Is Inequality All Norm's Fault?

My friend Andrew Norton politely takes me to task for suggesting that social norms about inequality can themselves affect inequality. He argues that the shifts in attitudes have been minimal, and then goes on to argue that:

The larger reason why social norms are unlikely to be a major factor is that the level of inequality in society is the result of millions of decisions, almost none of which would factor in the consequences on overall income distribution.

I’m not convinced that social norms are irrelevant to market inequality, but I accept that they have probably played only a small part. But there is another way that norms can affect inequality: through the electoral process.

In this, as in many things, the best evidence comes from the US. Princeton’s Larry Bartels has shown that since WWII, inequality has risen under almost every Republican President, and fallen under almost every Democratic President (President Carter is the only exception). Henry at Crooked Timber reprints this graph from his paper, with the solid line showing income growth by decile under Democrats, and the dashed line showing the equivalent under Republicans. I’m not aware of a similar exercise having been performed in Australia (indeed, I suspect the data would be too weak to allow it), but it does indicate that social norms – mediated through the ballot box – can affect inequality.

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One Response to Is Inequality All Norm's Fault?

  1. Interestingly, probably the reverse is true in Australia, though the fact that federal Labor has had only 16 years in office since 1949 means that there are fewer comparison points than in the US. But I think the general consensus is that inequality declined during the long post-war boom that coincided with an even longer Liberal government, rose from the mid-1980s to the mid-1990s under Hawke and Keating, before stabilising again under Howard.

    Theories:

    1) Many of the forces affecting levels of income equality are only partly driven by government policy.
    2) Through the Accord, Labor held down real wages in the 1980s to protect jobs: a defensible strategy for a Labor Party, but with professional salaries and business profits not directly controlled inequality rose.
    3) There is greater ideological convergence between the major parties in Australia. The Liberals are weak tax cutters compared to the Republicans, and have turned out to be big spenders on income support.

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