The Price of Inequality: How Today's Divided Society Endangers Our Future (26 page)

Societies can get “stuck” in a particular set of beliefs, with each individual’s beliefs changing only if enough others’ change; but
those
beliefs won’t change, if those of the rest don’t.

The notion that ideas and perceptions are social constructs also helps explain how societal beliefs sometimes can change rather rapidly. If, somehow, enough people find the idea attractive, there may be a tipping point: it becomes part of a new “social construction of reality,” the new conventional wisdom. The notion of racial differences moves then from a concept to be proven to a concept to be disproved. Or there is a switch in beliefs from the notion that inequality is necessary for the functioning of a market economy to the belief that the level of inequality in America today impairs the functioning of our economy and our society. The new ideas become part of the conventional wisdom—until some other intellectual or real current arrives to disturb the intellectual equilibrium.

The social context of beliefs is critical. If different groups interact little, they can develop differing perceptions of reality. So it is with the debate about the legitimacy and even the magnitude of inequality. In some groups (including both rich and poor), the rich are believed to have obtained their wealth largely through their own hard work, with contributions from others and luck playing merely a minor role; among others, the belief is just the opposite.
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Not surprisingly, these groups have different views about tax policy. If an individual believes what he has is a result just of his own efforts, he is less willing to share that wealth with others who he thinks
chose
to exert less effort. If an individual sees his success as a result largely of good luck, he is more willing to share that good fortune.

Shaping perceptions about policies

Today those who wish to preserve societies’ inequalities actively seek to shape perceptions and beliefs to make such inequalities more acceptable. They have the knowledge, the tools, the resources, and the incentives to do so. Even if, in the past, there were many attempts to shape societal perceptions, today there is increased sophistication in doing so. Those who seek to do so know, for instance, more about how to manipulate ideas and preferences. They don’t have to just hope and pray that the evolution of ideas works out in their favor.
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The fact that those at the top can shape perceptions represents an important caveat to the idea that no one controls the evolution of ideas. Control can happen in several ways, which we will explore in greater depth in this section. One is through access to education and the media. If one group is greatly disadvantaged in opportunities for education or access to public office and to the media, then it will not participate on equal terms in the deliberative space in which the “conventional wisdom” emerges. Some ideas will therefore not emerge; other ideas can be effectively suppressed.

A second way is through the creation of social distance. If one group’s economic opportunities leave it much poorer than other groups, then the interactions of the first group with people from other groups will be limited, and it is likely to develop a different culture. Then ideas about intrinsic differences of the poor group are more likely to take root and to persist. As I noted in earlier work on cognitive frames,
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part of the power of socially constructed categories depends upon their not seeming to be socially constructed. People put in different categories come to act differently and thus to appear intrinsically different.

Most importantly, if goods can be marketed, so can ideas and especially the ideas that underpin policies. Modern marketing has taught the art and science of shaping perceptions—and for those with enough resources (disproportionately the wealthy) there are tools to do so.

In promoting products, many firms have felt few qualms about providing distorted information—or even lying. Thus the cigarette companies succeeded in casting doubt on the scientific evidence of the health hazards of smoking, even though they had in their own possession evidence to the contrary. Similarly, Exxon exhibited no compunction in supporting so-called think tanks casting doubt on the scientific evidence on the risks of global warming—even though there was overwhelming evidence to the contrary. Truth-in-advertising laws try to circumscribe firm behavior, but in promoting ideas and policies, there is no such thing.
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We’ve already seen several examples—such as the claim that while America may not be as equal as others, it offers more equality of opportunity, or that it was government efforts to promote housing for the poor that were at the root of the Great Recession—and we’ll take a closer look at others.

Education, of course, also shapes beliefs and perceptions, and perhaps with no group is that more the case than with economists. There is now considerable evidence that economists’ perceptions, say, about fairness, are markedly different from those of the rest of society. The Chicago economist Richard Thaler reports that while 82 percent of respondents in the general population believed it was unfair to increase the price of snow shovels after a storm, among his MBA students, only 24 percent held that view.
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It could be partly because economics attracts those who, among the population, put less weight on notions of fairness. But there is evidence as well that training in economics shapes perceptions—and given the role that economists have increasingly had in public policy, their perceptions of what is fair and their views of trade-offs between equity and efficiency may have had disproportionate consequences.

The Right has recognized the importance of education in shaping perceptions, which is why it has been active in trying to influence the design of curricula in schools and embarked on an “education” program to make judges more “economic literate,” that is, to see the world through the narrow lens of conservative economics.
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One of the most effective ways of influencing public opinion is to capture politicians. After all, politicians are merchants of ideas. (Persuading politicians to adopt one’s perspectives and perceptions has a double advantage: not only do they sell the ideas to the public; they translate the ideas into legislation and regulation.) For the most part, politicians don’t originate ideas; rather, they take those emanating from academia and from public intellectuals, and from within governments and from nongovernmental organizations (NGOs). They put together a pastiche of these ideas that accord with their worldview, or at least in a combination that they think their constituents will favor. In America’s moneyed politics, not all constituents are created equal. Politicians have an incentive to espouse ideas that serve the moneyed interests.

In some other countries, politicians can be directly bought. But American politicians are, for the most part, not so crass. They don’t accept stuffed brown envelopes. Money goes to their election campaigns and into the coffers of their party. This has come to be called “corruption American style.” Some will reap monetary rewards after they leave office, part of the process of revolving doors that is endemic in the United States; for others, the pleasures of power today suffice.

