In Europe at least, rising prosperity seems to have led to better societies with less social ills, but for the non-European countries is remains unclear why levels of social ills changed. Still, our results prompt scholars as well as the public to re-think the widespread negative image of contemporary society.
In many countries, there is small progress towards a better society with less social ills" explains Leonie Steckermeier, co-author of the study.
The empirical analysis was based on a set of six social ills, namely low life expectancy, infant mortality, and obesity as health issues, and intentional homicides, teenage pregnancy, and imprisonment rate as social problems. The data were compiled from international sources such as the Worldbank and the World Health Organization for the years from to The structure of the compiled dataset allows to compare health and social problems between countries and across time.
The study has been published in the international social science journal Social Indicators Research SIR and can be downloaded for free:. Second, if inequality, in itself, is something to be concerned about, we need to explain why this is so. It is easy to understand why people want to be better off than they are, especially if their current condition is very bad.
But why, apart from this, should anyone be concerned with the difference between what they have and what others have? I will mention four reasons for objecting to inequality, and consider the responses they provide to the charge of mere envy and to the claims of entitlement.
The first three:. Economic inequality can give wealthier people an unacceptable degree of control over the lives of others. If wealth is very unevenly distributed in a society, wealthy people often end up in control of many aspects of the lives of poorer citizens: over where and how they can work, what they can buy, and in general what their lives will be like.
As an example, ownership of a public media outlet, such as a newspaper or a television channel, can give control over how others in the society view themselves and their lives, and how they understand their society. If those who hold political offices must depend on large contributions for their campaigns, they will be more responsive to the interests and demands of wealthy contributors, and those who are not rich will not be fairly represented.
Economic inequality makes it difficult, if not impossible, to create equality of opportunity. Income inequality means that some children will enter the workforce much better prepared than others. And people with few assets find it harder to access the first small steps to larger opportunities, such as a loan to start a business or pay for an advanced degree. None of these objections is an expression of mere envy. They are objections to inequality based on the effects of some being much better off than others.
In principle, these effects could avoided, without reducing economic inequality, through such means as the public financing of political campaigns and making high-quality public education available to all children however difficult this would be in practice. A fourth kind of objection to inequality is more direct.
If the United States took steps to reduce corruption or cronyism, it would likely boost overall income levels by reducing economic distortions. But given that we are one of the less corrupt countries, it seems unlikely that corruption or cronyism is a major driver of U.
Across countries other than the United States, 17 percent of billionaires were bad and 83 percent were good. In the United States, just 1 percent were bad and 99 percent were good. By contrast, countries with few politically connected billionaires rank well on corruption indexes—countries such as Britain, Singapore, Sweden, Switzerland, and the United States.
Countries should focus on equal treatment and uniform laws so that people gravitate toward productive ways of generating wealth and not unproductive cronyist ways.
That result is not surprising because cronyism often entails regulations and subsidies that restrict competition and misdirect investment. Again, cronyism appears to undermine economic performance. In , it had crony billionaire wealth of 1. It is less relevant in countries that have lower levels of corruption, such as the United States.
They tend to conflate wealth in general with cronyist wealth. Most wealth at the top in the United States is earned in open and competitive industries, not through cronyism. It is true that the government intervenes in many U. Nonetheless, cronyism is an important problem, which probably does increase wealth inequality to an extent. Surveys show that Americans are concerned about cronyism.
According to a recent poll, 67 percent of voters surveyed said they believe that big businesses and government regulators often work together to create rules that are harmful and unfair to consumers. So how do we address the problem? Table 1 indicates the types of cronyism that we should target for reform.
Our goal should be to allow open competition in every industry so that entrepreneurs can challenge established businesses on a level playing field. Adam Smith stressed the benefits of competition:. The public should press policymakers to eliminate the subsidies, regulations, and tax preferences that fuel cronyism. If the government reduced its interventions in the economy, there would be fewer levers for special interests to pull.
Interventions often begin with good intentions, but businesses twist and exploit policies to gain unfair advantage. Cronyism distorts the economy and likely increases wealth inequality.
It erodes confidence in government and is rejected by the general public. The problem the nation faces is not wealth inequality per se. Rather, the problem is government policies that protect and subsidize favored businesses and unjustly aid the wealthy. One cost of these programs is that they undermine the incentives and the means for people to accumulate personal savings. As government programs for retirement, healthcare, unemployment, and other items have expanded over the decades, there has been less need for people to save for those expenses themselves.
