The inequality delusion: Why we've got the wealth gap all wrong

YOU are probably aware that there are high levels of inequality in the world and that inequality is getting worse. But it is unlikely that you appreciate just how unequal things are. So here is a way of visualising it. Take the wealth of the eight richest people on the planet and combine it. Now do the same for the poorest 3.5 billion. The two sums are the same, £350 billion. Correct: just eight people own as much wealth as half of the world’s population.

That is just one of many eye-watering measures of inequality. Consider that in the US, almost 85 per cent of the wealth is owned by just 20 per cent of the population, and the bottom 40 per cent own just 0.3 per cent of it. In 1960, a chief executive in the US typically earned 20 times as much as an average worker. Today it is more like 354 times.

Most people find these numbers shocking, even obscene, and inequality has become one of the world’s most serious issues. Early in his second term, President Obama called it “the defining challenge of our time”; Pope Francis has described it as “the root of social evil”. The general public also rank it highly. When the Pew Research Center asked people in 44 countries whether they thought the gap between rich and poor was a “big problem”, a majority in all 44 said it was. A majority in 28 said it was a “very big” problem.

The idea that inequality needs to be reduced now almost goes without saying. I agree – but my training as a cognitive scientist warns me we should be careful how we go about it. Some fights for equality, such as against racial prejudice, are morally straightforward. But the battle against economic inequality isn’t so simple.

As surprising as it might seem at first, some economic inequality is actually morally good. I recently explored this issue in the journal Nature Human Behaviour with two of my colleagues at Yale, Christina Starmans and Paul Bloom. We concluded that a crucial step in fighting inequality is realising that it is not all bad. If we want to beat inequality, we must first distinguish between the bad sort and the good sort.

Egalitarian to a fault

The dislike of economic inequality supposedly runs deep in human psychology. The trait we call “inequality aversion” emerges early in development and is found across many cultures, from city dwellers in the US to villagers in Peru and Uganda.

Laboratory studies confirm that inequality aversion is a strong motivator of behaviour. For example, when people are asked to divide money among themselves and fellow subjects in experiments, they have a clear preference for equal distribution. This desire for equality is so powerful that people often choose to receive smaller but more equal rewards over larger but more unequal ones, and in other cases prefer surplus resources to be thrown away rather than distributed unequally.

There is, however, a paradox. A separate body of research finds something quite different. When people are asked about the ideal distribution of wealth in their country rather than among a small group of individuals in the lab, they are actually quite relaxed about inequality.

In one influential study, for instance, researchers asked a representative sample of 5500 Americans about their ideal distribution of wealth in the US. On average, people said that the richest 20 per cent should hold 30 per cent of the wealth, and the bottom 20 per cent just 10 per cent. When forced to choose between high levels of inequality and complete equality, most chose the former.

The authors concluded that most Americans desire greater equality, but not to the extent of living in a completely equal society. Similar results have been found in many other countries, and in people from all points on the political spectrum.

This body of research casts serious doubt on inequality aversion. In fact, my colleagues and I argue there is no evidence that people are actually bothered by economic inequality.

How can these apparently contradictory findings be reconciled? Is one wrong and the other right? No. We think they are both correct. They can be explained by a dislike not of inequality, but of something that is often confounded with it: economic unfairness.

Equality and fairness seem like the same thing, but are subtly different. For example, when grading student papers, teachers give better marks to better papers. Likewise, if you and I co-run a bakery at which you work four days a week and I work the other three, you would expect to receive four-sevenths of the profits. A school that gave all students the same mark regardless of merit, or a bakery at which you work more than me but are paid the same, would be equal, but not fair. This is what we call “unfair equality”. The opposite of this, fair inequality, strikes most people as the better option. When fairness and equality clash, people prefer fair inequality over unfair equality.

This preference can explain the apparent paradox of why people opt for equal distribution in the lab, but unequal distribution in the real world. Most of the lab experiments don’t distinguish between fairness and equality. If you are simply asked to allocate some money to yourself and somebody else with no consideration of merit – say, who worked hardest – then an equal outcome is also the fairest outcome. Giving yourself most of the money and your peer less feels wrong not because it is unequal, but because it is unfair.

Some lab studies do take this into account, and find that our aversion to unfairness is stronger than our aversion to inequality. For example, when asked to divvy up five erasers to two boys as a reward for cleaning their rooms, most people – even young children – want to give them two erasers each and discard the surplus. But when told that one boy worked harder, they happily give him the extra eraser.

This intuitive liking of fairness can explain many apparent puzzles that inequality aversion cannot. For instance, even though current economic conditions in wealthy nations lead to a preference for reducing inequality, in various other societies across the world and across history – the USSR, for example – concerns about fairness have led to anger about too much equality. People are also generally happy with gross inequalities created by national lotteries. If everyone knows that the outcome is random, one person receiving millions and everyone else nothing seems entirely fair and reasonable.

There are many reasons why we might prefer a society with some wealth inequality. One is a hope that we will become one of the wealthier people ourselves. Another is that it promotes industriousness and social mobility.

