Updated: Oct 16, 2019
…from a recent book by Keith Payne, “The Broken Ladder…” ... focusing on the continuing trend to ever more extreme income and wealth inequality in the US, and how it drives health and social problems; political turmoil among the tribes; and economic instability
Inequality Causing Health and Social Problems
(need to move) away from seeing inequality through a moralizing lens. Instead…have to view inequality as a public health problem (Payne, 2018, p. 206)
Metaeconomics suggests inequality is a moral issue, with the degree of inequality to be worked out in the shared Other-interest that better serves everyone. Naturally, what "better serves everyone" will be debatable, with the Right Isle generally claiming that moving from the lower rungs of the ladder is a matter for individual initiative and drive, ambition, and the Invisible Hand of the Market. And, if you really try, but still can't move up the ladder, that is just the way it is, reality at work. Left Isle framing points to problems in the Invisible Hand... that policy needs to make for a Visible Hand... making sure it is actually possible to move from the lower rungs, sometimes restricted by lack of opportunities to move.
On the Right Isle, this is all about a Moral Order... liberty and freedom to climb as far up the ladder as you can. On the Left Isle, this is all about a Moral Community, with the need for nudging, and helping if necessary, those on the bottom rungs, and, perhaps restraining those on the very top rungs, especially when it becomes a matter of Taking rather than Making wealth, the latter part of a Good Capitalism.
Payne (2018) suggests we shift away from thinking of inequality this way, not thinking of it as a Moral Matter, and simply face the reality that it is more fundamentally a public health problem. Although not an economist, Payne is really pointing to the benefits and costs of extreme inequality, which are borne by everyone, rich and poor (e.g. poor health on the bottom rungs, and at the top rungs having to live in expensive gated communities due to concern for crime). Payne (2018) makes the costs clear in pointing to this figure plotting an Index of health and social problems against the Ratio of the share going to the top 20 percent divided by the share going the bottom 20 percent, drawing from Wilkinson and Pickett (2006, 2010), and points to how moving away from extreme inequality will likely give benefits>costs (albeit this is an empirical question):
Intriguingly, the Travelers on this Spaceship living within the US, experience the most severe wealth inequality, and as a result also experience the most severe health and social problems, especially related to tension and stress, of all the other Countries considered. One need only watch the US news on a daily basis, with reports of the opioid crisis, gun violence, road rage, and racial tension, to list a few, to perhaps guess this describes reality.
Payne (2018) also provides the US State data, again from Wilkinson and Pickett (2006; 2010):
My first 18-years were spent as a Traveler within the part of the Spaceship known as North Dakota (ND), which was a relatively peaceful, happy time for me! This data suggests one contributor to that experience: This particular State, similar to MN, VT, NH, IA and UT, has minimal health and social problems due to far less inequality in income and wealth, which is my actual experience, too. MS, LA, and AL do the worst.
So, the Metaeconomics based empirical question is: Could moving to less inequality improve health and reduce social problems? There are plenty of them in the US, including dysfunctional families; drug addictions, especially as represented in the opioid epidemic; school and religious shootings; racial tension; lack of access to health care; domestic violence; and criminal activity of various kinds, to list a few, and they are all very costly to the economy. More research and study is needed to determine more exact links, perhaps leading to an answer to the question: Could we reduce these costs simply through moving to a more reasonable level of inequality? To a level that better fit our shared Other-interest in fewer health and social problems? Also, is there some way to achieve a reasonable level of inequality without massive redistribution, i.e. without "taxing the rich and paying the poor"? Can the Market-failure to address these public problems be fixed by the people in the Market, itself, without much if any Government (also involving people, who can also Fail) involvement, or, as some refer to it, without Government "interference"?
Inequality as a Political Issue
…inequality that has occurred over the past few decades might be contributing to increasingly intense partisanship and political conflict (Payne, 2018, pp 106-107)
Payne (2018, Chapter 4) makes a convincing case that increased inequality in the last 2-3 decades is the major driver in the current political turmoil in the US. Metaeconomics Framing would suggest this is the case because inequality causes individuals to identify with and connect ever more with the narrow, shared interests within their own Tribes (i.e. racial, religious, gender, sexual orientation, blue and white color, political party), and then point to other Tribes as the cause of their situation. As a result, it becomes easy for politicians who are operating strictly on their own Self-interest, to build their own-power, or the power of their own tribe, rather building a shared Other-interest for the entire US, to appeal to each tribe, separately, to gain their support, which causes resentment in the other tribes, and thus makes the situation even worse. That is, for unity across the Isles, seeing the jointness and need for integration in Right&Left, the common ground of a shared Other-interest must be built across all Tribes. Metaeconomics raises the question of whether moving to less inequality might also help the search for common political ground, rather that pithing one tribe against another, searching for Right&Left-Isle productivity rather than continual inaction to solve real problems?
