"The value of equality: an economist's perspective" Ian M McDonald Department of Economics...
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Transcript of "The value of equality: an economist's perspective" Ian M McDonald Department of Economics...
"The value of equality: an economist's perspective"
Ian M McDonaldDepartment of EconomicsUniversity of Melbourne
Workshop on Justice, Equality, and the Social Determinants of Health
Tuesday 14 June1
Some economic perspectives of relevance for the socioeconomic determinants of health
• Income inequality• Injustice – discrimination• Individualism/Competitiveness• Social comparisons
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Income inequality is associated with bad socio-economic outcomes – Wilkinson and Pickett
“What matters is the level of inequality…not how you get it” WP p.237
Problems with redistribution
• Loss of efficiency– Effective marginal rates of tax can be very high– Churning – Welfare dependency
• However, income inequity is not important…
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Wellbeing not health
• Economist’s objective=
wellbeing, utility, welfare, happiness• Health is not the objective, only a means to better
happiness– Pain relief versus cure
• Economist’s views on the appropriate nature of wellbeing are divergent– Ordinal– Cardinal– Inter-personally comparable
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Happiness survey questions‘cardinal’ and ‘inter-personally comparable’
• Survey question on happiness (from General Social surveys)– ‘Taken all together, how would you say things are
these days – would you say you are very happy, pretty happy or not happy?’
• Survey question on life satisfaction (from Eurobarometer Surveys)– ‘On the whole, are you very satisfied, fairly
satisfied, not very satisfied, or not at all satisfied with the life you lead?’
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Happiness measures are robustie ‘scientific’
• Measures of happiness correlate with other variables such as frequency of smiling, probability of committing suicide, brain activity, ratings by friends and relations
Injustice - discrimination
• Discrimination against blacks in the US– In US studies, being black reduces happiness by a large
amount (about half as much as being unemployed)– This gap is decreasing over time– Black people have poorer health, shorter longevity
• Experimental evidence on the ‘unchosen’– Brandts, Riedl and van Winden
• VEOHRC– eg Fairness templates for work environments
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Competition can destroy ethical behaviour
• Ultimatum game experiment– Competition forces people to override their wish
to share with others (treat others fairly) and leads to extreme inequity
• Example: child labour– All employers may wish to refrain from employing
children, but if child labour is not illegal then they may all end up employing children in order to survive
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Individualism
• Eckersley “Is modern western culture a health hazard?”• Evidence
– Twenge=increased narcissism– WHO=increased depression– Halpern=tolerance for material self interested attitudes eg
lying, cheating, →associated with crime, increased the effect of income inequality
– Eckersley and Dear=youth suicide across countries correlated with individualism
– Whitely et al= youth suicide across countries correlated with fragmentation
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Individualism and suicideFreedom and control=% of people one thinks have completely free choice and control
over their lives (WVS) – Eckersley and Dear (2002)
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Individualism/competition and economic growth
• In principle, free markets increase incomes– eg tariff reductions
• In practice– Mixed evidence on individualism increasing
economic growth, Anbarci, Hill and Kirmanoglu (2011)
– Some support for inequality tending to reduce economic growth, Vu and Mukhopadhaya (2011)
– But the non-market approach of communism was an economic disaster
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Health, education and economic growth
• Economic growth has increased resources and productivity in health and education
• Longevity has increased by 38% (20 years) in the last 100 years
• Necessary condition is economic growth– In Australia and overseas
• The happiness scores may under measure this
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Mechanisms in the treadmill
• Social comparisons become more important as we get further from subsistence, Hirsch
• Positional goods=we cannot all have a Sydney Harbour waterfront however high GDP per capita gets
• Advertising=make people feel worse off– Some parts of the private sector are bloated
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Social comparisons and the underclassmethodological individualism
• Oxoby: “Cognitive dissonance, status and growth of the underclass”– Young people who expect their mainstream prospects to
give them little happiness will ‘choose’ to join the underclass
– They tailor their tastes– Their happiness expectation determined by how badly
they would do and how badly that would make them feel – cognitive dissonance
– Remember choice is subject to constraint• Free to choose does not ensure well-being
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The underclass
• The underclass are: the economically/materially poor who have also abandoned mainstream social norms
• Characteristics of the underclass – poverty plus aberrant behaviour such as crime, welfare dependency, weak labour force attachment and low effort
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Dissonance and status seeking
• Cognitive dissonance = psychological discomfort from inconsistent beliefs– A divergence between the desired level of social
status and the actual level of social status produces cognitive dissonance
• People attempt to reduce dissonance by pursuing social status goals or by changing those goals – abandoning a social norm, eg choosing not to support one’s family (Montgomery)
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For those people with y y , the best choice is to set =1 because V1>V0, that is join the rat race
For those people with y y , the best choice is to set =0 because V1<V0, that is join the underclass
Policy implications of Oxoby’s model
• the underclass would be increased by– Regressive income tax– greater emphasis on social comparisons eg on
‘getting ahead’– Higher GDP per capita
• Social comparisons become more important as incomes rise further from subsistence (Hirsch)
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Oxoby’s model and some statistical trends
less poor in labour force, more crime, more female-headed families
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Present bias can cause ill-health
• Present bias=I must go on a diet and I will start tomorrow– Obesity– Smoking– Gambling
• PB maybe greater for people with low incomes– Dellavigna and Paserman
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The economic cost of obesity, ACCESS Economics, 2005
$millions percentages
health costs 873 4.2
productivity loss 1,693 8.1
dead weight loss
358 1.7
wellbeing loss 17,246 82.1
other 4.0
total 21,013 100
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My Interpretation
• The overwhelming majority of the economic costs are borne by the obese individuals themselves
• Why do they do it? Present bias?• Suggests a major problem of self-control
and/or understanding and of lack of care for children
The challenge of affluence - Avner Offer
• Economic growth creates present bias problems through new products and greater spending power– Smoking– Fast food– Availability of drugs
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Conclusion
• For health:– Income distribution is unimportant– Injustice is important– Ability to cope with
• Injustice• Competitiveness• Social comparisons• Present bias
is important– We need to improve people’s ability to create happiness
• Make happiness the explicit objective of health and education
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