At the same time, people are less able to save because higher taxes are required to pay for the programs. This has undermined wealth accumulation by the nonrich and thus increased wealth inequality. A number of social programs have asset tests, which discourage savings by disallowing benefits if household assets rise above set amounts. Also, numerous government policies raise costs for people with moderate incomes, which reduces earnings available for savings.
Therefore, wealth inequality statistics do not just reflect the workings of markets but also the negative effects of government policies on private savings. Politicians complain about wealth inequality, but their own policies are partly responsible. The largest federal program, Social Security, is a prominent example of crowding out. Many Americans rely on Social Security for most or all of their retirement income.
The program discourages workers from saving for their own retirement, and it reduces their ability to do so with its heavy In pioneering studies in the s, Martin Feldstein explored how Social Security displaced private savings. In doing so, Social Security denies the children of the poor the opportunity to receive inheritances.
The fact that Social Security increases wealth inequality may surprise people because the program is thought to be a progressive achievement. While the program may reduce income inequality, it raises wealth inequality. Other social programs create similar effects. Medicare provides large resources to retirees and thus also reduces incentives to save for retirement.
Unemployment insurance, welfare, education aid, and other programs reduce incentives for people to save for midlife expenses.
In general, when the government provides income and other social benefits to people, savings incentives are reduced. Higher government aid results in lower private wealth. They found that the main factor raising wealth inequality has been technological change that has increased wage dispersion. But they also found that the expansion of Social Security and Medicare has had a large effect:.
Those are the two largest federal social programs, but other programs have likely added to this wealth inequality effect. Total federal and state social spending as a share of GDP more than doubled from 6.
Section 1 argues that the increase has been modest, but however large, a substantial share stemmed not from market forces but from expansion in government social benefits.
Generations of Americans have grown up assuming that the government will take care of them when they are sick, unemployed, and retired. They have responded by putting aside less of their earnings for their own future expenses. Financing social programs requires not just the federal payroll tax but also a large share of other federal and state taxes. American families are less able to save because of higher taxes, and they have a reduced incentive to do so because of the expectation of receiving government benefits.
The Gini coefficient for wealth is similar in the United States 85 , Denmark 84 , Norway 79 , and Sweden 87 , which people usually think of as egalitarian nations. Another way to think about the effect of social programs on wealth is to estimate the present value of future promised government benefits as if it were real wealth.
Social Security and other entitlement programs loom large in household finances for the nonwealthy and thus likely displace a large amount of private wealth. As a result, all the widely cited statistics about wealth distribution—including Gini coefficients and top 1 percent shares—substantially overstate wealth inequality because they exclude Social Security.
That is true of Medicare benefits as well. To individuals, Social Security and other entitlements seem like wealth, but they only represent promises of future benefits, and those benefits are in jeopardy because these unfunded programs are driving huge and rising government deficits and debt. As currently structured, Social Security will only be able to pay a fraction of promised benefits down the road.
The Cato Institute has long argued that the United States should move to a retirement system based on private savings accounts, as numerous other countries have done. Other social programs could be transitioned to a savings basis as well. They would also be more secure because they would not depend on political promises of a massively indebted government.
Government social programs do not just displace private savings by changing incentives to save; some programs actively deter private saving. The purpose of asset tests is to limit program costs and to target benefits to the people most in need. Asset tests help to prevent abuse by people gaining benefits who do not really need them.
However, a harmful side effect is that asset tests help to trap people in poverty by discouraging a culture of personal saving. If assets rise above capped levels, the tests act as a percent tax rate on additional wealth accumulation. A number of economic studies have documented the negative effects of asset tests. Social programs are not the only government policies that can widen wealth inequality. Housing, food, transportation, apparel, and footwear together account for 59 percent of spending by the average household in the bottom 20 percent, or quintile, of the income distribution, and government policies raise prices in those sectors.
Consider housing, which accounts for 25 percent of total expenditures for the average household in the poorest quintile. But Matthew Rognlie disaggregated capital income for the United States and found that only returns to housing have been contributing to rising inequality in recent decades.
Poorer households spend a higher share of their incomes not just on housing but also on food, clothing and footwear, transportation, and childcare. In sum, numerous government policies—often well-meaning—have the effect of raising wealth inequality. Reductions to social spending, taxes, regulations, and trade barriers would reduce costs and increase incentives for families to build wealth.