We might also guess that inequality drives populism. Groups see the elite and wealthy Taking, and leaving them behind, rather than Making wealth that is widely enjoyed across all tribes. People on the lower and middle rungs of the income and wealth ladder have not seen a real increase in their wealth for decades. Extreme inequality is also exacerbated by Crony Capitalism, and it has become rampant in the US, as Munger and Villarreal-Diaz (2019) document. It arises when both Business&Government pursue Self-interest only, within narrowly defined, tribal Other-interest. This Self-interest only orientation, ignoring the shared Other-interest across all consumers and taxpayers, results in Taking both Wealth&Power from same, and potentially moves the system to every greater inequality, and, political turmoil. Metaeconomics suggests the question: What could be done to Temper and, even better, eliminate the tendency to populism type frames? Would moving away from extreme inequality serve to dampen the tendency for groups to take on populism type perspectives?
Intriguingly, the political context, the political economy has shifted in emphasis within the domains of balance in Ego&Empathy, emphasis in Self&Other-interest, orientation in Market&Government, which is revealed in the tendencies in income and wealth inequality over time. The following 3-figures suggest an intriguing tale, which could benefit from empirical exploration (extracted from
Intriguingly, the question is, what drove what: Inequality driving political turmoil, or political turmoil driving inequality. Arguably, it was the political change in frames ... he inequality the "market can do no bad" and "government can do not good" frame (President Reagan was a major contributor to this notion, with his election in 1981)... that started the move to extreme inequality in the US, which starts in the early 1980s. Notice how inequality starts to increase rapidly about that time. Every income group was sharing in the gains in national wealth until this major shift toward Empathy based Self-interest, expressed through ever more unfettered Markets (also documented in Stiglitz, 2019).
Notice how the disparity especially grows rapidly starting in the mid-1990s, about the time when the Right Isle (Newt Gingrich, with his new plan for America, carried on when he became Speaker of the House; Fox News is developed, generally with a certain spin on reality, often not fact based, and a clear orientation to Self-interest only framing; Right Isle Talk Radio; Tea Party politicians sent to Washington) start a concerted effort to demonize the Left Isle. The latter are generally more about Tempering (Regulating, Controlling Excesses) Self-interest in the Markets, generally with the use of Government to accomplish same. These data clearly suggest the Right Isle influence has dominated, with extreme income and wealth inequality their legacy.
This major shift in the balance of Ego&Empathy, Self&Other-interest toward "unfettered free markets" is especially apparent for the top 1-percent, which take a major hit in 2008, but rebound due to bail-outs by the taxpayer, and continue upward after about 2010.
Again, the main change starts in the early-1980s, with the major shift toward encouraging the Ego based Self-interest. Intriguingly, the shift toward the Empathy based Other-interest, starting after the 1929 crash, and culminating in Great Society programs of the 1960s, kept inequality in income and wealth within limits until that time. In fact, inequality was actually coming down until about that time. This figure points to the swing in the pendulum from Empathy to Ego based Self-interest, from "we are in this together" Empathy based Other-interest which led to less concentration at the top until into the late-1970s to early-1980s.
Inequality as an Economic Issue
In modern history, income inequality reached its highest point in the late 1920s, immediately before the stock market crash of 1929 and the Great Depression that followed…its highest point, that is, until today (Payne, 2018, p. 23)
As Payne (2018) posits, extreme inequality was also a likely major part of the economic reality leading up to the 1930s Great Depression, and could have actually been a major cause of it. Metaeconomics points to the need to go find out, due to inequality being even greater now. Perhaps it was also a factor in the recent financial crisis in 2008, in that inequality is the natural outcome of excessive Greed (see the assessment by Tett, 2009). Metaeconomics points to asking: What role did it play? And, if it did play a role, what can be done to change the Other-interest over to a frame that Tempers Self-interest away from paths leading to economic crisis and depression?
Intriguingly, we know from grand experiments on a Spaceship Earth level that neither too little inequality nor too much inequality work. The full spectrum has been tried before (although no country has tried the Pure versions at either end) from too little inequality as represented in controlling Communism on one end (e.g., Soviet Union, China, Cuba) toward the other extreme of too much inequality, in a free for all, no holds barred Capitalism (US prior to the Great Depression of the 1930s and again in the US in the years leading up to the 2008 crisis, and ongoing in the US at this time) on the other. Metaeconomics predicts there is a best amount of inequality, making the search for that balance an important empirical question.
