When I taught recently at the Summer School at Groningen University, I began my lecture on the measurement of inequality by distinguishing between the Italian and English schools as they were defined in 1921 by Corrado Gini:
Might you want to qualify your views by taking into account physical disability? Which is a point that Sen frequently makes - the disabled might require greater income to reach the same level of wellbeing as the fully abled. And if we were prepared to address physical disability, what about social disadvantage due to gender, ethnicity, geography, history, etc?
So it's not "welfare" (per the English tradition), but "wellbeing" or "capabilities" (per Sen). I suppose the difference is that the English tradition assumes the same welfare function regardless of disability, disadvantage, history, geography etc. Whereas the latter doesn't.
Milanovic I'm awestruck by your empirical work but, apologies in advance, your normative political philosophy arguments are too often shallow, unconvincing and even worse, as in this case, self-contradictory.
You write:
"The third ground is philosophical ... Because we are all equal individuals ... we should all have an approximately equal opportunity to develop our skills and to lead a “good (and pleasant) life”. "
But that claim is inconsistent with you earlier rejection of welfarism:
"There is, I believe, no way to compare utilities of different persons. ... while both your and my marginal utility functions are decreasing, my level of utility may, at any point, be orders of magnitude greater than yours or the reverse ... Furthermore ... conditions of happiness are contradictory"
Because if we cannot compare the interpersonal levels of utility of persons A and B then we also cannot compare if A and B have been given equal opportunity to lead a "good (and pleasant) life" (a life of a certain level of welfare). Because, as posited by your rejection of welfarism, what set of opportunities A needs to lead a good/pleasant life can be "orders of magnitude greater" than what B needs. Or vice versa. In general if there is no way to know interpersonal levels of some final good X (flourishing, happiness, whatever) then there is also no way to know what amounts of some instrumental good (that when had hopefully down the line generates X) should be given to persons A and B respectively to be able to say that A and B now have "equal opportunity" to reach some level of X. Not even "approximately" - since we can be "orders of magnitude" off.
The bind you get yourself in is in a way reminiscent of the problems Sen points out with Rawls view being too "resourcist". But your bind is much deeper than Rawls' because you much more categorically reject welfarism and you make that "orders of magnitude greater" claim.
The only way out of the bind is to accept that interpersonal welfarism claims must be made in any view that makes interpersonal policy prescriptions. Denying that is the greatest and most harmful mistake ever in the field of economics.
Where does the use of a 'social welfare function' fit into your model? This puts forward a number of assumptions about the income-welfare relationship (such as the diminishing returns assumption) and says that these should form the basis for policy. It doesn't necessarily assume that there is a known mapping from income to personal welfare. By excluding this line of reasoning you are substantially weakening the case for anti-inequality policy.
The equality of opportunity rationale is an even slipperier concept than the social welfare function. Where does one draw the line between choice and constraint? If some people work hard and earn high incomes, should we consider that a choice (which should be rewarded) or a constraint (based on their genetic inheritance, social upbringing and random life events).
The 'traditional' social welfare approach of a tradeoff between desired full income equality vs the need to maintain economic incentives to increase average incomes still seems to be the most straightforward way to think about inequality (anti-inequality policies).
I think that if we are unable to derive social welfare function from individual preference, such a function simply does not exist. Even when it refuses to acknowledge it SWF essentially assumes that a society is just one individual. Te critique is quite devastating when you acknowledge incompatibility of individual objectives or happiness(es). My happiness as an owner of a car is incompatible w/ happiness of a thief who would like to steal the car. How can I add them up if they are incompatible?
The SWF function does impose a single welfare function to evaluate everyone's situation - but it doesn't claim that it knows everyone's welfare. Yes, this means that it will not take account of situations where some people feel they need more $ to attain the same level of well-being. But I think this is a plus, not a minus, against the method. (Differences that are considered important, like household structure and disability (as mentioned below) can be incorporated into the SWF if desired).
