on Americans & inequality

Americans, unlike the citizens of other prosperous democracies, not to mention those of poor countries, do not seem to care much about inequality. One might think that our attitude toward it must sooner or later change – especially now that the newspapers are filled with stories of the money and perquisites CEOs have extracted from their companies. But even after the Enron and other scandals, most Americans remain apathetic about inequality: What we have today is outrage against those who do not play fair – not outrage over inequality as such. In recent surveys, furthermore, Americans have named the state of the economy, terrorism, and education – but not inequality – as the most important issues facing the nation.

In a way, this is surprising. After all, the United States is the most unequal of the economically developed countries – and that inequality has been increasing. If Americans don’t care about inequality, it obviously isn’t because inequality doesn’t exist here.

One could argue that they don’t care about inequality because the poor do pretty well in America, if one looks at measures of consumption rather than income. And in this vein one could argue that while Americans don’t care about inequality, they do care about poverty and have provided an adequate ‘safety net’ to protect against impoverishment. But the presence in the United States of the homeless, beggars, soup kitchens, and the like does not suggest great concern for the poor. In fact, the United States does much less than European countries to redistribute income to the worse-off. According to the OECD, transfers and other social benefits (which we may assume go mostly from people with more income to people with less income, though that is not uniformly the case) amounted in 1999 to 11 percent of GDP in the United States and 18 percent of GDP in the countries of the European Union, with a range among the larger European nations from 20 percent in Germany and France to 16 percent in the United Kingdom. The United States is particularly deficient in family benefits and unemployment and labor-market programs – 1 percent of GDP for these, against 5 percent in the European Union and a whopping 8 percent in Sweden. The United States also lags behind in old-age, disability, and survivor’s benefits – 7 percent versus 12 percent in the European Union.

These differences also extend to the treatment of the working poor, making it difficult to sustain the argument that Americans do care about the condition of the poor but make a distinction between the working and the non-working poor. The legal minimum wage in the United States in the early 1990s was 39 percent of the average wage, as against 53 percent in the European Union. And our unemployment benefits are below that of most EU countries. Only the United Kingdom matches us in miserliness – but in the United Kingdom one may get these benefits for fours years, as against six months in the United States. Notoriously, the United States does not require employers to provide any paid vacations, while European countries mandate on average four weeks – France and Sweden, five. The contrast between American and European family benefits is also striking. European family benefits (payments for each child, which do not exist in the United States) are for all: the state offers such aid as a means of strengthening the nation. (One wonders whether such benefits will maintain their popularity as the immigrant and Muslim populations in the European welfare states expand. A visiting Norwegian economist notes in conversation the large families of Pakistani immigrants in Norway who can live, without working, on family benefits, and who continue to receive these benefits if they return to Pakistan. Even the model services of the Scandinavian countries may be strained by such developments.)

Recently two important studies have helped us to think about the puzzling difference between European and American attitudes toward poverty and inequality. One is a long paper by three economists – Albert Alesina, Edward Glaeser, and Bruce Sacerdote – titled “Why Doesn’t the United States have a European-Style Welfare State?” (published in 2001 in the Brookings Papers on Economic Activity), from which most of the facts given above have been taken. The other is a book by Seymour Martin Lipset and Gary Marks, It Didn’t Happen Here:Why Socialism Failed in the United States (2001).

Alesina, Glaeser, and Sacerdote assert that the American pattern of a small government and a smaller welfare state has deep historical roots: “From the very beginning of the expansion of the public sector in the late 19th century, the United States and Europe show very distinctive patterns . . . . [T]he absolute difference grew as the welfare state expanded both in Europe and the us. . . .” This makes it difficult to explain the current pattern by recent political events such as the Reagan administration. This is not to exclude the political factors that affect inequality and poverty and the size of the welfare state, which would be silly, but it does remind us that there may be large, historically rooted factors that operate independently of given administrations and their philosophies.

What then are these factors? According to Alesina, Glaeser, and Sacerdote, they could be aspects of the American economy, of the American political system, or of something else. They use the term ‘behavioral’ to characterize this ‘something else’ – those noneconomic and nonpolitical factors that may explain why the United States is divergent. (I would call such factors ‘social’ or ‘cultural.’)

The authors begin by deploying an economic model to compare the United States with European countries. Despite its formidable mathematical form, their model operates on some simple assumptions: that economic factors will affect the self-interested political decisions of people, and that these in turn will affect the policies of government in a democracy. What this model shows is that Americans, unlike Europeans, do not act as much on the basis of direct economic self-interest: even though inequality is greater in America than in Europe, Americans are less inclined than Europeans to demand energetic governmental action to redistribute income from the well-off to the less well-off.

So why don’t Americans vote for more government action against inequality? One possible explanation is that there is more social mobility in the United States than in Europe, so if those with less income expect that in time they will have more, they may be less concerned with the protection provided by a true safety net – that is, a developed welfare state.

The evidence on whether there is actually more social mobility in the United States than in Europe is unclear – surprisingly enough, it has been unclear since Seymour Martin Lipset and Reinhard Bendix began studying the question forty years ago. But whatever the facts about social mobility, it is clear that the beliefs about social mobility are very different in the United States from what they are in Europe: Alesina, Glaeser, and Sacerdote report, using the World Values Survey, that “71% of Americans, but only 40% of Europeans, believe that the poor have a chance to escape from poverty.”

After their consideration of economic factors, which explain little, and political factors, which explain more (because of our complex political arrangements – think of the electoral college), Alesina, Glaeser, and Sacerdote come to their ‘behavioral’ factors. Here they regard one as decisive, far outranking any others in their various regressions: the racial factor. A cross-country comparison relates social spending to a measure of ‘racial fractionalization,’ and a cross-state comparison in the United States relates the percentage of blacks in a state to the size of the welfare benefit. Race seems decisive in explaining indifference to inequality.

