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Mind the Income Gap


Although philanthropy is occasionally dismissed as a guilt-diminishing pastime for those who have already amassed much more than they will ever need, it has created extraordinary value for this city. From Andrew Carnegie, who gave away an estimated 90 percent of his fortune, to the Rockefellers, George Soros, and David Koch (who has given away $200 million over the years), wealthy New Yorkers have made great strides in counteracting social problems. A single anonymous donor, for example, recently pumped $30 million into dozens of social-service organizations in all five boroughs, the donor’s fifth such gift in five years.

One can argue about whether such money would be better allocated by government-mandated wealth redistribution (i.e., taxes), but such policies tend to constrict economic growth and, in so doing, hurt the poor as well. In this country, we have yet to figure out how to have both a turbocharged economy and a reasonably equal wealth distribution, but the answer does not seem to be to make it more difficult to get rich.

The real social problem, economists like Martin Feldstein of Harvard argue, is not inequality but poverty. The Coalition Against Hunger estimates that 425,000 of New York’s 3.6 million working adults don’t have enough to eat. And it’s hard to disagree that between the two ills—wealth disparity and poverty—the latter is far more serious.

Feldstein is quick to point out, of course, that there are plenty of people who don’t buy the premise that the rich do no harm by getting richer. “Some see inequality as so intolerable that they regard increasing the income of the wealthy as a ‘bad thing,’ ” he writes. “Such an individual, whom I would describe as a ‘spiteful egalitarian,’ might try to reconcile this with the Pareto principle by saying, ‘It makes me worse off to see the rich getting richer.’ ”

Spiteful egalitarianism is not a particularly attractive philosophy, but it’s easy to see why it has so many adherents. A spate of recent studies have shown that money can buy happiness, especially at the low end of the economic scale. When you can’t afford food and shelter, you’re likely to be miserable no matter what else is going on in your life. Even in the middle-and upper-income brackets, money correlates to a sense of well-being: If you make more than your neighbors and peers, you will tend to be happier than if you make less (and vice versa). In other words, inequality makes us unhappy no matter how much we have—at least if we’re on the have-less-than-our-friends side of the scale.

Intra-peer stresses are practically unavoidable in New York. Thanks to the vast disparities in pay between the city’s major industries, friends with the same brains, education, background, and work ethic can quickly find themselves far apart on the economic spectrum. Only a few years after college, the financial gulf between a twentysomething dedicated to the arts or nonprofit work and a classmate dedicated to, say, Morgan Stanley can be immense.

A common anxiety related to these disparities results from the tendency for friends to split costs on a per-person basis, rather than a per-income one. Such splits are typically limited to the occasional meal or cab ride and thus set your budget back only a few weeks. But examples range to the extreme. Some acquaintances of mine recently celebrated the 40th birthday of a well-heeled friend. The person who planned the celebration, for whom money is less important than exotic locales, fine wines, and vivid memories, honored the event by booking the following boondoggle (details changed to protect the wealthy): round-trip flights to Milan, two nights at Villa d’Este (a sixteenth-century resort near George Clooney’s house on the bank of Lake Como), a charter boat to Bellagio (the real Bellagio, carved into the edge of a mountain), and a day trip to Venice.

The reactions among the invited friends were mixed. The Wall Street folks were always up for a hop across the pond. The non-financiers, who had plenty of pennies but not so many that they didn’t have to count them, were dismayed—why not just a nice dinner? And the nonprofiteers basically had a heart attack. This is not to equate the comparably frivolous problem of income disparity between well-educated friends with actual poverty—it is simply to illustrate the stresses caused by relative wealth.

One school of thought on wealth disparity holds that it is bad for society not just because of relative comparisons but because it is often accompanied by a reduction in economic mobility. For Mayor Bloomberg et al. to be seen as inspirations rather than ruling-class oligarchs, poor people have to believe that they can reach such heights, too. Without the potential for mobility, economist Timothy Smeeding argues, wealth disparity can lead to crime, a lack of social cohesion, and reduced community involvement.

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