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The Rich Got Richer: So What?

November 5, 2011

You’ve probably heard it too. The rich got richer in the US over the last 40 years (Pears, 2011). The top 100 CEOs are each making on average over $80 million a year, roughly 40 times more than what they made in the early 1970s. In contrast, the average worker’s earnings (inflation adjusted) have not increased much since the 1970s (see Figure 1, from Piketty & Saez, 2003.

Emmanuel Saez

Figure 1. Earnings data

Inequality in the US, as measured by the Gini coefficient, used to be lower than other European nations such as Italy and France. Now, the US is more unequal than Italy and France, and is similar to countries such as Mexico (see Figure 2).

Wage Inequity over time

Figure 2. Wage inequity in U.S., France, and UK, from 1913 to 2003

This cannot be good. What might be the psychological consequences of this growing income inequality in the U.S.? My colleagues Selin Kesebir, Ed Diener, and I looked at happiness data from 1972 to 2008 in the General Social Surveys, which are nationally representative surveys of over 48,000 Americans (Oishi, Kesebir, & Diener, 2011). We found that Americans were on average less happy in times of income inequality than in times of income equality. When we looked at the happiness of five income categories separately, we found that in particular the poorest 40% were less happy in unequal years than in equal years.

We published this finding in Psychological Science and received considerable media attention. For instance, Charlottesville’s weekly magazine The Hook chose our study to be that week’s “Biggest well, duh.” Well, the part that is not so duh is that poor folks were less happy in unequal years not because they made less money—reduced income did not explain the association between income inequality and unhappiness. They were unhappy because in those years they felt more that people could not be trusted and that others were treating them unfairly. So, it wasn’t the economy stupid, but psychology!

Figure 3. Cross-National Comparisons in Income Inequality Over Time (Source: wikipedia images

I was quite depressed about these findings, but hoping that people would recognize this and get outraged. Well, people did not need to read our paper. They were already outraged. The Occupy Wall Street movement started on September 17th, and then quickly spread to other cities, LA, SF, Boston, and yes my own sleepy town Charlottesville! There is hope again. This movement might change how national wealth is distributed, how people’s efforts are rewarded, and how people are treated.

Of course, psychologists already knew how sensitive we are to unfairness (see the work of Tyler and his colleagues including Tyler & Blader, 2003; see too Norton & Ariely, 2011). What is the first complaint an American child expresses to his parents? Unfair! (LoBue, Nishida, Chiong, DeLoache, & Haidt, 2011). Likewise, in baseball, basketball, soccer, football, volleyball, players, coaches, and fans cry out, curse, and plead when they think a call was unfair. A fascinating recent study found that NBA players miss more free-throws right after an unfair foul call, presumably due to a sense of guilt (Haynes & Gilovich, 2010). So, we are very very sensitive to unfairness. Finally, this general sensitivity to unfairness hit the tipping point and gave rise to a social movement.

Sometimes I am hopeful that the Occupy movement will change national politics. But other times, when I look at Washington politics, I get discouraged. I read Jacob Hacker and Paul Pierson’s 2010 book Winner-Take-All Politics. You might think that it was Republicans who were responsible for the richer getting richer phenomenon. However, these political scientists analyzed data and provided a very cogent argument that both Republicans and Democrats have contributed to the phenomenon. Another political scientist, Martin Gilens’s (2005) analysis is even more devastating. Gilens found that policies that had been supported by the rich were more likely to be turned into laws. Sadly, the policy changes supported by middle-income voters did not…Whatever happened to John Rawls’ (1971/1999) theory of justice and democratic equality? Perhaps, all the rational forms have failed and the Occupy movement is the only hope for changing the winner-take-all politics in the US?

References

Gilens, M. (2005). Inequality and democratic responsiveness. Public Opinion Quarterly, 69, 778-796.
Hacker, J., & Pierson, P. (2010). Winner-Take-All Politics. New York: Simon & Schuster.
Haynes, G., & Gilovich, T. (2010). “The ball don’t lie”: How inequity aversion can undermine performance. Journal of Experimental Social Psychology, 46(6), 1148-1150.
LoBue, V., Nishida, T., Chiong, C., DeLoache, J. S., & Haidt, J. (2011). When getting something good is bad: Even three‐year‐olds react to inequality. Social Development, 20(1), 154-170.
Norton, M. I., & Ariely, D. (2011). Building a better America—One wealth quintile at a time. Perspectives on Psychological Science, 6(1), 9-12.
Oishi, S., Kesebir, S., & Diener, E. (2011). Income inequality and happiness. Psychological Science, 22(9), 1095-1100.
Pear, R. (October 25, 2011). Top earners doubled share of nation’s income, study finds. New York Times, downloaded from http://www.nytimes.com/2011/10/26/us/politics/top-earners-doubled-share-of-nations-income-cbo-says.html.
Piketty, T., & Saez, E. (2003). Income inequality in the United States, 1912-1998. Quarterly Journal of Economics, 118, 1-39.
Rawls, John (1971) A Theory Of Justice, Cambridge: Harvard University Press.
Tyler, T.R., and Blader, S. (2003). Procedural justice, social identity, and cooperative behavior. Personality and Social Psychology Review, 7, 349-361.

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