The Price of Inequality: How Today's Divided Society Endangers Our Future (56 page)

7.
Thus, to put it in somewhat more technical terms, people’s preferences are
conditional
; what they want to do depends on what they believe other people do. What matters is often not the legal norm (what you are supposed to do) but the descriptive norm (what you believe most other people do). For this reason, as the philosopher Cristina Bicchieri points out, “beneficial descriptive norms are fragile.” Bicchieri,
The Grammar of Society
(New York: Cambridge University Press, 2006), p. 68.

8.
A poll conducted by Gallup and the Better Business Bureau found that the trust Americans have in the businesses they deal with every day declined 14 percent between September 2007 and April 2008 alone. See “BBB/Gallup Trust in Business Index: Executive Summary—Survey Results Consumers’ Rating of Companies They Regularly Deal With, April 2008,” available at
http://www.bbb.org/us/storage/0/Shared%20Documents/Survey%20II%20-%20BBB%20Gallup%20-%20Executive%20Summary%20-%2025%20Aug%2008.pdf
(accessed March 4, 2012). A
New York Times
/CBS News poll in October 2011 similarly found that Americans’ trust in Congress and in Washington more generally had dipped to all-time lows. Just 9 percent of Americans approved of Congress, and just 10 percent thought they could “trust the government in Washington to do what is right” all or most of the time. See “Americans’ Approval of Congress Dips to Single Digits,”
New York Times
, October 25, 2011, available at
http://www.nytimes.com/interactive/2011/10/25/us/politics/approval-of-congress-drops-to-single-digits.html
(accessed March 4, 2012).

9.
See Walter Y. Oi, “Labor as a Quasi-fixed Factor,”
Journal of Political Economy
70 (1962): 538–55; and Robert M. Solow, “Distribution in the Long and Short Run,” in
The Distribution of National Income: Proceedings of a Conference Held by the International Economics Association at Palermo
, ed. Jean Marchal and Bernard Ducrois (New York: St. Martin’s Press, 1968), pp. 449–66. See also Truman Bewley,
Why Wages Don’t Fall during Recessions
(Cambridge: Harvard University Press, 1999); and Craig Burnside, Martin Eichenbaum, and Sergio Rebelo, “Labor Hoarding and the Business Cycle,”
Journal of Political Economy
101, no. 2 (April 1993): 245–73.

10.
See the discussion in chapter 4 and the references cited there.

11.
This, as we noted in chapter 4, is one of the central tenets of efficiency wage theory. For broader discussions of what is sometimes called the “high quality workplace,” see chapter 4. Other references can be found in my paper “Democratic Development as the Fruits of Labor,” in
The Rebel Within
, ed. Ha-Joon Chang (London: Wimbledon Publishing, 2001), pp. 279–315. Ernst Fehr and Klaus M. Schmidt show that workplaces that uses bonuses to promote effort—a system that relies on trust for compensation (workers trust that they will receive the bonus)—perform better than those that rely on standard performance-based piece rate incentive schemes. Ernst Fehr and Schmidt, “Fairness and Incentives in a Multi-task Principal-Agent Model,”
Scandinavian Journal of Economics
106, no. 3 (2004): 453–74. See chapter 4 for more discussion of how workplaces that treat workers better also do well in downturns.

12.
Again, a point emphasized by the Commission on the Measurement of Economic Performance and Social Progress.

13.
See Werner Güth, Rolf Schmittberger, and Bernd Schwarze, “An Experimental Analysis of Ultimatum Bargaining,” 
Journal of Economic Behavior and Organization
3 (December 1982): 367–88.

14.
The experiment also shows that an individual’s construct of fairness is shaped by the circumstances. Even if he knows he was randomly chosen to be the “dictator,” he acts as if he believes it is appropriate to keep more than half for himself. Interestingly, if the second player begins the game with some money, and the first has the right to take away something from the second, then the first player is much less likely to give the second player anything. In an experiment by John List, the fraction of positive offers from the first player fell from 71 percent to 10 percent. This reflects the motivation to avoid the most selfish feasible action with the other player. It shows that fairness is construed not, or not only, in terms of what the other player gets, but also in terms of what the other player gets relative to his worst possible outcome. The realization that he could abuse the second player even more, by taking something from him, makes the first player feel better about a more unfair division. See List, “On the Interpretation of Giving in Dictator Games,”
Journal of Political Economy
115, no. 3 (2007): 482–93.

