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Saturday, July 24, 2010

"Trickle Down Meanness"

Maxine Udall:

Trickle Down Meanness, by Maxine Udall: Linda Beale ... had a really excellent post a few days ago about a study by Sreedhari Desai, Arthur Brief, and Jennifer George that examines

...a heretofore ignored consequence of rising executive compensation. Specifically, we claim that higher income inequality between executives and ordinary workers results in executives perceiving themselves as being all-powerful and this perception of power leads them to maltreat rank and file workers. We present findings from two studies - an archival study and a laboratory experiment – that show that increasing executive compensation results in executives behaving meanly toward those lower down the hierarchy.

The study conclusions are consistent with my own conjectures that there are ethical as well as economic consequences that result from dysfunctional financial markets and the dysfunctional labor markets they induce. The economic consequences include gross misallocations of financial, physical and human capital, away from activities that would promote long run economic growth and well being and to activities that will promote rising income inequality. The ethical consequences are erosion of trust and compassion, both prerequisites to fairness in rewarding contributions to long run growth and prosperity. If the above study is right, we can add frank meanness to the list of ethical consequences. ...

Causal relationships are always difficult to establish in non-experimental settings. Desai, Brief and George provide results from a small experiment that lend support to their conclusion that increased wage disparity engenders meanness or as Smith might call it "lack of sympathy" among those at the top for those at the middle and bottom of the wage pyramid. Nevertheless, it remains difficult at the societal level to determine to what extent economics shapes ethics and to what extent ethics shapes economics and economic systems.

I would be willing to bet that just as disparity between worker and CEO pay has produced "meanness," so has growing US income inequality produced similar disruption of fellow feeling in the population generally. As the "distance" between the wage rates at the top of the US income distribution and the middle and bottom of the distribution has increased, so has grown the "distance" in sympathy one for the other.

This is not an argument for income equality. There is every reason to believe that most people in the US approve of income differences based on rewards for greater productivity or other merit. I happen to share those views. However, the current disproportionate increase in the percent of national output going to the top 1% of the population, despite increasing productivity among those of us still employed and those who were employed up until 2 years ago, suggests that merit is no longer the trait that is being rewarded.

The conclusion seems self-evident. There is more at stake here than our economy. We must, as a nation, decide whether we want to continue on the path we have been on since roughly 1980. Do we want to continue to reward disproportionately a small fraction of the population that (based on recent performance) seems better at misallocating financial, physical, and human capital through speculative endeavors? Do we want to continue the trickle down of meanness? Shall we live in a society in which trust and fellow feeling are lost, replaced by mindless (not rational, not productive) winner-take-all competition that favors one group disproportionately? If the answers to these questions are all "yes," then the social fabric may already be torn beyond repair and I fear we are about to learn firsthand how empires crumble.

    Posted by on Saturday, July 24, 2010 at 02:07 AM in Economics, Income Distribution | Permalink  Comments (55)


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