Economy

mainly macro: Attitudes towards redistribution

 

This book
by Charlotte Cavaill
é is forthcoming, so this post is
based on
this
excellent podcast
, which is well worth an hour or so
of your time (and/or buy the book when it’s out).

Although inequality
can be measured in many ways, here I want to focus on one particular
measure: the share of income going to those at the top of the income
distribution (1% or 0.1%). In the UK this started
rising
from the early 1980s to the mid-2000s, but it
hasn’t risen significantly since then. (It rose from about 6% to
around 15% for the 1%, and about 2% to around 6% for the 0.1%.
Figures from this
IFS paper
, discussed here.)
Yet when people are
asked whether (see figure 2)
“government should
redistribute income from the better-off to those who are less well
off”, the percentage saying yes (about 50%) is much the same today
as it was in the early 80s. Admittedly this question doesn’t
specify who the ‘better off’ are (more on this latter), but
nevertheless the combination of growing inequality at the top with
unchanged views on redistribution is interesting.

Here I found
Cavaillé’s framework for thinking about attitudes to inequality
very helpful. The first point is that if views about redistribution
from the top 1% were governed by self-interest alone, the proportion
wanting more redistribution should be 99%. However Cavaillé argues
that attitudes to redistribution are governed only partly by
self-interest but also by views about fairness. We are a social
creature after all, rather than just individualists out for
ourselves. Furthermore she argues that when it comes to
redistribution, views about fairness are divided into two:
“redistribution from” and “redistribution to”.

This might seem
counter intuitive when thinking about a survey question that combines
both aspects. But if you think about it, redistribution does involve
two acts: taking away (redistribution from) and giving
(redistribution to). Cavaillé convincingly argues that the way most people
think about fairness when thinking about taking away is rather
different to fairness when giving to others. In general terms,
different attitudes about ‘redistribution from’ tend to go along
economic left/right lines, but attitudes about ‘redistribution to’
are more correlated with socially liberal or conservative mindsets.

To be more concrete,
experimental evidence from behavioural economics suggests the
dominant idea concerning ‘redistribution from’ is
proportionality: have those earning higher incomes earned (in a moral
sense) those better rewards? Proportionality is used by people far
more often than notions of equality. Whether incomes under capitalism
are deserved or not will be correlated with where people are on an
economic left/right spectrum, but they are also influenced by elite
discourse about the extent to which rewards are justified.

In contrast, notions
of fairness concerning ‘redistribution to’ involve social
solidarity and free riding. Again in behavioural economics
experiments ideas of reciprocity (help others until they start to
free ride) dominate concepts of need. Cavaillé suggests that social
liberals tend to be more optimistic about those who are in receipt of
redistribution and welfare, while social conservatives obsess more
about free riding, and are unconvinced that the state can prevent
this.

Cavaillé uses these
ideas to explain changes in attitudes in a number of countries,
including why support in the UK for redistribution has fallen or at
best stayed constant while incomes at the top have risen so
dramatically. First she points out that following Thatcher’s
election victory in 1979, the debate about whether incomes produced
by the UK’s capitalist system were fair or not, a debate that had
been prevalent in the 1960s and 70s, largely disappeared. Instead
dominant narratives became about wealth creation and incentives, both
of which were generally and selectively used to refer to those
earning high incomes. This was continued under Blair, who was
famously relaxed about high incomes.

This meant that
attitudes to redistribution shifted from thinking about
‘redistribution from’ to thinking about ‘redistribution to’,
particularly under the Blair/Brown government where social support
for the poorest increased substantially. This was a gift to the
political right, and particularly to the right wing press, which
produced endless stories about scroungers sponging off the welfare
state. This helped to make attitudes towards redistribution more
unfavourable in the first decade of this century. To put it another
way, the left wing social conservative, whose views on redistribution
would always be conflicted, thought more about ‘redistribution to’
and free riding, even though inequality at the top was rising.

Still, doesn’t
self interest count for something? How much it counts for depends a
lot on information. Better off social liberals may often be in favour
of redistribution until the moment they realise how much their taxes
will need to increase! I would argue that systematic information and
debate about top incomes is very thin on the ground, and in
particular is unlikely to reach the less well informed who are often
left wing social conservatives. (There is a strong positive
correlation between the amount of education people have received and
social liberalism.) In particular, very few people realise how much
they have
become personally poorer
as a result of the growing
incomes of the 1% (assuming, as seems reasonable as a first
approximation, that this is a zero-sum game). To put it simply, if today the 1% get nearly an extra 10% of national income compared to the post-war period, then the 99%
have on average 10% less income.

At this point we
need to address the problem that survey questions talking about rich
and poor, although they provide useful information about changing
attitudes over time, may be too general to pick up views about the
very well off: the top 1% and especially the top 0.1%. After all,
even the right wing press carries stories about ‘fat cats’, even
if they tend to be more about those in the public rather than private
sectors. In this
recent opinion poll
, for example, 66% of voters say
that the wealthy do not pay their fair share of tax, relative to just
6% who say they pay too much. Using the term ‘wealthy’ rather
than ‘better-off’ may tap better into views about the top 1%, but
note also that this is only a question about ‘redistribution from’,
and avoids talking about where any extra tax might go.

Let me summarise by
using this analysis to suggest what those (like myself) favouring
greater redistribution from the top 1% need to do to convince others.
The first thing is to focus on the very top of the income
distribution, and be explicit about how much the rise in income going to the 1% has made everyone poorer. The more information people have, the
more self interest will kick in. Along the same lines, stress that greater incomes for the 1% have been accompanied by lower, not higher, growth rates. Second, stress that CEO pay is not determined ‘by
the market’ (which might make some believe it reflects effort or
contribution), but is instead set by other CEOs or well paid
executives and board members. Finally, when asked about
‘redistribution to’ (as will inevitably happen), focus on areas
of public spending where there is less perceived scope for free
riding, like the NHS. Some of this is intuitive, and probably bread
and butter for those who
campaign
on this issue, but I found it useful to see
how these lessons follow straightforwardly from Cavaillé’s
framework.


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