But a more important motivator is the intuitive judgement that it is inherently right for valuable contributors to be more highly compensated. As an example, I think that a scientist who develops a medicine that saves many lives, or a writer who creates a story enjoyed by millions, should have more wealth than me. They have earned it.

This intuition for fairness is deeply ingrained, and recent evolutionary analyses have elucidated where it comes from. First, take a moment to appreciate just how different human achievements are from those of other species, from arranging our social interactions into democracies to developing technologies to send people and robots into space. You might also think of less noble “achievements” such as wars or factory farming. What features of the human brain allow us to achieve these large-scale outcomes?

Working together

Some common-sense answers include our capacity for language or advanced reasoning, but these are of little use without a commitment to fairness.

To see why fairness is so important, imagine someone marooned on an island, such as Tom Hanks’s character in the movie Cast Away. However articulate and clever this unfortunate person is, they will struggle to survive. It is only when we look at humans in a group, cooperating, that we stand out from other species. As historian Yuval Noah Harari put it in his bestseller Sapiens: “One on one, even 10 on 10, we are embarrassingly similar to chimpanzees. Significant differences begin to appear only when we cross the threshold of 150 individuals, and when we reach 1,000-2,000 individuals, the differences are astounding.”

Fairness is what allows humans to work together in large groups. Wouldn’t you prefer to team up with someone who puts in at least a fair share of the effort and takes at most a fair share of the reward, rather than somebody who is lazy or greedy? Likewise, others will prefer to interact with you if you have a reputation for fairness. Over our evolutionary history, individuals who cooperated fairly outcompeted those who didn’t, and so evolution produced our modern, moral brains, with their focus on fairness.

This trait benefits everyone. Indeed, those who benefit most are sometimes those who receive the least from it. As a concrete example, imagine that we are hunter-gatherers living 20,000 years ago, and that fishing trips are best done by two people. You are a skilled fisher. Each day, you need to decide whether to go fishing with another skilled fisher with whom you are likely to jointly catch 16 fish, or me, an unskilled fisher with whom you are likely to catch only 10. If everyone demands equal divisions, then you will always choose the other skilled fisher instead of me. But rather than being left to starve, I might argue for the virtues of fairness, and suggest that I will only take two fish. So you can go out with either me or the third person and still end up with eight fish.

Despite our strong evolution-based motivation for fairness, people often act quite unfairly. This shouldn’t come as a surprise: we have many competing motivations that trade off with one another. One of them is greed.

Thus, if we want to achieve greater fairness, it is important to know how and why the motivation for it increases or decreases. Many studies have shown that it depends on context. Most notably, the motivation is quite high when people know they are being evaluated by others who can choose whether to interact with them in the future. Likewise, being in an environment in which it is common to interact with strangers – and in which any given one of them is a potential partner – leads to higher levels of fair behaviour.

Even small environmental cues can have large effects: in one study, participants played an economic decision-making game called either “the community game” or “the Wall Street game”. Although the actual content was identical for everyone, individuals in groups told they were playing the community game made more cooperative decisions and expected the other players to do the same.

Such research on how people think about fairness has obvious ramifications for contentious social issues such as executive pay, taxation and welfare. Fair inequality appears to be a desirable, even natural, state of affairs. What level of it should we seek?

“If inequality is a desirable state of affairs, what level of it should we seek?”

As a cognitive scientist, my role is not to make such judgements, only to point out facts that might be useful for people who do. But I am also a person who wants to see the world become a better place. In advancing the fight against unfair inequality, I find the ancient military treatise The Art of War useful. In it, Sun Tzu advises that: “If you know your enemies and know yourself, you will not be put at risk even in a hundred battles.”

I think this advice is essential: knowing how we all think about fairness and equality, and where these judgements come from, is vital for properly combating unfair inequality, and for recruiting others into the fight. Consider, for example, the fact that people in economically developed nations are often appalled by the wages and working conditions in developing countries, leading to calls for boycotts on certain products. It may be that this is a misapplication of our sense of fairness: considering what is a fair wage in an area requires knowing things such as local costs and the alternative jobs available. It would be unfortunate if misjudgement meant people in developed nations acted to eliminate valued jobs in developing nations.

Such considerations will become even more important over time, as economic progress moves us further from our evolutionary past. The best hunter or gatherer in a group couldn’t possibly be a million times more productive than average, but it is entirely possible that people like Elon Musk or Oprah Winfrey contribute more than a million times as much to society as I do. Should we reward them proportionately? Or should there be a maximum that any one person can have? In other words, what are the limits of fair inequality and unfair equality?

Similarly, if in the future our economy can produce abundant wealth with machines rather than people doing most of the work, what will be the fair way to distribute the wealth they create?

The fight against inequality is most certainly a fight worth having. The distribution of wealth in countries such as the US is heavily skewed away from what people consider to be fair, let alone equal. Working out what constitutes fair distribution will require us to answer many difficult moral and practical questions, but this will become easier the more we understand the psychology of how people judge equality and fairness.

There are staggering levels of inequality in the world, and wide agreement that these should be reduced. But we should aspire to fair inequality, not unfair equality.

This article appeared in print under the headline “The inequality delusion”

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