Actually, the current inequality crisis starts in the US in the early-1980s, as we proceed to change the balance of Market&Government toward Market-only framing. Government was framed as being incapable of doing anything productive or good. Market was framed as doing only good. We did things like reduce the support for public education and basic research; while we had been on a trajectory toward a well educated and informed populace, running on solid scientific facts, we shifted to truly fake news often coming out of well-funded (often by those who managed to Take lots of wealth, in the free for all, chaotic, and bad capitalism that was unleashed in the early-1980s) sources, a prime example being the climate (carbon) deniers, but there were others, too, like the anti-vaccination hoax, and even those who claimed the Government never actually landed people on the moon! Really. Well, some still believe the Spaceship Earth is flat, too.
The problem is this, as Metaeconomics makes clear: While perhaps some shift in the Market&Government balance toward more Market could have been good, it cannot be good if the Moral Dimension is left out of the calculus. Unfortunately, this is exactly what was done, and mainstream economic science did it, literally, and so did contribute to the inequality problem we now face, as they transformed economics into a calculus based (literally, at the start, and, still pretty much that way) mathematical science. The Moral Dimension, the Ethical Question, was extracted. So, supply-side economics, as started in the 1980s, which has enjoyed considerable support from mainstream economists, which was picked up on both the Right&Left of the political isle, albeit mainly on the Right, was always devoid of the Moral Dimension. It especially did not address the Moral Question related to the best level, good level of inequality in this new Market-only frame. Now, as Payne (2018) suggests, not only is it a Moral Question, as in "is it right or wrong to have this extreme inequality," it now has other dimensions relating to health and social (crime, racism, populism, many other isms) problems; tribal and identity politics problems; and economic instability problems, quickly being exported to the Spaceship Earth level.
Too Little Inequality is Bad and Too Much Inequality is Bad: So, what is Good?
Intriguingly, we can gain some important insights for how to find the best amount of inequality coming out of the study of compensation levels in professional sports like US baseball and, football, and other sports, all of which are noted for their kind of “superstar takes all” mentality on how to pay the best athletes in each game. As we will see, findings are at odds with what would be expected with both NeoClassEcon (only individual incentives and Self-interest matters) and NeoInstituEcon (only shared, Other-interest matters) framing, while fitting very well within a MetaEcon frame (seeing jointness, balance in Self&Other-interest is what really matters). Payne (2018, p. 188) highlights the main findings in this research, pointing especially to professional baseball, with it possible to find some clear patterns to due to the wide and deep data base on baseball performance:
Superstars on high inequality teams performed worse than superstars on low inequality teams
Superstars perform better with higher pay, but only to a point where resentment among team members starts to affect the superstar incentive (and ability) to play at ever higher levels
Teams with lower inequality performed better than teams with higher inequality
Extreme pay inequality creates resentment which works to reduce cooperation and teamwork, which is the reason the high inequality teams perform at a lower level
Media attention increases as inequality increases, due to the media believing fans will be attracted to watching the superstars, measured in extremely large compensation packages
Team owners tend to believe that revenue increases as inequality increases, as extremely high paid athletes supposedly will draw in more fans, creating an incentive for team owners to move to ever greater inequality
Both lower pay and more equal pay across all athletes reduces individual performance, especially reducing superstar performance
Higher pay can work well to drive performance in solo sports like golf and singles tennis, and also in motor racing, but only to a point
There is also some anecdotal evidence that perhaps more fans of baseball and football than is fully appreciated are no longer followers, due to resentment about extreme pay to a few superstars, just like that felt by other players on the team. This can work to keep them from even supporting home teams, keeping them away from the stadiums, and even from watching games on television or other media outlets. So, Metaeconomics suggest it is an empirical question as to whether team revenue to the owners actually increases or decreases, overall, in that some fans are enticed by the high inequality and others are repulsed.
Clearly incentives matter, as Metaeconomics teaches, pointing to how Self-interest is more primal, such that higher pay leads to both higher individual and team performance, to a point, but only to a point. As Metaeconomics would also suggest, consistent with the empirical findings listed above for sports teams, if pay goes too high relative to the pay to others, productivity goes down. Yet, if inequality is too low, productivity also suffers, as incentives to perform at higher levels are dampened when the payoffs, relatively speaking, are too small.
