Public Economics and Inequality: Uncovering Our Social Nature by Emmanuel Saez published by AEA Papers and Proceedings (2021).
“The standard economic model is based on rational and self-interested individuals who interact through markets, yet it is obvious that humans are also social beings who care about and act within groups such as families, workplaces, communities, or nations.
In the standard model, individuals care about only their own consumption independently of social context. Taken literally, the model says that a person struggling at the poverty threshold today gets as much utility as a successful professional two centuries ago when income per capita was less than one-tenth of what it is today.1 Therefore, economic growth should beat inequality concerns in the long run. As Robert Lucas once put it, “Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution” (Lucas 2004). Yet, in spite of this extraordinary income growth, concerns about inequality and poverty remain alive and well in our advanced economies, implying that relative positions matter to people.2 Indeed, the large increase in income concentration in the United States and a number of other advanced economies since 1980 has attracted a lot of attention (see for example, Piketty 2014’s best-seller success) and figures prominently in the policy debate…”
