and professor of law at Yale Law School.<\/p>\n The study, \u201cThe distributional preferences of an elite,\u201d examines people\u2019s attitudes toward two tradeoffs that shape social and economic policy: efficiency vs. equality and selfishness vs. fair-mindedness. \u201cThe tradeoff between selfishness and fair-mindedness informs the willingness of the haves to make sacrifices in order to aid the have-nots,\u201d Fisman says. \u201cAnd the tradeoff between efficiency and equality goes to the familiar conundrum of whether economic policy should concentrate on growing the economic pie or on promoting the pie\u2019s even distribution.\u201d<\/p>\n Elites in the study were more likely to be classified as selfish (and hence less likely to be classified as fair-minded) than average Americans. More importantly, Fisman says, the study found that elites were much less willing to sacrifice efficiency for equality than were average Americans. (That is, elites care more about growing the size of the economic pie than ensuring everyone gets the same-sized slice.) The more elite they were\u2014in terms of education and income\u2014the more the study subjects favored efficiency over equality. The \u201cextreme\u201d elite\u2014a group made up of 208 Yale Law School (YLS) students\u2014held these attitudes, despite the fact that the overwhelming majority of YLS students self-identify as progressive Democrats. The Democratic Party has been traditionally thought of as the party of economic equality.<\/p>\n For the study, the researchers asked YLS students and hundreds of other Americans to play a variation of what economists call a dictator game, in which subjects were asked to distribute a pot of real money between themselves and an anonymous other person. Subjects could keep or give away as much of the money as they liked. The twist was that the price of giving\u2014or redistribution\u2014varied. In some cases, giving was expensive: For every dollar a subject paid out, the other person might only get a dime. In other cases, giving was cheap: For every dollar given, the other person might get as much as ten dollars. Most choices fell somewhere between these two extremes.<\/p>\n Three different classes of subjects played the game:<\/p>\n Yale Law students favored efficiency over equality by a factor of four to one. ALP subjects split about evenly between focusing on efficiency and equality. Intermediate elites favored efficiency over equality by a factor of roughly three to two.<\/p>\n The study also found that Yale law students\u2019 attitudes toward efficiency vs. equality tradeoffs predicted their career choices. Equality-minded subjects were more likely to work for nonprofit organizations, with a focus on the equality-related rights and interests of the disenfranchised. Efficiency-minded subjects chose the corporate sector.<\/p>\n BU Research<\/em> sat down with Fisman recently to discuss what his research tells us about the disconnect between Washington and average Americans when it comes to economic inequality.<\/p>\n Fisman:<\/strong> There are two aspects of it that I think are important. Our study focuses on the attitudes of elite Americans toward redistribution. Studying an elite population is a novelty in itself, since it\u2019s so hard to access elites as survey subjects, yet so very important because of their outsized effect on policy. Second, I think our findings that elites are more concerned with economic efficiency than equality has implications for how we think about confronting the problem of growing inequality in America.<\/p>\n We are most certainly not<\/em> invoking supply-side economics, which is essentially a \u201chave-your-cake-and-eat-it-too\u201d theory of income taxation. The trickle-down theory holds that if you cut taxes on the able and productive, they work even harder and get even richer, and by virtue of their efforts, the entire country becomes so much wealthier that the crumbs that trickle down to the rest of the population are so big that even the poor are better off than if we\u2019d taxed them at a higher rate. That is, under supply-side economics, everyone<\/em> is better off.<\/p>\n We measure efficiency by the extent to which the size of the pie\u2014money available in the experiment, in our case\u2014is maximized. It says nothing about how this pie is distributed amongst individuals. You can think of lots of economic policies that increase or decrease GDP growth. Very, very often, they have implications for equality of income distribution. Taxation is indeed the most obvious example. If we raise taxes, able and productive individuals may choose to work less\u2014why bother if the government taxes 99 cents on the dollar, the reasoning goes\u2014and the country\u2019s economic pie grows more slowly or, some say, may shrink. But we can use those tax proceeds to distribute income or improve educational opportunities or otherwise help the poor in ways that lead to a more equitable income distribution. In this case, we need to decide how much efficiency we\u2019re willing to trade off for greater equality.<\/p>\n Participants in the experiment confront this tradeoff when they face different \u201cprices\u201d of giving. You can think about this price as capturing how much societal wealth is lost when a more productive member of society redistributes to a less able\u2014and hence, initially poorer\u2014individual.<\/p>\n For example, in some decisions, subjects may be able to give $10 for each dollar of their own income they give up. Giving in this case is cheap. At the other extreme, subjects may only be able to pass on 10 cents for each dollar they give up, so giving is expensive. An efficiency-minded individual will always keep everything when giving is expensive\u2014rather than \u201cwaste\u201d a dollar only to produce 10 cents in giving\u2014while giving up everything when it is cheap to do so. Why keep the dollar when you can make someone else $10 richer? But this creates extreme inequality\u2014one person ends up with everything and the other with nothing. An equality-minded person will always ensure that both parties end up with the same amount. And many subjects will do so even when it leads to a much, much smaller pie.<\/p>\n I\u2019m actually not sure we draw such a sharp distinction. In fact, one can very reasonably argue that they\u2019re drawn from similar pools\u2014like graduates of Yale Law School. YLS graduates are likely to join the ranks of the economic elite\u2014as when they run white shoe law partnerships or Fortune 500 companies\u2014or the political elite, serving as lawmakers and judges.<\/p>\n One example is Figure 2 of the online Science<\/em> article, which shows that more than 30 percent of YLS students kept \u201cnearly\u201d the entire pie in every pie-splitting decision they made. Only around 15+ percent of our subjects drawn from a pool of diverse Americans did so. We get similar rates of selfishness to the YLS sample in our pool of Berkeley undergraduates.<\/p>\n\n
BU Research<\/em>: What is the significance of this study?<\/h5>\n
Can you explain how you define efficiency in this study? Are you using it as a proxy for the trickle-down concepts made popular by Ronald Reagan\u2014that if the rich get richer then wealth will trickle down to everyone else?<\/h5>\n
How do subjects trade off efficiency vs. equality when they play the game, and what has that got to do with inequality?<\/h5>\n
It seems like you\u2019re making a distinction between political and economic elites. But aren\u2019t some so-called political elites also part of the economic elite and couldn\u2019t it be that they may express progressive ideas generally, but still be influenced by their inherent class bias?<\/h5>\n
You found that elite subjects were twice as likely to be selfish as their compatriots in general\u2014what are some numbers from your study that show that?<\/h5>\n
You say that Yale Law students\u2019 commitment to efficiency over equality is astonishing, given that they self-identified as Democrats rather than Republicans\u2014and thus sided with the party of economic equality\u2014by a factor of over nine to one. What about the difference between the rhetorical ideals of a political party and what it does in practice? Some people believe there isn\u2019t much of a difference between Democrats and Republicans; people look at the Clinton administration, which cut welfare, among other regressive acts, as a deeply unprogressive administration. Is it possible these Yale students are a perfect example of modern, elite Democrats?<\/h5>\n