The Frontal Cortex

Over at the Economist, Jason Furman worries about the long-term implications of growing societal inequality:

Regardless of the cause of rising inequality, lefties, utilitarians, Rawlsians and anyone with a deep-seated reverence for markets and the capitalist system should all be concerned. As Alan Greenspan memorably stated, "income inequality is where the capitalist system is most vulnerable. You can't have the capitalist system if an increasing number of people think it is unjust."

I'm as concerned about inequality as the next liberal. I can't help but listen to my inner Marx when some hedge fund managers makes several billions dollars a year. But I'm not convinced that growing inequality will somehow lead to the collapse of capitalism. Why not? Because the primate brain isn't bothered by inequality per se. Instead, it's bother by injustice. Furthermore, our minds come equipped with a lovely habit of rationalizing injustices away, so that we can maintain our belief in a just world. (This is known as the Just World Hypothesis.)

I'll begin by discussing a nifty experiment that demonstrates the disassociation between our need for equality and our need for justice. It was done by Franz Waals and Sarah Brosnan of Emory. They trained brown capuchin monkeys to give them pebbles in exchange for cucumbers. Almost overnight, a capuchin economy developed, with hungry monkeys harvesting small stones. But the marketplace was disrupted when the scientists got mischievous: instead of giving every monkey a cucumber in exchange for pebbles, they started giving some monkeys a tasty grape instead. (Monkeys prefer grapes to cucumbers.) After witnessing this injustice, the monkeys earning cucumbers went on strike. Some started throwing their cucumbers at the scientists; the vast majority just stopped collecting pebbles. The capuchin economy ground to a halt. The monkeys were willing to forfeit cheap food simply to register their anger at the arbitrary pay scale.

This labor unrest among monkeys illuminates our innate sense of justice. It's not that the primates demanded equality - some capuchins collected many more pebbles than others, and that never created a problem - it's that they couldn't stand when the inequality was a result of injustice. Humans act the same way. When people do something to deserve their riches nobody complains. (Well, perhaps I complain a bit about hedge fund managers...) But when they get rewarded for no reason and then refuse to fairly distribute their reward, people get furious. They begin doubting the integrity of the system, and become more sensitive to perceived inequalities. They reject the very premise of the game.

As Will Wilkinson points out, the recent rise of inequality is not predominately the result of rising injustice. I'm more likely than Wilkinson to blame various regressive policies for aspects of inequality (Bush's tax cuts, etc.), but I'm not so naive to believe that the tax code is largely responsible for the recent inequality trends:

It is worth repeatedly and forcefully emphasizing that income inequality may or may not be symptomatic of injustice. The three hypotheses for rising inequality Furman mentions are perfectly consistent with advances in justice. And if they are generating income inequality, then it may vindicate capitalism. For example, the loss of jobs, a decrease in wages, or a decrease in bargaining power for some workers may be a consequence of lifting coercive restrictions on voluntary exchange across borders -- restrictions that are themselves a form of injustice. Furman himself notes that protectionist policies could decrease inequality, though he advises against them, and rightly so, since they are unjust. But if protectionist policies are lifted, and inequality increases, that uptick in inequality is a side-effect of justice, not a symptom of injustice.

My second reason to not fear for the imminent downfall of the capitalist system concerns our depressing penchant for rationalizing away the injustices that do exist.