Backing up these ideas are armies of “experts” willing to provide testimony, arguments, and stories to show the rightness of these views. This battle of ideas occurs, of course, in many playing fields. The politicians have their surrogates, their minions who are not running for office but who advance variants of these ideas, and challenge those of rivals. Evidence and argumentation on both sides are assembled.

This “battle of ideas” has two objectives (like advertising more generally)—to mobilize those who are already true believers and to persuade those who have not yet made up their minds. The former entails rallying the troops and reinvigorating commitment. In an expensive electoral democracy like the United States, arousing the “base” is important because the outcome of elections often hinges on raising campaign funds and getting out the vote. Labeling a rival as a “liberal” or a “neoconservative” can help motivate voting, even when one’s own candidate is lackluster.

Much of the battle of persuasion is for “independent voters.” To win them over simple, distorted stories, often repeated, can be more effective than longer and more subtle ones. Messaging that appeals to feelings is often more effective than appeals to reason. Advertisers are good at distilling a message down to a sixty-second ad that strikes just the right notes—an emotional response seemingly reinforced by “reason.”
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T
HE
W
EAPONS OF
W
AR

There is a real battlefield of ideas. But it does not, for the most part, involve a battle of ideas as academics would understand it, where evidence and theory on both sides are carefully weighed. It is a battlefield of “persuasions,” of “framing,” of attempts not necessarily to get to the truth of the matter but to understand better how ordinary citizens’ perceptions are formed and to influence those perceptions.

In this battle of ideas, certain weapons play a central role. In the last chapter, we discussed one of these weapons—the media. It should be obvious that imbalances in the media can lead to a battlefield in the war of ideas that is far from level.

However ideas get disseminated, much of the battle is, as I have suggested, over framing; and in that battle, words are pivotal. The words we use can convey notions of fairness, legitimacy,
positive
feelings; or they can convey notions of
divisiveness
and
selfishness
and
illegitimacy.
Words also frame issues in other ways. In American parlance, “socialism” is akin to communism, and communism is the ideology we battled for sixty years, triumphing only in 1989 with the fall of the Berlin Wall. Hence, labeling anything as “socialism” is the kiss of death. America’s health care system for the aged, Medicare, is a single-payer system—the government pays the bill, but the individual gets to choose the provider. Most of the elderly love Medicare. But many are also so convinced that government
can’t
provide services efficiently that they believe that Medicare must be private. In the tumultuous discussion of health care reform during President Obama’s first year in office, one man was heard to say, “Keep your government hands off my Medicare.”
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The Right attacks extending the Medicare program to the rest of the population as “socialism.” That ends the debate. One doesn’t have to discuss whether it’s efficient or inefficient, whether the quality of care is good or bad, or whether there is choice or not.

Americans have come to believe in markets, and incentives make markets work. Hence labeling pay as “incentive pay” puts a halo over it; it provides justification regardless of the amount. The issue of outsize pay has come up episodically. In 1993, at the beginning of the Clinton administration, the intensity of criticism was so high that the administration decided to impose a surtax on salaries in excess of a million dollars. But then an exception was made for pay related to performance.
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That, of course, provided an incentive to label all high payments incentive pay. But as we saw in earlier, it also provided a whole set of distorted incentives that had impacts beyond mere compensation.

To take another example, credit card companies impose rules on merchants that accept their cards. One such rule is known as the “no surcharge rule.” It forbids merchants from passing on the cost of credit card transaction fees to their customers. But the price system works only if individuals see the costs associated with the choices they make. When individuals make a purchase, they make a choice of a payment mechanism. No one would say it is a “surcharge” to charge more for an expensive product than a cheap one. But by labeling
any
charge as a surcharge, credit card companies are attempting to “frame” the charge, to make it seem unreasonable. They want customers to believe that such a charge is so unreasonable as to warrant switching away from merchants who do impose such charges, and thus to induce merchants not to “charge.” The absence of an explicit (sur)charge means that the credit card companies can raise the fees they charge merchants to high levels—near to the “breaking point,” where the merchant would rather lose the customer than pay the fee.

A final example concerns the price discovery function of markets. In well-functioning markets, demand is equated to supply, and the resulting equilibrium price “reveals” the marginal value of the good to the buyer and the marginal cost to the seller. This information is of value in making decisions. Many economists argued, by analogy, that in a stock market, the prices that emerge reflect the true value of the asset. This is called the “price discovery” role of markets. The words are emotive: discovering the true value of an asset is presumably valuable, and markets are to be commended for performing this important social function. Indeed, market advocates claimed that markets were fully efficient—prices revealed
all
the information available to market participants. This was a matter of religious belief, an article of faith. The use of language was important: because “efficiency” was good, it was obvious that fully efficient markets were good. But this notion was based on deeply flawed logic. Indeed, if markets fully revealed all the information to all market participants, no one would have any incentive to gather information about publicly traded assets, since those who did not spend the money would have equal access to the information. If the efficient-markets hypothesis were true, it would ironically mean that stock markets would necessarily be very inefficient, since no one would gather any information.
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In the aftermath of the Great Recession, the efficient-markets model has taken a beating.
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In the meanwhile, though, some market advocates continue to use the “price discovery” argument for defending changes in markets that were actually making it more volatile and less efficient.