The thief example is not a problem for the SWF approach. You just add the increase in consumption level of the thief (maybe including the consumption value of the thrill of theft) against the lost consumption of the owner (including the lost consumption value of security of ownership). The thief's loss of 'welfare' would have greater weight (because they typically start off poorer), but we would also include the social costs of behavioural change (eg wasted spending on locks) as part of the negative costs of thieving.
The adding and subtracting individual utilities as if we knew what they are is really what gives utilitarianism bad name. We cannot add things we do not know or that are incommensurate. This is Bentham at his (let's say) most simplistic. The example of owner & thief is to show not that utilities (in the Benthamite sense) cannot be added but to show incompatibility of life plans; as Pareto says, should we account for thwarted thief and protected owner?
É um tema/artigo que destroça 'fundamentos ' da própria economia enquanto ciência. Kahnemnn e Tversky (psicólogos trabalhando no campo da economia), demonstraram que não agimos como seres racionais. O que afeta fundamentos teóricos importantes, como equilíbrio de preços de mercado em um ponto ótimo para todos os agentes. Ademais, T. Piketty demonstrou que a desigualdade vem aumentando considerando os últimos 200 anos ( A curva de Kuznet não se sustenta para provar o contrário no longo prazo), prejudicando o desenvolvimento da sociedade. Precisamos, certamente de novos parâmetros, com novas métricas e uma nova ciência. Lamento que Tiversky tenha morrido tão cedo.
Good piece - a while back I recall a study of Chinese elites whose prominence seemed to have survived the upheavals of the 20 century - that is, they were elite families before communism, experienced reversals of fortune and then emerged after a couple generations as elite again - made me think of the complex ways in which inequality appears to assert itself
I object to using the term equal (for humans or individuals). Instead, it would be more appropriate to say we have equal rights. There are languages which have separate words for those concepts. English doesn't, so it's a word (equal) vs. phrase (equal rights) and since a single word almost always sonds stronger than the phrase the concepts tend to be confused.
In the beginning of the article you argue that humans have different utility functions, from which trivially follows that they are not equal. But we could have equal rights. Perhaps, depending on which set of rights we put in the charter.
But there are some problems with your proposal. Suppose we want to add equality of income to the basic set. Since most of the markets don't ensure that on their own we'd have to devise some way for redistribution. Progressive taxation, for example. But then, shouldn't we all have a right to the same tax rate? And why should't that be added to the basic set of rights?
It seems to me, purely intuitively, that you'll get to the contradictory set of rights if you try to implement any kind of rights which have a cost. (Free speech doesn't, since you can just let people speak what they want and it doesn't cost you anything. Censorship, on the other hand, has a cost).
Contradictory set of rights isn't possible in practice, although you can pretend (for a time) that there's no problem. That pretending is usually called ideology. And if you don't (or can't) change the ideology before its expiry date the whole empire would come crashing down, together with the huge costs to human well-being.
I agree that precise inter-personal comparisons of utility are impossible, and I basically buy into Sen's approach and what you write here. I also acknowledge that we might all have different set points and that winning a lottery is often immiserating. Still, as a person who lives in the world and who has read a few novels, I intuitively believe that, on average, egalitarian economic arrangements will improve human welfare/satisfaction more than inegalitarian arrangements, and I have a hard time shaking my utilitarian mental model/worldview.
"Let me note parenthetically that even if we failed to detect such explicit influence of the rich on policy making, the a priori case that it must exist (but is difficult to measure) would still be extremely strong."
Other people have managed to detect explicit influence of the rich on policy making:
Predicting United States Policy Outcomes with Random Forests
Abstract
Working Paper
Predicting United States Policy Outcomes with Random Forests
NOV 2020 | GOVERNMENT & POLITICS
SHARE
DOWNLOAD PAPER
In this paper we analyze the Gilens dataset using the complementary tools of Random Forest classifiers (RFs), from Machine Learning.
Two decades of U.S. government legislative outcomes, as well as the policy preferences of high- income people, the general population, and diverse interest groups, were captured in a detailed dataset curated and analyzed by Gilens, Page et al. (2014). They found that the preferences of high-income earners correlated strongly with policy outcomes, while the preferences of the general population did not, except via a linkage with the preferences of high earners. Their analysis applied the tools of classical statistical inference, in particular logistic regression. In this paper we analyze the Gilens dataset using the complementary tools of Random Forest classifiers (RFs), from Machine Learning.