When it comes to government, less is often more for American families. A popular idea on the political left is that wealth inequality undermines democracy.
Are such fears justified? No, for numerous reasons. The political views of the wealthy are not homogeneous, and on many issues, they track the views of the rest of the population. When the preferences of the wealthy are different, they are often not followed by policymakers, who ultimately need votes, not money.
Do the wealthy have different policy preferences than the rest of us? If they do not have different policy preferences, then even if they had large political clout, it would not affect policy outcomes. In these instances, it does not matter whether public policy is more responsive to one group—policy will end up in the same place. Within every income group there is, of course, a broad range of policy views.
There is little class solidarity among the wealthy. The figure shows that party label is a much more important factor than wealth in explaining the votes. Democrats are much more supportive of social programs and clustered at the top of the chart, while Republicans are clustered at the bottom. The key determinant of their voting records on these issues is party affiliation, not wealth.
However, subcomponents of the wealthy may lean in particular political directions. They also tend to be less protectionist on trade policy; less conservative on religious and moral issues; and more supportive of foreign aid, top income and capital gains tax cuts, gas tax increases, and restraint in Social Security and Medicare spending.
Evidence on the views of the extremely wealthy is scarcer. They were also more likely to want to cut Social Security, healthcare, food stamps, and homeland security spending than the rest of the public and less likely than the broader public to support a federal jobs guarantee and more redistribution. However, even this elite group supported progressive taxation at about current rates. They also wanted a progressive Social Security system but were split on whether high earners should pay more to fund it.
On regulation, they favored intervention in areas where scandals have occurred but considered small businesses to be overregulated. There are some differences within this top group—professionals generally had more liberal views than business owners, managers, and investors. On many issues where the wealthy do have different preferences than the rest of us, it does not appear that they get their way in policy.
Donald Trump won the presidency promising trade protectionism, unreformed entitlement programs, reducing immigration, and putting conservative judges into courts. None of those positions are particularly popular among the very wealthy. However, Trump does support deregulation and tax cuts, which the wealthy have a relative preference for. His victory did not stem from influence by the wealthy but more from grassroots opposition to wealthy coastal elites.
The rich have less direct influence on electoral outcomes or policy platforms than is commonly believed. Some scholars disagree with that view. Using a data set primarily covering —, Gilens analyzed the relative influence of high earners in situations when opinions between income groups differed.
He focused on issues with an average preference gap in survey data of at least 10 percentage points between the rich and the rest and concluded:. On Social Security, Medicare, education, and public works spending, for example, policy outcomes appear more responsive to the preferences of the poor and middle class than the rich. Those policy areas account for about half of all federal spending.
Thus, for most of the federal budget, the reform approach relatively favored by the wealthy is generally not followed. In their study, Branham, Soroka, and Wlezien looked at policy outcomes just on those issues where majorities of the middle class and rich disagree.
That is a fairly small difference, though one that increases slightly in favor of the rich when there are stronger differences in opinion. In other words, when the majority of the rich favors a policy and a majority of the middle class opposes it, the policy is adopted 37 percent of the time, compared to 26 percent of the time when the rich oppose and the middle favor. Finally, a statistical study by Eric Brunner, Stephen Ross, and Ebonya Washington found that the views of the rich were not favored in legislation.
They created a unique data set based on 77 times from to that California state legislators voted on the same proposal as the public voted on in a referendum. They compiled information on the ballot votes by neighborhood income levels and found:. There is little evidence that wealth inequality undermines democracy today, but is there reason to worry about the future? The wealthy have always been involved in politics, but politicians ultimately need votes, not money, and billionaires represent few votes.
Consider that wealth inequality was higher across many Western countries in the 19th century and early 20th century to the extent we can measure it, but that was precisely when many nations were widening the voting franchise under pressure from the general public. Special interests influence politics, but that usually comes from organized groups representing substantial numbers of voters, such as industries and unions. When a U. In the final term of members of Congress, we might expect voting patterns to change as members have less need to attract donations.
Snyder Jr. Liberals also worry that wealthy people are more likely to favor cuts to social programs and that if wealthy people gain more political power, the welfare state would be cut.
Yet, as wealth inequality has risen modestly since the s, federal social spending has grown substantially, not shrunk. Total federal and state social spending as a share of GDP has risen from 9. Across countries there is no correlation between the wealth share of the top 1 percent and social spending as a percentage of GDP.
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