At the same time, they remark on certain regnant beliefs that seem to me equally compelling here, and not at all easy to disentangle from racial prejudice: “Opinions and beliefs about the poor differ sharply between the United States and Europe. In Europe the poor are generally thought to be unfortunate, but not personally responsible for their own condition. For example, according to the World Values Survey, whereas 70% of West Germans express the belief that people are poor because of imperfections in society, not their own laziness, 70% of Americans hold the opposite view . . . .” Recall that Americans believe, and Europeans don’t, that the poor can work their way out of poverty.

The poor, from other evidence, seem to share in these distinctively American beliefs. According to Alesina, Glaeser, and Sacerdote, work patterns in the United States seem coherent with this belief: there is a strong positive correlation between earnings and hours worked. People in the top quintile in the United States work longer hours than people in the middle quintiles, and people in the lowest quintile work much fewer hours. If you work more in the United States, you are less likely to be poor. Patterns in Europe are different. In Sweden, all work the same number of hours. In Italy and Switzerland, the poor work longer hours. Alesina, Glaeser, and Sacerdote note, too, that there is a relation between the belief that luck determines income and the amount of social spending in a country. The United States spends the lowest amount on social welfare and also has the lowest percentage of people who believe that luck determines income. In other words: when people are impoverished, Americans don’t chalk it up to ‘bad luck’ – they rather assume the poor are responsible, in large part, for their poverty.

Alesina, Glaeser, and Sacerdote’s bottom line: “Americans redistribute less than Europeans for three reasons: because the majority of Americans believe that redistribution favors racial minorities, because Americans believe that they live in an open and fair society, and that if someone is poor it is his or her own fault, and because the political system is geared toward preventing redistribution. In fact the political system is likely to be endogenous to these basic American beliefs.” In effect, we have the political system we do because we prefer its results – such as limiting redistribution to blacks.

Lipset and Marks agree on the role of beliefs and the importance of the political system in explaining American attitudes toward inequality. But they give much less attention to the racial factor, incorporating it into the larger theme of the ethnic and racial diversity of the American working class, one of the many factors that has been noted in the century-old discussion of why there is no large socialist party in the United States.

I do believe the specific racial factor that emerges so sharply in the regression analysis of Alesina, Glaeser, and Sacerdote has to be acknowledged. But I also believe it is linked to the larger structure of American diversity, in religion, in ethnicity, and that it is this larger structure that is the key factor in shaping the American welfare state.

We can see the effects of this distinctively American diversity and its impact on the provision of welfare more than two hundred fifty years ago, when the increasing sectarian divisions in the original colonies began to affect the welfare institutions of the New England colonists; one hundred fifty years ago, when the incoming Catholic Irish created their own welfare institutions; one hundred years ago, when we saw similar institutions created by Jewish, Italian, and other immigrants.

What originally had been institutions created by the state or established religions in the early colonies, following the patterns of Europe, were broken up and privatized under the impact of increasing religious and ethnic diversity. And so Harvard College, founded as an institution of higher education by the Bay State Colony and its established religion, mutated into a private and independent institution, no longer supported or governed by the state or by a dominant religion. The establishment of what might have become in time a uniform state public educational system was broken by the immigration of the Catholic Irish. The new immigrants were cared for in large measure by their own religion based social welfare institutions.

In the United States, the government began late making provisions for those affected by the industrializing society, and never fully replaced religious groups and other nongovernment charitable institutions in providing social welfare. Of course, this network of institutions still exists and is very extensive. Alesina, Glaeser, and Sacerdote give us the astonishing estimate that charitable contributions in the United States in 2000 amounted to $691 per capita, compared to $141 in the United Kingdom and $57 in Europe as a whole.

So where do blacks factor in? The situation of African Americans was indeed different. No other ethnic group in the United States had to face anything like the conditions of slavery, or the fierce subsequent prejudice and segregation to which blacks were subjected. And the preexisting conditions of fractionated social services affected them too. Like other groups, they established their own churches, which provided some services, within the limits set by their prevailing poverty. Like other groups, too, they turned to preexisting systems of social service.

Owing to their economic condition, African Americans were much more dependent on America’s primitive public services, and in time they became the special ward of the American welfare state. Having become, to a greater extent than other groups, the clients of public services, they affected, owing to the prevailing racism, the public image of these services.

But there is something more than race and diversity that shapes our characteristic system of beliefs – something distinctively American, connected to our founding values as a pioneer society created by English settlers. Lipset and Marks place great weight on these initial founding values.

What is English or Scottish or Welsh or Scotch-Irish, and what is Calvinist or Presbyterian or Anglican, in our founding would be very difficult to sort out. Still, there is a distinctive pattern of values we see in the United Kingdom as well as in the United States, and that we can also discern to some extent in the other settler societies founded by the English, centered on the belief in effort and merit and opportunity as against egalitarian provision by the state. We can see this pattern in public opinion polls. The United Kingdom lags behind Europe on most measures of inequality and redistribution, and it also places more blame on the poor.

In sum, a satisfying answer to the puzzle of America’s relative indifference to inequality must, I think, consider a number of factors: common institutional origins in the British Isles; the impact of religious diversity and immigration; a greater faith in equal opportunity than in government-established equality – all have played a role in shaping American attitudes. The racial factor is important, too.

All this, and our distinctively complex political structure, has produced great inequality in the United States – and there is no evidence that Americans today want it otherwise.