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Thursday, February 10, 2011

Why the Poor Don't Soak the Rich in the U.S.

If you're like me and have been struggling simply to understand the events that are transpiring in Egypt, have no fear - this adorable little girl will explain it all:

One of the root causes behind Egypt protests is income inequality and lack of economic opportunity in the youth-bulging country under Mubarak's rule. But what I find most fascinating is that Egypt's Gini coefficient is far from abnormal relative to other countries. In fact, the U.S.'s Gini coefficient is higher than Egypt's. This raises an interesting question: why don't we see similar uprisings of the poor against the rich right here in the United States? Or in other words, why don't the poor soak the rich in the U.S.?

This morning, Harvard Kennedy School Professor Tarek Masoud, who is basking in his 15 seconds of fame as one of the foremost academics on politics in Egypt, attempted to answer that very question this morning.

According to traditional logic, one might think that poor people would vote in support of redistributive economic policies if they believe that the policies will one day benefit them. What is puzzling to Masoud is that it is the very people that would benefit from redistributive policies such as the inheritance tax that are voting against them! Why is this so? He posed a few different explanations:
One explanation he dubbed "empathy gulf". Everyone wants to be, or at least wants the one-in-a-billion lottery ticket odds of one day being, the next Bill Gates. Core to the American ideals is the concept of opportunity and rags-to-riches stories. America is where dreams come true, and anything is possible. Redistributive policies, higher tax rates, and spending on social programs are at odds with the entrepreneurial spirit of making it big.

Second, Masoud posed that people in the U.S. may harbor irrational beliefs about their own upward mobility. It's not me who will need to cash in food stamps soon, it's the Jones's next door. Or I am not going to be one of those uninsured Americans Obama keeps talking about, so Obamacare is not something I support. 55% of Americans identify themselves as "middle class" according to a Pew Research Center. 41% of Americans making less than $20,000 identify as "middle class", as well.

Finally, another reason the poor may not be inclined to collectively organize and riot against the rich in the U.S. despite massive inequalities is that there is a general belief that the free market is a fair distributive instrument. Both household-level and country-level economic growth requires individuals to shift some of their output from consumption to investment. This is very distinct from a subsistence economy, where the majority of the population consume all available output. The U.S. has done a fairly effective job of providing a tax and regulatory framework that incentivizes investment over consumption, and thus fuels growth.

1 comment:

  1. Ever read EP Thompson's "The Moral Economy of the English Crowd in the 18th Century"? I think it might be instructive. Thompson essentially argues that purely economic causes or instrumental reasoning are not enough to explain riots in 18th century England (and by extension other sorts of uprising). The idea of the moral economy is supposed to emphasize that the raw economic fact of, say, hunger or inequality will not in itself determine behavior. Rather they have to be understood in conjunction with cultural ideas about fair distribution, rights, and appropriate responses to their violation.

    In the US I'd say the idea of the free market as a fair distributive instrument is part of it--as you say. But I'd add that such an idea did not achieve its current level of acceptance on its own. There was a lot of active squashing of workers movements and, of course, the cold war that push certain ways of thinking to the front and others to the back.


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