We present two primary findings, concerning respectively prediction and inference: (i) Holdout test sets can be predicted with approximately 70% balanced accuracy by models that consult only the preferences of those in the 90th income percentile and a small number of powerful interest groups, as well as policy area labels. These results include retrodiction, where models trained on pre-1997 cases predicted “future” (post-1997) cases. The 20% gain in accuracy over baseline (chance), in this detailed but noisy dataset, indicates the high importance of a few distinct players in U.S. policy outcomes, and aligns with a body of research indicating that the U.S. government has significant plutocratic tendencies.
(ii) The feature selection methods of RF models identify especially salient subsets of interest groups (economic players). These can be used to further investigate the dynamics of governmental policy making, and also offer an example of the potential value of RF feature selection methods for inference on datasets such as this one.
The key finding:
"The 20% gain in accuracy over baseline (chance), in this detailed but noisy dataset, indicates the high importance of a few distinct players in U.S. policy outcomes, and aligns with a body of research indicating that the U.S. government has significant plutocratic tendencies."
Maybe the rich (and indeed the poor) give to political causes because they genuinely believe in them? It’s true that’s not standard economics, but it is quite a widespread view. Of course, our genuine beliefs may also end up hewing mysteriously close to our material self-interest. But a person whose norms are influenced by his interests is not quite the same as a purely self-interested person.
Yeah, I mean it depends how tight the link is between beliefs and self-interest. There have been plenty of rich socialists. On the other hand, you might object to the rich having too much power, even if they are extremely idealist, Self-interest is predictable at least... ideals can often look rather like whims.
Might you want to qualify your views by taking into account physical disability? Which is a point that Sen frequently makes - the disabled might require greater income to reach the same level of wellbeing as the fully abled. And if we were prepared to address physical disability, what about social disadvantage due to gender, ethnicity, geography, history, etc?
So it's not "welfare" (per the English tradition), but "wellbeing" or "capabilities" (per Sen). I suppose the difference is that the English tradition assumes the same welfare function regardless of disability, disadvantage, history, geography etc. Whereas the latter doesn't.
Milanovic I'm awestruck by your empirical work but, apologies in advance, your normative political philosophy arguments are too often shallow, unconvincing and even worse, as in this case, self-contradictory.
You write:
"The third ground is philosophical ... Because we are all equal individuals ... we should all have an approximately equal opportunity to develop our skills and to lead a “good (and pleasant) life”. "
But that claim is inconsistent with you earlier rejection of welfarism:
"There is, I believe, no way to compare utilities of different persons. ... while both your and my marginal utility functions are decreasing, my level of utility may, at any point, be orders of magnitude greater than yours or the reverse ... Furthermore ... conditions of happiness are contradictory"
Because if we cannot compare the interpersonal levels of utility of persons A and B then we also cannot compare if A and B have been given equal opportunity to lead a "good (and pleasant) life" (a life of a certain level of welfare). Because, as posited by your rejection of welfarism, what set of opportunities A needs to lead a good/pleasant life can be "orders of magnitude greater" than what B needs. Or vice versa. In general if there is no way to know interpersonal levels of some final good X (flourishing, happiness, whatever) then there is also no way to know what amounts of some instrumental good (that when had hopefully down the line generates X) should be given to persons A and B respectively to be able to say that A and B now have "equal opportunity" to reach some level of X. Not even "approximately" - since we can be "orders of magnitude" off.
The bind you get yourself in is in a way reminiscent of the problems Sen points out with Rawls view being too "resourcist". But your bind is much deeper than Rawls' because you much more categorically reject welfarism and you make that "orders of magnitude greater" claim.
The only way out of the bind is to accept that interpersonal welfarism claims must be made in any view that makes interpersonal policy prescriptions. Denying that is the greatest and most harmful mistake ever in the field of economics.
