By Chris | February 4, 2010
Inequality is a hot topic these days. But why is inequality undesirable? Does it just violate commonly held ideals like fairness and equality. Or, does it do more and actually shrink the economic pie? Economist Sam Bowles argues the latter. The following article describes Bowles’ beef with inequality. (HT Marginal Revolution).
Bowles offers a key reason why [inequality holds us back]. “Inequality breeds conflict, and conflict breeds wasted resources,” he says.
In short, in a very unequal society, the people at the top have to spend a lot of time and energy keeping the lower classes obedient and productive.
Inequality leads to an excess of what Bowles calls “guard labor.” In a 2007 paper on the subject (working paper here), he and co-author Arjun Jayadev, an assistant professor at the University of Massachusetts, make an astonishing claim: Roughly 1 in 4 Americans is employed to keep fellow citizens in line and protect private wealth from would-be Robin Hoods.
The job descriptions of guard labor range from “imposing work discipline”—think of the corporate IT spies who keep desk jockeys from slacking off online—to enforcing laws, like the officers in the Santa Fe Police Department paddy wagon parked outside of Walmart.
The greater the inequalities in a society, the more guard labor it requires, Bowles finds. This holds true among US states, with relatively unequal states like New Mexico employing a greater share of guard labor than relatively egalitarian states like Wisconsin.
The problem, Bowles argues, is that too much guard labor sustains “illegitimate inequalities,” creating a drag on the economy. All of the people in guard labor jobs could be doing something more productive with their time—perhaps starting their own businesses or helping to reduce the US trade deficit with China.
Guard labor has a nice ring to it (maybe one day I’ll invent my own catchy economics term). But it’s not very meaningful when you consider its largest component is “Supervisory Labor.” See the breakdown here. We’d still need supervisors if the economy was completely egalitarian. In fact, we’d probably need more supervisors if financial incentives disappeared.
Bowles and Javadev realize this. The author of the article profiling Bowles overstates his claims. In their paper, Bowles and Javadev cover their bases. They admit that it is impossible to establish a causal relationship between inequality and guard labor. They also note that much of guard labor is the result of the conflicts of interest that cannot be covered in contracts. Their proposed solution is hardly revolutionary. “Policies that result in more fully and clearly defined property rights and attenuated conflicts of interest would reduce the cost of institutional reproduction.” Later, however, they insinuate that inequality is responsible for lots of wasteful guard labor.
And, they are right on one account. An unequal society will require more guard labor than an equal one. This is exacerbated by racial and class tensions. I just disagree with Bowles over how best to fix this problem. Certainly we should work on improving schools in the inner cities to give more kids a fair shot at life. We could also try to improve opportunities for young black men who are 7 times more likely than their white counterparts to be incarcerated.
However, I don’t think that the rise in inequality in the last 30 years has contributed to more guard labor. The recent rise in inequality in the United States has been caused by enormous gains at the top while the real income of the middle class has grown much more slowly. People feel the need to protect their possessions when the people around them become poorer. Not the other way around. Millionaires who become hundred millionaires don’t radically increase their “guard” spending.
Thus, we shouldn’t expect progressive taxes on the wealth to have a serious impact on “guard labor”. Transfers to the poor will only help the problem if they have a permanent effect. Bowles makes some acute observations, but clouds the issue by including supervisors in the same category as security guards.