Sunday, August 14, 2011

At Least I'm Not That Guy

During these hard days and hard weeks, everybody always has it bad once in a while. You know, you have a bad time of it, and you always have a friend who says "Hey man, you ain't got it that bad. Look at that guy." And you look at that guy, and he's got it worse than you. And it makes you feel better that there's somebody that's got it worse than you.  But think of the last guy. For one minute, think of the last guy. Nobody's got it worse than that guy. Nobody in the whole world. That guy...he's so alone in the world that he doesn't even have a street to lay in for a truck to run him over.-Arlo Guthrie, The Pause of Mr. Claus

The Economists reports on a new study that suggests that the reason the nearly-poor are less likely to support systems that would raise taxes on the wealthy and favor the less well-off is that they are afraid that greater equality might erode their tenuous advantage over the really poor:

Paradoxically, as the share of the population that receives benefits in a given area rises, support for welfare in the area falls. A new NBER paper finds evidence for an even more intriguing and provocative hypothesis. Its authors note that those near but not at the bottom of the income distribution are often deeply ambivalent about greater redistribution. 
Economists have usually explained poor people’s counter-intuitive disdain for something that might make them better off by invoking income mobility. Joe the Plumber might not be making enough to be affected by proposed hikes in tax rates on those making more than $250,000 a year, they argue, but he hopes some day to be one of them. This theory explains some cross-country differences, but it would also predict increased support for redistribution as income inequality widens. Yet the opposite has happened in America, Britain and other rich countries where inequality has risen over the past 30 years.

Instead of opposing redistribution because people expect to make it to the top of the economic ladder, the authors of the new paper argue that people don’t like to be at the bottom. One paradoxical consequence of this “last-place aversion” is that some poor people may be vociferously opposed to the kinds of policies that would actually raise their own income a bit but that might also push those who are poorer than them into comparable or higher positions. The authors ran a series of experiments where students were randomly allotted sums of money, separated by $1, and informed about the “income distribution” that resulted. They were then given another $2, which they could give either to the person directly above or below them in the distribution.
In keeping with the notion of “last-place aversion”, the people who were a spot away from the bottom were the most likely to give the money to the person above them: rewarding the “rich” but ensuring that someone remained poorer than themselves. Those not at risk of becoming the poorest did not seem to mind falling a notch in the distribution of income nearly as much. This idea is backed up by survey data from America collected by Pew, a polling company: those who earned just a bit more than the minimum wage were the most resistant to increasing it.
Poverty may be miserable. But being able to feel a bit better-off than someone else makes it a bit more bearable.