Where does the use of a 'social welfare function' fit into your model? This puts forward a number of assumptions about the income-welfare relationship (such as the diminishing returns assumption) and says that these should form the basis for policy. It doesn't necessarily assume that there is a known mapping from income to personal welfare. By excluding this line of reasoning you are substantially weakening the case for anti-inequality policy.
The equality of opportunity rationale is an even slipperier concept than the social welfare function. Where does one draw the line between choice and constraint? If some people work hard and earn high incomes, should we consider that a choice (which should be rewarded) or a constraint (based on their genetic inheritance, social upbringing and random life events).
The 'traditional' social welfare approach of a tradeoff between desired full income equality vs the need to maintain economic incentives to increase average incomes still seems to be the most straightforward way to think about inequality (anti-inequality policies).
I think that if we are unable to derive social welfare function from individual preference, such a function simply does not exist. Even when it refuses to acknowledge it SWF essentially assumes that a society is just one individual. Te critique is quite devastating when you acknowledge incompatibility of individual objectives or happiness(es). My happiness as an owner of a car is incompatible w/ happiness of a thief who would like to steal the car. How can I add them up if they are incompatible?
The SWF function does impose a single welfare function to evaluate everyone's situation - but it doesn't claim that it knows everyone's welfare. Yes, this means that it will not take account of situations where some people feel they need more $ to attain the same level of well-being. But I think this is a plus, not a minus, against the method. (Differences that are considered important, like household structure and disability (as mentioned below) can be incorporated into the SWF if desired).
The thief example is not a problem for the SWF approach. You just add the increase in consumption level of the thief (maybe including the consumption value of the thrill of theft) against the lost consumption of the owner (including the lost consumption value of security of ownership). The thief's loss of 'welfare' would have greater weight (because they typically start off poorer), but we would also include the social costs of behavioural change (eg wasted spending on locks) as part of the negative costs of thieving.
The adding and subtracting individual utilities as if we knew what they are is really what gives utilitarianism bad name. We cannot add things we do not know or that are incommensurate. This is Bentham at his (let's say) most simplistic. The example of owner & thief is to show not that utilities (in the Benthamite sense) cannot be added but to show incompatibility of life plans; as Pareto says, should we account for thwarted thief and protected owner?
My answer to Pareto is yes (at least in principle). Not that different to capitalist and worker, really.
É um tema/artigo que destroça 'fundamentos ' da própria economia enquanto ciência. Kahnemnn e Tversky (psicólogos trabalhando no campo da economia), demonstraram que não agimos como seres racionais. O que afeta fundamentos teóricos importantes, como equilíbrio de preços de mercado em um ponto ótimo para todos os agentes. Ademais, T. Piketty demonstrou que a desigualdade vem aumentando considerando os últimos 200 anos ( A curva de Kuznet não se sustenta para provar o contrário no longo prazo), prejudicando o desenvolvimento da sociedade. Precisamos, certamente de novos parâmetros, com novas métricas e uma nova ciência. Lamento que Tiversky tenha morrido tão cedo.
Good piece - a while back I recall a study of Chinese elites whose prominence seemed to have survived the upheavals of the 20 century - that is, they were elite families before communism, experienced reversals of fortune and then emerged after a couple generations as elite again - made me think of the complex ways in which inequality appears to assert itself
I object to using the term equal (for humans or individuals). Instead, it would be more appropriate to say we have equal rights. There are languages which have separate words for those concepts. English doesn't, so it's a word (equal) vs. phrase (equal rights) and since a single word almost always sonds stronger than the phrase the concepts tend to be confused.
In the beginning of the article you argue that humans have different utility functions, from which trivially follows that they are not equal. But we could have equal rights. Perhaps, depending on which set of rights we put in the charter.
But there are some problems with your proposal. Suppose we want to add equality of income to the basic set. Since most of the markets don't ensure that on their own we'd have to devise some way for redistribution. Progressive taxation, for example. But then, shouldn't we all have a right to the same tax rate? And why should't that be added to the basic set of rights?
It seems to me, purely intuitively, that you'll get to the contradictory set of rights if you try to implement any kind of rights which have a cost. (Free speech doesn't, since you can just let people speak what they want and it doesn't cost you anything. Censorship, on the other hand, has a cost).
