Breaking the Wealth Equation
How to End the Exile of the “Greater Good” from the Scope of Economic Policy
Thank you Myles Little for this important and measured work.
Morality is tricky.
As Joseph Stiglitz discusses in his most recent January 2016 paper (which I predict will be as groundbreaking as his prior Nobel-winning work), Striving for Balance in Economics, morality is but one of multiple mental models, or schema, that we as individuals deploy in our daily lives.
In terms of policy, the concept of morality or “the greater good” has historically been viewed as being outside the scope of established economic policy with notably pernicious results. As Stiglitz describes in his most recent paper, until recently, anything that could not be ascribed to individual self-interest was relegated to being a rounding error, a bug in the wealth equation.
“Individual behavior that could not be explained as self-interested was deemed not to matter at the aggregate level.
Policies could thus be designed as if people were completely self-interested.”
It is largely unsurprising then that, to date, the question of inequality has become a circular reference of sorts. The two opposing sides, i.e. those pushing for policy changes to balance economic inequality and those resisting these very changes, can debate the virtues of social morality vs the legacy of self-interest in an endless repartee; a conversation which might resemble the following:
“It is contrary to the greater good to use wealth to consolidate and perpetuate power.”
“No. It is contrary to the greater good to subject those who have succeeded on their own merit to the reparations of redistribution.”
Repeat ad infinitum.
Despite Stiglitz’s Nobel prize, it is as if his detractors ask, “Who are you to say what is for the greater good? What about my greater good?”
I agree with you that we are approaching a precipice, thus my appreciation for your work and how it illustrates the subtleties of the wealth issue in as objective (and literal) a lens as possible.
That said, is it ever possible to resolve this debate? How can we solve for the seemingly incompatible concerns of inequality and meritocracy? How can we, in fact, break the wealth equation once and for all?
Lacking a Nobel prize myself, unsurprisingly, I certainly do not have the answer.
I do, however, have a suggestion.
Coincidentally, this suggestion relates to Stiglitz’s most recent work around mental models and your comment with respect to revolution, taxes and war as being the only possible solutions.
While taxes may be a solution, I believe this would ultimately be a superficial one perpetually dogged by the aforementioned debates, a mere flesh wound in the struggle for the soul of policy.
War is not ideal for obvious reasons.
Which leaves me with revolution. I think if there was one minor oversight in your conclusion it is that a “revolution won’t come to America.” Perhaps this is true from a historical context. There will (hopefully) be no second Civil War. No tea party in Boston Harbor.
However, looking at the current election cycle, it is clear that there is a less physical but no less aggressive revolution in full swing right now. Record turnouts and a flood of populism on both sides of the aisle are undeniable symptoms of a people who feel that something is very wrong.
For lack of a better alternative, much of this populist anger has been directed broadly in scatter-shot fashion towards the wealthy and towards the political system. With no clear target in sight, the crowds must default to hacking at the perceived limbs of inequality, i.e. all wealth and all politics in its entirety, rather than the root.
What is truly at the root of inequality then? In my opinion, the key lies not in the frameworks of wealth, self-interest or even morality, but within a framework of creative vs consumptive intent. It is this mental model or schema which I believe is superior in both understanding economic and social behavior (and repercussions of flawed policy) as well as, if adopted at the individual level, naturally directing individual self-interest towards a collective net benefit or greater good.
Specifically, for those in power, what is the intent behind their use of wealth? Is it to consume greater and greater swaths of resources by any available means? Or is it to leverage their wealth to create, build and innovate? Simply speaking, are they using their vast resources to feed the beast or to build the future?
The benefit of this concept of intent is that it is not colored by the subjectivities of either morality or merit. Relative to moral judgments, someone’s consumptive or creative motivations may be informed by their social or religious mores but not defined by them. Similarly, through the lens of intent, the issue of merit can more accurately be associated with that which individuals build rather than what they accumulate. From this perspective, wealth is a byproduct of meritocratic success not a measure of it.
The drawback of using intent as a barometer of the greater good is that it is difficult to observe. Lacking the ability to see into the psyches of particular individuals, what is instead needed is a history based on public record. How has this individual used his or her wealth in the past? To accumulate power or to reinvest in society? To hoard assets or to craft new work?
The other interesting aspect of intent is that it is fluid. Over time, one’s intent can evolve for innumerous reasons such as changes in socially accepted behavior, individual maturation, the temptations of accrued wealth or the enlightenment of emotional discourse. As a result, analysis of intent requires a certain vigilance over time.
That said, I believe this framework of intent still has a place in the current debate because, regardless of an individual’s current state of mind, their past actions will always leave a trace of their historical intent. Thus, with respect to public policy, for those who choose to leverage their wealth in public spheres of influence, it is absolutely essential for their actions and interactions to be on public record.
Furthermore, if intent at the individual level generally evolves at a gradual pace, then it must be assumed that intent at the corporate level must be subject to an even greater level of inertia. Said another way, corporations do not change their collective interests or motivations on a dime.
This is absolutely vital because, if there is any unconscionable use of power in recent memory, it is in the efforts to hide individual and corporate contributions to Super PACs behind veils of secrecy. This, much more so than any tax structure, is what truly hinders the ability of the public to determine who, be it corporations or the powerful individuals who control them, is truly serving their greater good vs. who is simply using power to expand their own excesses.
Only by maintaining and protecting a public record of political influence can society and, more importantly, policy makers who represent us as a society, be compelled to make changes that truly reflect the greater good.
It is, incidentally, also why those who have the most consumptive or territorial of intents are so viciously secretive in their actions, even resorting to private investigators to deter and intimidate any well-meaning journalist from generating just such a public record.
It is not wealth in and of itself that drives unfair disparities in inequality. Neither is it merit or self-interest alone that results in misaligned incentives.
Traversing these lines of demarcation between wealth and merit, self-interest and social morality, is a far more urgent and clearer schema to be explored. One of intent.
Above all other factors, including wealth, it is intent that determines an individual’s net impact on society. Curiously, for example, those who pursue a creative intent are both acting in their self-interest and, ultimately, serving the greater good by sharing their creations with the rest of society. In contrast, regardless of how vast a machine they build, those who are consumptive in nature will always resort to a net extraction of resources rather than a net reinvestment in society.
Therefore, generally, the actions of those with creative intent will show a concerted deployment or reinvestment of wealth over time whereas those who share a consumptive motivation will show a deliberate accumulation and concentration of wealth over time. By assessing the historical record, one can make their own determination as to which individuals or corporations fall under which category and then subsequently support policy changes that incent the former and disincent the latter. Thus, it is only by elevating this particular mental model can we as a society gain clarity as to the true drivers of inequality and ultimately reach a resolution.
As Stiglitz so eloquently writes in his paper:
The social influences on the nature of the individual are no longer beyond the boundaries of economics.
Thus, if adopted by his peers, Stiglitz’s insight profoundly changes the fundamental assumptions of both economics and economic policy. No longer can policy be predicated upon self-interest alone. It will, by necessity, need to consider a broader spectrum of social and cultural influences. It will, once and for all, merge economics with psychology and sociology, breaking a wealth equation that has been based upon cold, rational, deterministic profit motives for far too long.
Indeed, we are at the precipice of a revolution. Whether this is a revolution of class or of consciousness is up to us.
PS — including an excerpt from Stiglitz’s paper which I find fascinating. A clear comparison between historical economics and his new economics of the encultured actor.
