Stopping to Smell the Roses Creates Income Inequality

From Tyler Cowen,

The funny thing is this: For years, many cultural critics in and of the United States have been telling us that Americans should behave more like threshold earners. We should be less harried, more interested in nurturing friendships, and more interested in the non-commercial sphere of life. That may well be good advice. Many studies suggest that above a certain level more money brings only marginal increments of happiness. What isn’t so widely advertised is that those same critics have basically been telling us, without realizing it, that we should be acting in such a manner as to increase measured income inequality. Not only is high inequality an inevitable concomitant of human diversity, but growing income inequality may be, too, if lots of us take the kind of advice that will make us happier.

The whole piece is good; a thoughtful discussion of income inequality.

Hat tip to Tim Kowal at the League.

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About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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15 Responses to Stopping to Smell the Roses Creates Income Inequality

  1. BSK says:

    I can’t really get behind this line of thinking. It implies that if we didn’t stop and smell the roses, we’d jump into the 1% or whatever. That is simply not the case.

    Are there some people who could make more if they worked harder or longer or made personal sacrifices? Certainly. But that is not true of all of us. And, if it is true for one individual, it likely means they take the position of another, meaning they individually prosper but income inequality in the big picture moves little. While it is not a zero-sum game, there are many industries where that is the reality.

    I’m a teacher. I bust my ass. If I busted my ass a bit more, I’d probably be a slightly better teacher. It is unlikely that I would realize this financially, unless the areas where I busted my ass were unrelated to my primary profession (such as tutoring, leading after school classes, etc.). I already do do much of this, because I am young and without children, and could probably do it a bit more, but it is not likely a long term plan. And, even if I did it as much as possible, it would not have a huge impact on my earnings and they would not be sustainable, since they are not factored into my base salary and thus are not subject to raises. Because it is a private school, we can individually negotiate salaries and I could hold up my hustle and high performance reviews as evidence of a justified raise. But, again, the difference is likely to be marginal and far from guaranteed. Now, if the thinking is that I could hustle and get a better paying job, I suppose. I could go back to school, get another degree, and work in a higher paying field. Presuming I could find a job, which is far from guaranteed. And if I got that job, someone else didn’t. What does he do? Take my former teaching position? Little change in the big picture. Perhaps I should be an entrepreneur, self-made and out of the “zero-sum game” loop? Maybe. But there is still limited room in the market, especially with the state of the economy, and such work is far from a guarantee.

  2. Matty says:

    As a threshold earner I have a certain amount of sympathy with this position but it doen’t seem to be the focus of the article.

    Overall it seems to amount to, at the very top incomes are going up because of risky financial strategies, this has bad effects apart from income inequality, there is nothing that can be done to fix things. I found it quite a depressing read overalll.

  3. James Hanley says:

    Matty–it doen’t seem to be the focus of the article.

    Oh, agreed. It’s just something that caught my eye and made me think.

    BSK, I get you, but there are plenty of people who could make considerably more. My wife, for example, made more money 20 years ago than she makes now, but at our current stage in life, 3 kids in school and all, she prefers a lower-paying, lower-stress, fewer-hours job. No, she wouldn’t hop up into the 1% if she did what she did before, but it would probably move us between quintiles. Likewise, our neighbor’s husband works full-time, so she just works part-time in the local public schools, helping keep kids under control at lunchtime. She’s chosen to work about 10 hours a week vs. 40. So while it doesn’t characterize everyone, I don’t think it’s meant to. And while it doesn’t affect distribution between the 1% and the 99%, it does affect overall income distribution.

  4. BSK says:

    JH-

    Well, let’s flesh it out. It seems we both concede that folks like us (likely in the top 10-20%, I presume) aren’t going to immediately jump into the top 1% by working an extra hour a day. But most complaints about income inequality look at the top and the bottom. Do you think that most poor people (say the bottom 50%, though obviously that is a bad definition of “poor”) are making what they’re making because they are spending too much time stopping to smell the roses? Yes, I’m sure there are many among them who could work harder and make more though, again, this would likely be at the expense of someone else. But most of them are making what they are making in spite of working hard. Many of them have to work harder just to make their first dollar than others. Some of that hardship is self-inflicted (as evidenced by an earlier post looking at marriage and child rates). Some of it is not. Some would be greatly benefited by “working harder” in the form of returning to school, moving to a different area, changing careers, but A) some of those changes have costs that people cannot bear up front, B) those changes often involve taking steps backward before taking steps forward and, C) they are far from guaranteed to work. Also, the wealthy are better positioned to invest more time and energy into work because they can pay others to handle other responsibilities (cleaning, child rearing, driving). Wealth begets wealth and all that jazz.

    When we look at income inequality and see top ranking executives making literally 100’s of times as much as their employees, it is hard to explain that away with the notion that employees are more focused on being less harried or smelling the roses than their bosses.