15.
For a discussion of these outcomes (and the sums people will accept or veto in ultimatum games), see Colin Camerer and Richard Thaler, “Anomalies: Ultimatums, Dictators and Manners,”
Journal of Economic Perspectives
9, no. 2 (1995): 209–19.

16.
For a sample of the large literature, see, e.g., Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Fairness and the Assumptions of Economics,”
Journal of Business
59, no. 4 (1986): S285–S300; Gary E. Bolton and Axel Ockenfels, “ERC: A Theory of Equity, Reciprocity, and Competition,”
American Economic Review
90, no. 1 (March 2000): 166–93;
Armin Falk, Ernst Fehr, and Urs Fischbacher, “On the Nature of Fair Behavior,”
Economic Inquiry
41, no. 1 (January 2003): 20–26; Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Fairness as a Constraint on Profit Seeking: Entitlements in the Market,”
American Economic Review
76, no. 4 (1986): 728–41; Amartya Sen, “Moral Codes and Economic Success,” in
Market Capitalism and Moral Values
, ed. C. S. Brittan and A. Hamlin (Brookfield, VT: Aldershot, 1995).

17.
Morale is destroyed. The implications have been explored in the branch of the literature in economics noted earlier, called the efficiency wage theory, describing how wages affect productivity. See, in particular, George A. Akerlof and Janet L. Yellen, “The Fair Wage-Effort Hypothesis and Unemployment,” 
Quarterly Journal of Economics
105, no. 2 (1990): 255–83.

18.
See “Frustration with Congress Could Hurt Republican Incumbents,” Pew Research Center for the People and the Press, p. 13, based on poll conducted December 7–11, 2011, available at
http://www.people-press.org/files/legacy-pdf/12-15-11%20Congress%20and%20Economy%20release.pdf
(accessed March 4, 2012).

19.
Washington Post
/ABC poll, January 12–15, 2012, available at
http://www.washingtonpost.com/wp-srv/politics/polls/postabcpoll_011512.html
(accessed March 4, 2012).

20.
Michael I. Norton and Dan Ariely, “Building a Better America–One Wealth Quintile at a Time,”
Perspectives on Psychological Science
6, no. 1 (2011): 9–12.

21.
As we explain at greater length below, it is not that there is an “establishment,” which has gotten together to create the current system as it exists today. Rather, our economic and political system evolves, but moneyed interests use their wealth and influence as they can to shape it. And the shape that has emerged is much like that which might have emerged had they gotten together to shape it in their own interests.

22.
See, e.g., Ben H. Bagdikian,
The New Media Monopoly
(Boston: Beacon Press, 2004); Robert W. McChesney,
The Political Economy of Media: Enduring Issues, Emerging Dilemmas
(New York: Monthly Review Press, 2008).

23.
See John Kenneth Galbraith,
American Capitalism: The Concept of Countervailing Power
(New York: New American Library, 1952).

24.
For an excellent discussion of these issues, see André Schiffrin,
Words and Money
(New York: Verso, 2010).

25.
In a sense, the problem is worse: the media depend heavily on advertising, and the threat of withdrawal of advertising (or the worry over a loss of advertising revenues) can inhibit full coverage of corporate misdeeds.

26.
See Stefano DellaVigna and Ethan Kaplan, “The Fox News Effect: Media Bias and Voting,”
Quarterly Journal of Economics
122, no. 3 (2007): 1187–234. The case of the former Italian prime minister Silvio Berlusconi, who used his television empire to solidify his hold on power for seventeen years, provides an excellent illustration of how control of the media can affect political outcomes.

27.
The Internet has exposed the biases and distortions in mainstream media, but also provided more extensive access to a diversity of viewpoints. At the same time, the “business model” of the Internet doesn’t provide the resources for the kind of in-depth investigative reporting that has enabled the press to serve as an effective check on abuses in both the public and the private sectors. Finally, as we note in chapter 6, the Internet can lead to the polarization of perspectives that inhibits democratic compromise.

