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The Benefits of Wealth Inequality (and Why We Should Not Fear It)

Whether they are creating jobs or cooperation, new research backs up a positive role for the well-off—up to a point.


We all may be born equal in terms of inalienable rights like freedom and dignity, but by no means are we born equal. Whether due to your parent’s poverty or wealth, innate abilities, diet, or even geography, both nature and nurture lobby against equality at the starting line. As evolutionary bio-mathematician Ulf Dieckmann puts in charming geek speak, “The real world is full of heterogeneity.” As those famously dueling percentages, one and 99, remind us, equality can get even more elusive as we approach the finish line.

There’s an idea that this otherwise natural gap, when it appears in income or wealth, is somehow inherently bad, especially when it approaches unnatural extremes. It’s a popular but by no means universal notion; a YouTube video decrying wealth inequality generated a minor viral buzz and more than 7,000,000 views. It’s no “Gangnam Style” or even “Wrecking Ball,” but that’s not bad for a screed based on an academic paper. That’s why it’s labeled “inequality”—nobody likes inequality, right?—as opposed to a gap or a difference.

"Rich people like me don’t create jobs. Jobs are a result of an ecosystemic feedback loop between customers and businesses. And when the middle class thrives, businesses grow and hire and owners profit."

This aversion to inequality is in part why the U.S. tax code is (slightly) progressive—it’s meant to even up things a bit, hence the different reception the word “redistribution” gets depending on whether you’re seated on the right or the left. It’s also part of the reason there are estate taxes—it’s bad enough that the CEO makes 354 times more than average worker, thinking goes, but it’s worse that Mr. Croesus’ pile is enshrined in perpetuity. Jealousy aside, is this disparity so awful?

New research on evolutionary game theory from Dieckmann and Ádám Kun offers some fleeting solace to those unperturbed by wealth inequality. Just as defenders of the rich have argued all along, the better off promote the common weal, in this case if not by creating jobs, then by creating cooperation. If fact, the academics’ models find, it might even be crucial to have some inequality.

However, and this is a big however, the duo found that in what I’d term a mature system, one in which the norm is that people obey the rules, one like ours, you get more cooperation by reducing inequality. Greed, it seems, is not good.

"For modern societies,” Kun was quoted in a release from Austria’s International Institute for Applied Systems Analysis, “this study shows that unequal wealth distribution only hinders our cooperative tendencies." And while cooperation might have a faintly, oh, European aroma about it, unlike greed, it is good, especially in a world with seven billion people and growing.

Historically, when theoretical researchers study intuitive yet abstruse concepts like cooperation and fairness, their given is the dubious proposition that everyone starts with the same amount of stuff, i.e. they’re equal. And so their game theory models, meant to tease out what rational actions will pay off the most, can describe sad outcomes like the so-called “tragedy of the commons” but fail to account for real-life human virtues like altruism.

Kun and Dieckmann shook things up a bit by adding diversity in resources into the set-up for a variety of “public goods games” popular among social scientists. These games aim to help detail policy options by determining when people will cooperate, when they will cheat, and when they’ll throw up their hands and exit the system. Again, we’re not talking about people (exactly). These are squares and squiggles; results from this study look like economists playing a game of Tetris.

Here’s what the researchers’ tiles and curves revealed (with a bit of anthropomorphism tossed in):

• When the gains for promoting the public good are low, the rich are more likely to foster cooperation (one could argue because that’s the best way they see to preserve their privileged status quo) and that cooperation spreads.

• When more people get rich, this magnanimous system starts to erode.

• In systems where gains from being public spirited are high, cooperation declines as inequality increases—in part because the rich grow afraid of the nearby rich and in part because they don’t want to be taken advantage of. (Sounds a bit like the food stamp debate to me....)

In discussing how their findings show that cooperation “can emerge from scratch,” the pair write:

[T]he cooperative act is an investment towards the objective of being surrounded by cooperators. Players on rich sites can maintain this cooperative neighbourhood by being cooperative themselves, up to the point at which the resultant advantage is balanced by the danger of facilitating invasion by a less cooperative player residing on an adjacent rich site.

In short, the ability to engender cooperation lies on a gradient. Wise public policy, this implies, therefore lies in managing inequality, not banishing it.

In a “banned” TED talk (which nonetheless is viewable here), venture capitalist and feather-fortune heir Nick Hanauer made similar points (sans Tetris):

We’ve had it backwards for the last 30 years. Rich people like me don’t create jobs. Jobs are a result of an ecosystemic feedback loop between customers and businesses. And when the middle class thrives, businesses grow and hire and owners profit. That’s why taxing the rich to pay for investments that benefit all is such a fantastic deal for the middle class—and the rich.

Meanwhile, Kun and Dieckmann’s theoretical results can help explain other researchers’ archaeological results, such as the work on the evolution of fairness and quality that Alan Honick and Gordon Orians described for us last year. The German duo also believe their work legislates strongly for a more egalitarian future.