As Payne (2018, p. 188) shows, this pattern also exists in our work lives outside of sports, e.g. higher paid truck drivers… solo work… perform at a higher level. Computer programmers do, too, until the point is reached where team effort is needed to complete the task. Payne (2018, p. 189) also points to studies of larger companies and corporations: The greater the pay inequality, the lower the quality of the products coming out of that effort, and the “more team-like a workplace is, the more likely it is that the harmful effects of resentment over inequality will negate the motivating effects of incentives.”
Resentment leads to all manner of bad behaviors in the production systems of companies with extreme inequality, leading to sabotage (Payne tells the actual story of an auto worker had put BBs in a carburetor of a car coming through the manufacturing line; the new owner and the mechanic will not be Happy figuring that one out, as the car will run intermittently!) and theft of company machines, materials, and products being common. Increasing the CEO and Management compensation package ever higher relative to the Other wage and salary employees, makes it ever worse . We can only surmise conditions will become intensify toward the bad side if we move toward every CEO pay, eventually being paid upwards of 350 times the average pay for workers (Payne, 2017, p. 194), which is the order of magnitude for several companies in the US: This is “enough to insult the sense of fairness of most…”.
Intriguingly, studies have found based on surveys that most people surveyed believe that CEOs are actually at a ratio of about 10:1, and that a reasonable ratio of CEO compensation to that of the average worker is in the range of 4:1 to 5:1. That is, the range of 4:1 to 5:1 ratio is believed in an Other(shared with others in a situation)-interest sense to be a fair, reasonable inequality, as documented in Payne (2018, p. 193). Intriguingly, those in the survey and favored the Left Isle tended to believe 4:1 was reasonable and those on the Right Isle favored 5:1. So, most on both the Right&Left-Isle, at least as consumers and workers in companies (and we would think as voters?), agree that the inequality is perhaps too extreme. Obviously, there is a long way to go, with the ratio as high as 350:1 in some US companies, not only in making transparent what the ratios have moved to over time, such that the Market might itself work to bring more balance, but in actually moving back toward ratios of 4:1 to 5:1, to what is considered fair by most.
Also, this kind of “winner-takes-all-economy” that has emerged in the US may not even be good for the winners. We know from both personal experience and the research that Money does not buy Happiness, except up to a point. Payne (2017, pp 203-204) points to research suggesting the number where Happiness levels off is at about $75,000; those making in the range of $80,000 to $8M were about equally happy. As Payne (2018, p. 204) notes, due to Happiness increasing with Income as one moves toward this range, this leaves a lot of ground for increasing Happiness in the US, as the median income is around $54,000. Those at the top could, then, perhaps work to help increase that Happiness in the community of shared interests without decreasing their own, such as in paying higher wages and salaries in their companies; setting up foundations directed at improving people skills and educational levels; reinvesting the wealth in the economy so more could participate in Making wealth, with reasonable shares in the outcome, to name a few. There is a complex play between the I&We, Ego&Empathy, Self&Other at work, with Happiness very much a function of the balance within the recognized need for some degree of inequality.
Metaeconomics cannot give specific proclamations about the best level of inequality. It can only lead to raising intriguing questions about the matter, as we work to find it. The evidence from a wide array of behavioral and social science studies (see Payne, 2018, for specific citations to this scientific literature) suggests the need to go do so, in that it is appears that extreme inequality is leading to health and social problems. This is due to resentment building as inequality increases, which in turn gets revealed in tribalism, populism and political chaos. There also may be some direct links of extreme inequality to economic stability in the very Markets that are producing that extreme.
As Metaeconomics Framing and Dual Interest Theory characterizes the problem, there is a need to search for balance in Self&Other-Interest, with an Other-interest in this case reflecting the wider view of what is a reasonable level of inequality. We might look to what is being done in Norway, Sweden, Finland, and Japan, and the US States of NH, MN, ND, VT, and IA, as part of this search. Metaeconomics suggests there is a best level of inequality in a Good Capitalism, which is ultimately about Happiness, and not just the Money, as Adam Smith, who helped start all this, tried to teach us.
Munger, Michael C. and Villarreal-Diaz, Mario. "The Road to Crony Capitalism." Independent Review: A Journal of Political Economy 23, no. 3 (2019): 331-44.
Payne, Keith. The Broken Ladder: How Inequality Affects the Way We Think, Live, and Die. New York: Penguin Books, 2018.
Tett, G. Fools Gold: How the Bold Dream at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe. New York: Free Press, 2009.
Wilkinson, R.G. and Pickett, K.E. "Income Inequality and Population Health: A Review and Explanation of the Evidence." Social Science and Medicine 62 (2006): 1768-84.
———. The Spirit Level: Why Greater Equality Makes Societies Stronger. New York: Bloomsbury, 2010.