Economic Inequality Goes Well Beyond the Bank Account

If President Trump's plan to cut individual and corporate taxes is enacted, it would accelerate the rise of income inequality in America. Economists have analyzed the effects such cuts would have on the economy, but cuts would also have an impact on people's lives beyond money. Economic inequality has a profound impact on people's emotions, health, and thought processes that go well beyond their bank accounts.

Discussions of inequality usually focus on the poor, and tax cuts often result in cuts to safety-net programs that indeed make the poor worse off. But the most immediate effect of tax cuts is to make the rich even richer. Depending on your politics, that might seem fair or unfair. But regardless of political leanings, data from psychology and neuroscience suggest a less obvious impact: Making the rich richer actually makes life worse for everyone else, including the middle class.

The reason has nothing to do with envy. Most Americans admire the wealthy and would rather join them than beat them. Nonetheless, humans can't help comparing themselves to each other. When others around us get richer, it raises our standards for how much is "enough." When your friends and neighbors start installing gleaming quartz countertops, the granite that made you proud a few years ago starts to look a little shabby. Just as it takes more money to feel middle class today than it did a century ago, it takes more to feel middle class when others around us get richer.

Falling behind relative to others has deadly serious consequences. The feeling of falling behind is at the heart of recent data from economists Anne Case and Angus Deaton that show an alarming increase in deaths among white Americans without a college education. The increased deaths are due to a combination of drug overdoses, alcoholism, suicides, and heart disease. Case and Deaton called these "diseases of despair," driven by "the failure of life to turn out as expected."

But what, exactly, do people expect? Census data show that the poorest two-fifths of Americans earn almost exactly the same, in inflation-adjusted dollars, as they did in the 1960s. Objectively, poor and working-class Americans have been holding steady. But the pervasive feeling of being left behind among this demographic has more to do with the soaring fortunes of the wealthiest during this same period. Working-class Americans expected to progress along with them, but didn't. These problems might just as aptly be called diseases of social comparison.

In wealthy industrialized nations, health, happiness, and longevity are more closely associated with relative differences in income than with income itself. One reason is that the feeling of falling behind is stressful. Human bodies respond to threats to social status in the same way they respond to threats to physical safety. Imagine how your body would react if you were threatened with a demotion at work. Stress hormones flood the bloodstream, which releases massive energy in the short term but can be exhausting in the long term. The immune system responds with inflammation, which can kill bacterial invaders but may also contribute to immune problems, heart disease, and depression in the long term. Our bodies' tendency to treat social stressors like physical threats means that we waste a lot of biological resources fighting shadow enemies who cannot be defeated with antibodies.

A second reason that other people's fortunes affect our own is that social comparison changes how we make decisions. A recent experiment from my lab found that when peers become richer, the average person makes riskier decisions. When given the choice between low-risk/low-reward gambles and high-risk/high-reward gambles, people looked to how other gamblers had performed. When the winners took home a modest amount, research participants chose safe options. But when the winners won big, participants opted for the high risk gambles in an effort to win big themselves. People emulate the most successful people around them and will take great risks to catch up.

In daily life, this striving can be seen in the fact that people in high-inequality states make riskier decisions such as playing the lottery, taking pay-day loans, and committing more crime. They also engage in riskier pursuits of pleasure such as using drugs, smoking, and eating unhealthy diets. Eventually, these risky activities take their toll on health and quality of life.

Feeling "left behind" is one of the most commonly repeated explanations for the anger that propelled many white working-class voters to support Donald Trump for president. If the rich continue to become richer while the rest remain in place, look for more and more people to feel the despair -- and rage -- of unmet expectations.