Contradictory set of rights isn't possible in practice, although you can pretend (for a time) that there's no problem. That pretending is usually called ideology. And if you don't (or can't) change the ideology before its expiry date the whole empire would come crashing down, together with the huge costs to human well-being.
I agree that precise inter-personal comparisons of utility are impossible, and I basically buy into Sen's approach and what you write here. I also acknowledge that we might all have different set points and that winning a lottery is often immiserating. Still, as a person who lives in the world and who has read a few novels, I intuitively believe that, on average, egalitarian economic arrangements will improve human welfare/satisfaction more than inegalitarian arrangements, and I have a hard time shaking my utilitarian mental model/worldview.
"Martin Giddens’ “Affluence and Influence”" should be Martin Gilens.
Corrected. Thanks a lot.
This sentence: "As Rawls has argued, every departure from unequal distribution of resources has to be defended by an appeal to a higher principle."
Should it be every departure from equal distribution of resources?
Yes, of course. Sorry for the typos Thanks a lot.
"Let me note parenthetically that even if we failed to detect such explicit influence of the rich on policy making, the a priori case that it must exist (but is difficult to measure) would still be extremely strong."
Other people have managed to detect explicit influence of the rich on policy making:
https://www.ineteconomics.org/research/research-papers/predicting-united-states-policy-outcomes-with-random-forests
Predicting United States Policy Outcomes with Random Forests
Abstract
Working Paper
Predicting United States Policy Outcomes with Random Forests
NOV 2020 | GOVERNMENT & POLITICS
SHARE
DOWNLOAD PAPER
In this paper we analyze the Gilens dataset using the complementary tools of Random Forest classifiers (RFs), from Machine Learning.
Two decades of U.S. government legislative outcomes, as well as the policy preferences of high- income people, the general population, and diverse interest groups, were captured in a detailed dataset curated and analyzed by Gilens, Page et al. (2014). They found that the preferences of high-income earners correlated strongly with policy outcomes, while the preferences of the general population did not, except via a linkage with the preferences of high earners. Their analysis applied the tools of classical statistical inference, in particular logistic regression. In this paper we analyze the Gilens dataset using the complementary tools of Random Forest classifiers (RFs), from Machine Learning.
We present two primary findings, concerning respectively prediction and inference: (i) Holdout test sets can be predicted with approximately 70% balanced accuracy by models that consult only the preferences of those in the 90th income percentile and a small number of powerful interest groups, as well as policy area labels. These results include retrodiction, where models trained on pre-1997 cases predicted “future” (post-1997) cases. The 20% gain in accuracy over baseline (chance), in this detailed but noisy dataset, indicates the high importance of a few distinct players in U.S. policy outcomes, and aligns with a body of research indicating that the U.S. government has significant plutocratic tendencies.
(ii) The feature selection methods of RF models identify especially salient subsets of interest groups (economic players). These can be used to further investigate the dynamics of governmental policy making, and also offer an example of the potential value of RF feature selection methods for inference on datasets such as this one.
The key finding:
"The 20% gain in accuracy over baseline (chance), in this detailed but noisy dataset, indicates the high importance of a few distinct players in U.S. policy outcomes, and aligns with a body of research indicating that the U.S. government has significant plutocratic tendencies."
Maybe the rich (and indeed the poor) give to political causes because they genuinely believe in them? It’s true that’s not standard economics, but it is quite a widespread view. Of course, our genuine beliefs may also end up hewing mysteriously close to our material self-interest. But a person whose norms are influenced by his interests is not quite the same as a purely self-interested person.
Isn't the chain A essentially the same as chain B? So doesn't his point still stand?
Chain A: self-interest ->belief system -> political donations/influence -> policy outcomes
Chain B: self-interest ->political donations/influence -> policy outcomes
Yeah, I mean it depends how tight the link is between beliefs and self-interest. There have been plenty of rich socialists. On the other hand, you might object to the rich having too much power, even if they are extremely idealist, Self-interest is predictable at least... ideals can often look rather like whims.