The New Economics of Inequality and Redistribution

207 Pages·2012·0.955 MB·English

by  Samuel Bowles

TheNewEconomicsofInequalityandRedistribution
Economistswarnthatpoliciestoleveltheeconomicplayingfieldcomewith
aheftypricetag.Butthisso-called“equality–efficiencytrade-off”hasproven
difficulttodocument.Thedatasuggest,instead,thattheextraordinarylevels
ofeconomicinequalitynowexperiencedinmanyeconomiesaredetrimental
totheeconomy.Moreover,recenteconomicexperimentsandotherevidence
confirm that most citizens are committed to fairness and are willing to
sacrificetohelpthoselessfortunatethanthemselves.Incorporatingthelatest
results from behavioral economicsand the newmicroeconomics of credit
andlabormarkets,Bowlesshowsthatescalatingeconomicdisparityisnot
theunavoidablepriceofprogress.Ratheritispolicychoice–oftenavery
costlyone.Here,drawingonhisexperiencebothasapolicyadvisorandan
academiceconomist,heoffersanalternativedirection,anovelandoptimis-
ticaccountofamorejustandbetterworkingeconomy.
Samuel Bowles heads the Behavioral Sciences Program at the Santa Fe
Institute. He has taught economics at Harvard University, the University of
Massachusetts,andtheUniversityofSiena.Heistheauthor,mostrecently,of
Microeconomics:Behavior,Institutions,andEvolution(2004),ACo-operative
Species:HumanReciprocityanditsEvolution(2011,withHerbertGintis),and
articlesinScience,Nature,theQuarterlyJournalofEconomics,theJournalof
Public Economics, and other academic journals. He has also served as an
economicadvisortoUSpresidentialcandidatesRobertF.KennedyandJesse
Jackson,andformerSouthAfricanPresidentNelsonMandela,andhastaught
crashcoursesineconomicstotradeunionists,communityactivists,andothers.
FedericoCaffe` Lectures
ThisseriesofannuallectureswasinitiatedtohonorthememoryofFederico
Caffe`.TheyarejointlysponsoredbytheDepartmentofPublicEconomicsat
theUniversityofRome,whereCaffe`heldachairfrom1959to1987,andthe
BankofItaly,whereheservedformanyyearsasanadvisor.Thepublication
ofthelectureswillprovideavehicleforleadingscholarsintheeconomics
profession,andfortheinterestedgeneralreader,toreflectonthepressing
economicandsocialissuesofthetimes.
The New Economics of
Inequality and
Redistribution
Samuel Bowles
incollaborationwith
Christina Fong, Herbert Gintis,
Arjun Jayadev, andUgo Pagano
CAMBRIDGE UNIVERSITY PRESS
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Singapore,Sa˜oPaulo,NewDelhi,MexicoCity
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PublishedintheUnitedStatesofAmericabyCambridgeUniversityPress,
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Informationonthistitle:www.cambridge.org/9781107601604
©SamuelBowles2012
Thispublicationisincopyright.Subjecttostatutoryexception
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noreproductionofanypartmaytakeplacewithoutthewritten
permissionofCambridgeUniversityPress.
Firstpublished2012
PrintedintheUnitedKingdomattheUniversityPress,Cambridge
AcatalogrecordforthispublicationisavailablefromtheBritishLibrary
LibraryofCongressCataloginginPublicationdata
Bowles,Samuel.
Theneweconomicsofinequalityandredistribution/SamuelBowlesin
collaborationwithChristinaFong,HerbertGintis,ArjunJayadev,andUgo
Pagano.
pages cm.–(FedericoCaffèlectures)
Includesbibliographicalreferencesandindex.
ISBN978-1-107-60160-4(pbk.)
1. Incomedistribution. 2. Fairness. I. Title.
HB523.B685 2012
339.2–dc23
2012004203
ISBN978-1-107-01403-9Hardback
ISBN978-1-107-60160-4Paperback
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For
GeraldCohen(1941–2009)and
DavidGordon(1944–1996)
inmemoriam

Contents
Listofillustrations pageviii
Preface xi
1 Theneweconomicsofinequalityandredistribution 1
2 Theeconomiccostofwealthinequality 34
3 Feasibleegalitarianisminacompetitiveworld 73
4 Globalization,culturalstandardization,andthe
politicsofsocialinsurance 101
5 Reciprocity,altruism,andthepoliticsofredistribution 131
6 Conclusion:Thenew(notsodismal)scienceof
inequalityandredistribution 159
Appendices 164
Workscited 171
Index 184
Illustrations
Figures
1.1 Governancestructure,wealthinequality,productivity,
andinequalityofopportunity page5
1.2 Incomeinequalityandprivatesecuritypersonnelas
afractionofacity’slaborforce 11
1.3 Theemergenceofagarrisoneconomy:guardlabor
intheUS 12
1.4 Theguard-laborburdenacrosscountries 12
1.5a Economicpolarizationandguardlaborasafraction
ofanation’slaborforce 13
1.5b Teachersvs.guards?Socialspendingandguardlabor 13
1.6 Alternativeapproachestoeconomicpolicy 17
1.7 Theworldcapitalisteconomyduringthegolden
ageoftradeunionsandthewelfarestate:1950–79 22
1.8 Anexpandedpolicymenu:diagnosisanddistribution 25
1.9 Conflictandco-ordination 28
1.10 Investmentandproductivityinaprisoner’sdilemma 31
2.1 Theprojecttechnology 44
2.2 Autopiancreditmarket:thecompletecontractscase 46
2.3 Thecreditmarketwithnon-contractiblerisk 48
2.4 Thecompetitiveinterestrateandcreditmarketexclusion 53
2.5 Efficiencylossesduetowealthinequality 57
2.6 Indifferencelociofadecreasinglyrisk-averseperson,
andthechoiceofrisklevel 63
Listofillustrations ix
2.7 Thecertainty-equivalentpayofftowageemployment
foraveryrisk-averse(a)andlessrisk-averse(b)
worker 65
2.8 Increasingtheassetsoftheworkeraltersthechoice
ofcontractfromwageworktoownership 67
3.1 Equilibriumemploymentandwageswhencapital
isgloballyhyper-mobile 84
3.2 Multipleequilibriaduetoendogenousrisk 85
3.3 Endogenoustransfersandpublicinvestment 88
3.4 Co-operativeproductionmayexpandequilibrium
employmentandcertaintyequivalents 93
4.1 Indifferencelociofadecreasinglyrisk-aversecitizenry
withataxonomyofcitizensaccordingtotheirassets
andassociatedexpectedincomeandriskexposure 111
4.2 Acitizen’soptimallevelofinsurance 113
4.3 Socialinsuranceandthezero-taxlocus 114
4.4 Changingdistributionofcitizensandzero-taxlocus
undertheinfluenceofglobalization 117
4.5 TheBIGreducesriskexposureandinducesgreater
risk-taking,resultinginanincreaseinexpected
income 124
4.6 Learningthelinguafrancareducestheexperienced
risklevelandinducesahigherchoiceofrisk 126
4.7 TheBIGreducesandmayeliminatetheincentiveto
learnthelinguafranca 127
5.1 Explainingconcernaboutpoverty:datafrom
12Europeannations 136
5.2 Determinantsofsupportforredistribution 148
5.3 Effectsonthesupportforredistributionofrespondents’
beliefsintheimportanceofvariousfactorsfor
gettingaheadinlife 151
Table
2.1 Creditmarketresultsforthecasewheretheborrower
hasnowealth 49