    Matty-

    You make a great point about the income as a result of risky business transactions. The problem is, they aren’t risky. Because, when they fail, they are not expected to take accountability. Either the government bails them out or they get a golden parachute package or the company cuts costs/jobs elsewhere. So, no, they aren’t risky transactions because they don’t actually take risk. But they do rake in the high rewards that are often coupled with high risk, only without the risk.

  5. Matty says:

    Yes the fact that the risks aren’t actually borne by the same people who take the benefits is one of those other problems I alluded to, from the article emphasis added.

    In short, there is an unholy dynamic of short-term trading and investing, backed up by bailouts and risk reduction from the government and the Federal Reserve. This is not good. “Going short on volatility” is a dangerous strategy from a social point of view. For one thing, in so-called normal times, the finance sector attracts a big chunk of the smartest, most hard-working and most talented individuals. That represents a huge human capital opportunity cost to society and the economy at large. But more immediate and more important, it means that banks take far too many risks and go way out on a limb, often in correlated fashion. When their bets turn sour, as they did in 2007–09, everyone else pays the price.

  6. BSK says:

    Got it. I missed that. Well put, sir.

  7. Matty says:

    I should point out that the words you describe as well put are Mr Kowals not mine.

  8. Matty says:

    No they’re not the original piece is by Tyler Cowen. Note to self, must learn to read.

  9. Passing By says:

    Tyler’s Cowen’s article as a whole seems weak, driven by his ideological pre-conceptions rather than empirical reality.

    The paragraph you quoted is a good example of that weakness. It concludes that an increasing propensity among Americans to ‘smell the roses’ will cause create greater income inequality [and hints that it has caused past growth in inequality]. But it only takes a moment’s thought to see how silly that is. The French undoubtedly ‘smell the roses’ far more than Americans, Yet France has far less income inequality. The difference is that France’s social arrangements favor ‘smelling the roses’ and favor income equality far more than the corresponding US arrangements do.

    Cowen knows that, but finds it ideologically hard to admit that the recent US trend is largely an artifact of some pretty-specific political/legal arrangements.

  10. James Hanley says:

    Passing By,

    It’s about voluntarily choosing to smell the roses, while others choose not to, in a system that doesn’t work as hard to redistribute/cap wealth as France’s does. If you assume in rules to prevent a particular outcome, then you’ve missed the point of the analysis.

  11. Troublesome Frog says:

    I think that the “stop and smell the roses” aspect of the article would be much more interesting if the question that perplexed us was, “Why do the middle quintiles make more money than the bottom quintile?”

  12. Passing By says:

    Professor Hanley —

    I think your problem is with Prof. Cowen, not with me.

    He wrote something silly: “Not only is high inequality an inevitable concomitant of human diversity, but growing income inequality may be, too, if lots of us take the kind of advice that will make us happier.” Of course, that’s just plain wrong — lots of societies have fully as much “human diversity” as America, and much-greater propensity to ‘smell the roses’, but nowhere near our levels of high and growing income inequality. (France was my example, but there are many others.)

    So why does Cowen point to pseudo-explanations instead of discussing the social/legal arrangements that actually do seem to explain tthe differences between countries? My hypothesis is simple–his ideological commitments.

  13. James Hanley says:

    Passing By,

    I respectfully disagree. In the absence of social/legal arrangements that limit the extent of inequality, stopping to smell the roses will result in income inequality because some people will do it and others won’t. Only when there are social/legal arrangements that offset the effects of stopping vs. not-stopping will the incomes not diverge more. The question then is to what extent such arrangements are justifiable. If a major cause of inequality is the decision to stop vs. the decision to not stop, I would argue such arrangements are not justifiable at all. But then I don’t find income inequality per se to be a major problem.

  14. Troublesome Frog says:

    If a major cause of inequality is the decision to stop vs. the decision to not stop, I would argue such arrangements are not justifiable at all.

    I would be absolutely floored if this turned out to be the case. At first sniff, I tend to want to put it into the same bin as the notion that the Great Depression was really a sudden increase in the preference for leisure time.

    But then I don’t find income inequality per se to be a major problem.

    Neither do I–at least not on a conceptual level. What I find alarming is the trend over the past 30 years or so of spectacular gains at the very top and stagnating wages for most everybody else.

    For much of the 20th century, we saw the gains from increased efficiency distributed pretty evenly across income classes. The “rich got richer” but that’s just a function of a simialr growth rate applied to a larger starting value–nothing to really worry about. We now seem to have jumped off of that trend and moved toward a trend in which the owners reap nearly all of the rewards for increased labor productivity. If that’s the new long-run trend, I find that very alarming.

  15. James Hanley says:

    T-Frog,

    Not “the owners.” It’s even more narrow than that, primarily the financial class.

    But in my OP, perhaps I wasn’t clear on what intrigued me. It was simply that a certain set of people think we ought to work less and smell the roses. But if some of us take that advice and others choose not to, that in itself will cause some increase in income inequality. And a set of people that probably overlaps to a considerable degree with that first set will find that outcome problematic, even though it’s the predicted outcome of their advice.

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