Income inequality: romantic vs positive.

The power of the romantic writers and artists was in their ability to persuade readers of the importance of concepts and ideas through the use of persuasive imagery and gripping narration. The broad versions depicted by writers such as Victor Hugo (Les Misérables) and Mary Shelley (Frankenstein) portrayed important themes in vivid and compelling detail. 

There is considerable power is such artistic expression.

Richard Bronk summarizes the perspective of this movement in the following way:

“The Romantics inherited from the German philosopher Immanuel Kant an understanding that the world-as-it-appears-to-us is, to some extent at least, a creation of our own minds. Any particular observation you make is the joint product of the sense data your mind receives and a conceptual structure that your mind constructs” (2010, p.102). 

By way of contrast, the expression of most positive economists is far from romantic. Instead, the depiction of the world is focused on understanding the interaction between a few key variables, often in a mechanistic manner. The broad vision and grand narrative is replaced with a focus on the relationship between selected drivers of behavior or outcomes of choice. The broader vision and vivid depiction is considered redundant.

This distinction between the romantic and positive informs fundamental differences within the Social Sciences of the purpose of models and the forms they take. For many in the Social Sciences theoretical models are qualitative in nature and capture the influence of broad dynamics of change. These models only need to be influenced by existing theories, not fully integrated in a systematic whole. The value of these models is in their ability to motivate change and re-evaluation of the status-quo. For positive economists (relatively few in number) theoretical models deliberately focus on a limited number of decisions or outcomes, but they enable the analysis of the interaction of these variables in detailed way. Ultimately, the value of such models is in their ability to validate the outcomes of separate statistical analysis. The board narratives give way to specific consideration of statistical interplays and outcomes. 

Assumptions are required for romantic and positive models alike. For romantic model assumptions tend to be applied at the stage of any policy implementation. The details of how best to action any change are often not integral to the initial romantic model. Instead, the emphasis is on the need for change, not necessarily how. For positive models, assumptions tend to be applied at the stage of model development. Seemingly making them ‘unrealistic’. However, the outcomes of positive models are often more directly applicable.       

The IB economics syllabus requires the teaching about income and wealth inequality in Units 2, 3 and 4. Therefore, it is reasonable to conclude that it is one of the more important concepts within the course. However, the syllabus does not directly require students to question or critique the importance of the concept. Naturally, the integration of Theory of Knowledge (TOK) into the course enables one to ask such questions. The contrasting perspectives of the romantic (Thomas Piketty) and positive (Gary Becker) on the issue of income distribution within society highlights the contrasting perspectives of Social Science models.

Romantic – need to reduce income inequality.

“To put it bluntly, the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with other social sciences….This obsession with mathematics is an easy way of acquiring the appearance of scientificity without having to answer the more complex questions posed by the world we live in” (Piketty, 2017, p.41).

“I have no interest in denouncing inequality or capitalism per se – especially since social inequalities are not in themselves a problem as long as they are justified, that is, ‘founded only upon common utility’ as article 1 of the 1789 Declaration of the Rights of Man and the Citizen proclaims….By contrast, I am interested in contributing, however modestly, to the debate about the best way to organize society and the most appropriate institutions and policies to achieve a just social order” (emphasis added; Piketty, 2017, p.40).

Unfortunately, Piketty does not clearly outline what he means by “just social order”. Instead, the motivation for social change is founded on abstract notions of ‘justice’. 

Piketty summarizes the conclusions of his work in three ways:

1. “The history of inequality is shaped by the way economic, social, and political actors view what is just and what is not, as well as by the relative power of those actors and the collective choices that result” (Piketty, 2017, p.27).; 
2. “This fundamental inequality, which I will write as r > g (where r stands for the average annual rate of return on capital, including profits, dividends, interest, rents, and other income from capital, expressed as a percentage of its total value , and g stands for the rate of growth of the economy, that is, annual increase in income or output), will play a crucial role in this book. In a sense, it sums up the overall logic of my conclusion” (Piketty, 2017, p.34) and
3. “…the dynamics of wealth distribution reveal powerful mechanisms pushing alternatively towards convergence and divergence. Furthermore, there is no natural, spontaneous process to prevent destabilizing, inegalitarian forces from prevailing permanently” (Piketty, 2017, p.28).