28.
Indeed, Democratic primaries were restricted to whites, and since the Democratic Party dominated the electoral process, African Americans were effectively disenfranchised.

29.
Suresh Naidu of Columbia University shows that “poll taxes and literacy tests each lowered overall electoral turnout by 10–23% and increased the Democratic vote share in national elections by 5%–10%.” His clever and careful research methodology entails comparing adjacent county-pairs that straddle state boundaries. See his “Suffrage, Schooling, and Sorting in the Post-Bellum U.S. South,” working paper, Columbia University, 2010, available at
http://iserp.columbia.edu/sites/default/files/suresh_naidu_working_paper.pdf
.

30.
Other targeted groups (with similar political objectives) include immigrants and blue-collar workers. See Alexander Keyssar, “The Squeeze on Voting,”
International Herald Tribune
,
February 15, 2012, p. 9; and Keyssar,
The Right to Vote: The Contested History of Democracy in the United States
(New York: Basic Books, 2000).
He cites instances of voters’ being required to “bring their sealed naturalization papers to the polls or to present written evidence that they had canceled their registration at any previous address or to register annually, in person, on one of only two Tuesdays.” More recently, attempts to effectively disenfranchise Hispanic voters center on bilingual ballots. See, e.g., Adam Serwer, “Gingrich and Romney Want to Say Adios to Bilingual Ballots,”
Mother Jones
, January 30, 2012, available at
http://motherjones.com/politics/2012/01/gingrich
-and-romney-want-say-adios-bilingual-ballots. Of course, the most significant disenfranchisement was that of women, whose attitudes, e.g., to war and to social issues are often markedly different from those of men. Clearly, the disenfranchisement affected the outcome of political processes.

31.
See Walter Dean Burnham, “Democracy in Peril: The American Turnout Problem and the Path to Plutocracy,” Roosevelt Institute Working Paper no. 5, December 1, 2010; Frances Fox Piven and Richard A. Cloward, “Government Statistics and Conflicting Explanations of Nonvoting,”
PS: Political Science and Politics
22, no. 3 (September 1989): 580–88; and Piven and Cloward, “National Voter Registration Reform: How It Might Be Won,”
ibid. 21, no. 4 (Autumn 1988): 868–75.

32.
Even someone with the means to vote but without a car will have less of an incentive to get the driver’s ID to vote, since the marginal cost of voting is higher. More than a dozen states have passed ID laws since 2005. See Keyssar,
“The Squeeze on Voting.”

33.
See “Inaccurate, Costly, and Inefficient: Evidence That America’s Voter Registration System Needs an Upgrade,” Pew Center on the States, report released February 14, 2012, available at
http://www.pewcenteronthestates.org/uploadedFiles/Pew_Upgrading_Voter_Registration.pdf
(accessed March 4, 2012). The report also identifies large numbers of inaccuracies or invalid registrations, some one in eight.

34.
It was one of many 5-to-4 decisions under Chief Justice Roberts. Another, equally important decision was the Court’s 2011 striking down (in
Arizona Free Enterprise Club v. Bennett
) the state of Arizona’s attempt to redress the imbalance of political power created by an imbalance of economic power by providing additional funds to the candidates who were less successful in raising private campaign money. Trust in the Court is important, because in any society there will be disputes, and it is vital that the courts be viewed as fair arbiters of such disputes. But if the Court is viewed as not fair—as taking sides, even before the arguments have been presented—then the Court’s main source of strength, its credibility and the influence it has in the court of public opinion, will quickly disappear. In other countries marked by high levels of divisiveness, the notion of an independent judiciary is looked upon with skepticism, and the court’s pronouncements are seen as essentially political as that of any other branch of government.

35.
In fact, economists refer to such arrangements as “implicit” contracts, enforced sometimes even more effectively than explicit contracts, through the design of repeated games, where participants know of the severe consequences of failure to live up to the tacit understandings.

36.
Congress could have required that, before any such contributions were made, shareholders had to vote. But Senator Schumer and others trying to limit the impact of
Citizens United
were unable to pass this or other legislation circumscribing the political power of corporations. The increased power of monied interests is already being felt in the election of 2012, where noncandidate political action committees (working on behalf of particular candidates) were spending more money than the candidates themselves, and often engaged in very negative advertising.