Economics: Wealth Inequality: Keeping Envy Local

Wealth inequality is unimportant ...

First, a lot of Americans live very well, even if they don't enjoy all of the benefits of the lifestyles of the very wealthy. It is quite possible that a person in the upper middle class is happier than a billionaire. Even the middle class has access to penicillin, air travel, good cheap food, the Internet, and cable TV, not to mention a heart bypass operation, if needed.

Bill Gates, of course, has a lot more than that, but a lot of Americans don't feel they deserve a private jet, a private charitable foundation, or an invitation to Davos and they may not even want it. In terms of income, the gap between rich and middle class is growing, but in terms of happiness it is relatively low by broader historical standards.

Second, a lot of envy is local. People worry about how they are doing compared to their neighbors, their friends, their relatives, their co-workers, and the people they went to high school with. They don't compare themselves to Michael Bloomberg, unless of course they are also billionaires. When the guy down the hall gets a bigger raise, perhaps by courting the boss, that's what really bothers us. In other words, envy and resentment are not going away and they also do not stem fundamentally from the contrast between ordinary lives and the lives of the very wealthy.

Third, many Americans draw an important distinction between earned wealth and unearned wealth. If someone has become a billionaire, but he worked hard for it and supplied a good or service of real value (say Mark Zuckerberg of Facebook), for the most part Americans will respect and admire that person.

A lot of wealth today hasn't been earned fairly, but still a lot of it has been the result of hard work and creativity, even if mixed in with good luck. The United States is still a society of business and a lot of businessmen provide great value to our economy. The weight has not swung to the point where there is more unearned wealth than earned wealth and so Americans identify with business and a business ethic, especially compared to attitudes in Europe.

From Keeping Envy Local by Tyler Cowen, March 22, 2011 at NYTimes.com.