The virtue of riches: how wealth makes us more moral

Reason, July, 2006 by Megan McArdle

The Moral Consequences of Economic Growth, Benjamin M. Friedman, New York: Knopf 592 pages, $35

FOR MANY Americans, riches are so disreputable that taking them away is a goal in itself. The left used to offer the misery of the poor as a reason for redistribution, but these days an increase in inequality is just as likely to be the rallying cry for higher taxation. In a savage New York Times column this past March, the economist Paul Krugman turned rising inequality--a trend that has persisted for decades under both Republican and Democratic presidents into a frontal assault on the hated Bush tax cuts. More generally, the chief plaint of Democrats about those cuts has been not that they are economically inefficient, or even that they are leaving wonderful programs starved for funds, but that they primarily went to "the rich."

That same suspicion is often applied to the vast wealth we enjoy as a society. Spend time at an antiglobalization rally, and you'll inevitably hear someone complain that Americans are less than 5 percent of the global population yet consume 25 percent of its output, as if we were somehow stealing the difference from the world's poor. Such critics also cite the social, economic, and environmental dislocations caused by a vibrant free market. We're too rich, the activists are basically saying, and our wealth has too high a cost; it's time to stop thinking about making money and start thinking about all the suffering in the world.

Even those who think wealth is good (or at least harmless) often implicitly suggest that the pursuit of wealth and the pursuit of moral goals are separate questions. They would do well to read Benjamin Friedman's The Moral Consequences of Economic Growth. The author, a professor of political economy at Harvard, has written an economic tome that is accessible to the average reader without failing to offer something new to specialists as well: a compelling argument that rising incomes make us not just richer people, but better ones.

Friedman's definition of better will irritate libertarian-minded readers, who will quarrel with his decision to count support for generous government expenditures among the "moral consequences" of economic growth--or, at least, with his implication that such support is among the positive effects. But most of the consequences he discusses would impress nearly everyone. When earnings are growing, Friedman says, people are more tolerant of minorities, more welcoming to immigrants, more solicitous of their fellow citizens, more supportive of democratic institutions, and just plain better specimens of humanity.

This result is not surprising to anyone who has been around normally rapacious Wall Street bankers at bonus time, but Friedman provides historical evidence for the intuition. In painstaking detail, he outlines the economic history of the United States, Britain, France, and Germany since the industrial revolution. Over and over, he shows that during periods of economic stagnation, societies become more xenophobic, less tolerant of dissent, and more willing to embrace anti-democratic government actions. It is no accident, he argues, that communism and fascism were embraced by countries in economic crisis--or that the Palmer raids and the PATRIOT Act arrived during periods of rising financial insecurity for America's vast bourgeoisie.

Economists have long known that what they call the "wealth effect" can stimulate spending: If people feel richer because the value of their home or stock portfolio has gone up, or because they think their income is likely to rise in the future, they will loosen up and spend more. Friedman suggests that people don't merely become more willing to treat themselves to home entertainment systems and $4 cups of coffee as their wealth grows; they also become more generous to others. "With rising incomes," he says, "more people become willing to donate time and money. And among those who do so, rising incomes also allow people to feel able to do more."

But direct charity is only one of the ways we become more generous. Even more important is the tolerance that growing wealth brings for competition from others. There is a growing recognition that trade is a vastly more effective way to reduce global poverty than foreign aid; even Oxfam, a reliably left-wing nongovernmental organization, has jumped on the free trade bandwagon with a campaign against agricultural subsidies. Better still, trade benefits domestic consumers. Yet progress on that front is nearly impossible unless economic prosperity is rising fast enough to ease the fears of those who are threatened by a more open market.

The current global economic climate--economic stagnation in much of Europe and an economic recovery in America that has bypassed much of the middle class gives us one way to test Friedman's hypothesis. If he's right, global trade should be much more threatened now than it was in the 1990s. Sure enough, the Bush administration has struggled to pass even a minor trade pact with Central America, while the European Union seems perfectly willing to scuttle the Doha round of World Trade Organization negotiations rather than expose its farmers to competition. That doesn't prove Friedman is correct, of course, but it's certainly suggestive.