Positive – why income distribution may be beneficial.

“By ‘positive’ theory is meant not a theory of what a ‘just’ State will do, but a theory of what actual States do …. This theory does not imply an ‘optimal’ redistribution of income, but this optimum should not necessarily be considered ‘just’ or ethically satisfactory. Rather it is the result simply of a balance between the political advantages from additional redistribution and the cost in consumer surplus or efficiency (Becker, 2023, p.95-6). 

“It is also important to be clear about what is not assumed about the political preference function because positive and normative aspects of political choices continue to be hopelessly confused. The political preference function does not necessarily embody any attractive ethical rule, whether based on individualistic or organic considerations. Therefore, the Rousseau, Bentham, Rawls and countless other discussions of what the State should do to redistribute income and otherwise affect outcomes are not directly relevant to political behavior and political preferences” (Becker, 2023, p.97).

Becker’s model is built on the following:

Political preference function

            P = P(u₁, …., u_n),                      (1)

            where u_i is an index of the utility of the ith person.

             for all i,                      (2)

that is, how does a change in the utility of individual i effect the political preference towards income redistribution.

“Condition (2) does not assume away envy and spite in the political process. If i is envious of j in the sense that an increase in j’s income lowers i’s utility, then an increase in j’s income with i’s and everyone else’s held constant would both raise j’s utility and lower i’s utility. j’s utility alone would increase only if an increase in j’s income were accompanied by a sufficient increase in j’s income to compensate i for his increased envy. Such a ‘compensated’ increase in j’s income would be politically advantageous whereas an increase in j’s income alone might not be” (Becker, 2023, p.96-97).      

Becker summarizes the conclusions of his work in the following way:

“Assume that the political preference function is symmetric in the incomes of different persons (a full democracy) and that many persons are taxed and subsidized. …. Then the politically optimal tax structure would be progressive: the marginal tax rate would be between -1 and +1 and would rise with income.

To prove this assume the contrary, that the fraction paid in taxes does not depend on income. … Therefore, political utility could be increased by raising the tax rates on persons with higher incomes and lowering the rates on persons with lower income until [mathematical equation]” (Becker, 2023, p.120).

“These considerations imply that even a full democracy might maximize its political utility with an optimal tax and subsidy system that is only weakly and not uniformly progressive … and that quite differently affects persons with the same total income” (Becker, 2023, p.121).  

Direct comparison of the respective outcomes offers limited insight. The intent of the models Piketty and Becker build are different, which creates an unequal basis to compare. However, the selected text presented does highlight contrasting a) motivations to build theory, b) the nature of theory and models, and c) the conclusions drawn from theory and models. 

The broad vision conveyed by Piketty (2017) is compelling and emotive. Despite Piketty’s appeal to disimpassioned and objective approach, a clear motivation for change, based on undefined values of ‘justice’, are present. By contrast, the details and structure of Becker’s model (2023, original work 1978) make his work appear less visionary and grand. However, this positive work makes clear the explicit personal and political mechanisms driving forms of income redistribution. 

In many ways the theory of Social Science romantics and positivists are complementary. However, many advocates pit the romantic and positive approaches as dueling approaches vying for control – substitutes. 

References

Becker, G.S. (2023). A Positive Theory of the Redistribution of Income (1978). In The Economic Approach: Unpublished Writing of Gary S. Becker. (Eds) Julio J. Elias, Casey B. Mulligan and Kevin M. Murphy. The University of Chicago Press.  

Bronk, R. (2010). Models and Metaphors. In The Economic Crisis and the State of Economics, (Eds) Robert Skidelsky and Christian Westerlind Wigstroem. Palgrave macmillan.     

Piketty, T. (2017). Capital in the Twenty-First Century. The Belknap Press of Harvard University Press. Translated by Arthur Goldhammer.