See Frank (2007; Chapter 3) and Richard Layard "Setting Happiness as a National Goal."
The second reason this focus is puzzling is that there is a far more important inequality: that is the inequality in life expectancy. Precisely because income in excess of a fairly modest income (modest, at least, by U.S. standards) is not very important, what matters more for happiness is the amount of time we have on this earth to be happy. Few would deny that a few additional years of life would be more precious to most Americans than the extra money they might receive from government transfers. If inequality in things that matter is important, there is a basic inequality that the worriers about inequality should be paying attention to: the inequality in life expectancy between men and women.
In 2005, life expectancy at birth was almost seven percent higher for American women than for American men (80.4 years for women vs. 75.2 years for men). Governments could certainly reduce this life-expectancy inequality by redistributing medical research funding on women's health to research on men's health, and general medical care funding from women to men. Consider that men are more likely to die from prostate cancer than women are from breast cancer. Yet in 2005 federal expenditures for prostate cancer research were $390 million compared to $698 million for breast cancer research, and the American Cancer Society contributed almost three times as much for breast cancer research ($98 million) as for prostate cancer research ($36 million).
When I talk to people, I find that they generally agree with, and rarely strongly oppose, forcible government transfers of income from the rich to the poor to reduce income inequality. But when I suggest that the government transfer medical expenditures from women to men to reduce life-expectancy inequality, I get a very different reaction. Often, the listener will simply give me a strange look and quickly depart. Those who do respond verbally, however, typically say that I couldn't possibly be serious because my idea is outrageously silly. I agree. It is silly. But I am completely serious in suggesting it.
When we seriously consider an attempt to use government power to reduce the gender inequality in life expectancy, the problems that we have always faced when government uses its power to reduce income inequality suddenly become crystal clear. Government transfers to reduce the gender gap in life expectancy would do little more than reduce improvements in both women's and men's life expectancies. For similar reasons, government transfers have done little more than reduce the income growth of both the rich and the poor. So government attempts to reduce life-expectancy inequality by transferring medical expenditures would be silly, but no sillier than its attempts to reduce income inequality by transferring money.
There are several reasons why redistributing medical expenditures to reduce gender inequality in life expectancies would not work. And there are parallel reasons for the failure of redistributing money to reduce income inequality.
First, the longevity of married men is positively related to the longevity of their wives. Becoming widowed increases the death rate of both men and women, but the increase is greater for men than for women.3 So any policy that retards increases in women's longevity in an effort to boost the increase in men's longevity is likely to reduce the increase in both. Such a policy might reduce the longevity gender gap, but would do so mainly by reducing the life expectancy that both men and women would otherwise have experienced. Similarly, the real incomes of the poor are greater in rich countries than in poor countries—i.e., the poor are better off in countries in which people can become wealthy by making more productive use of their human and physical capital. A policy that retards the growth in the incomes of the wealthy to increase transfers to the poor can be expected to reduce income growth for both while doing little to reduce income inequality.
For a definition of moral hazard, see Insurance, by Richard Zeckhauser. Concise Encyclopedia of Economics.
Second, if additional medical research and care are transferred from women to men to increase male longevity, any increase would be at least partially offset by the moral hazard problem—that is, as men receive more medical care, they will engage in more-risky and less-healthy behavior. So some, and maybe most, of any reduction in the gap in gender longevity would result from slower growth in women's longevity. A similar moral hazard also reduces the gain to recipients of income transfers. When government transfers are made available to the poor, the poor will substitute government-provided income for privately-earned income. So those receiving government transfers typically gain less than those paying for the transfers lose, and any reduction in income inequality results less from gains to the poor than from losses to the non-poor.4
For more on health insurance and health care, see Health Care, by Michael A. Morrisey. Concise Encyclopedia of Economics.
Third, trying to force medical expenditure in directions that reduce the gender inequality in life expectancies is not the best way to realize the greatest gain in overall life expectancy. The greatest aggregate benefit is achieved by allocating medical resources so that they create the best medical outcomes, irrespective of how a politically-favored group might benefit from particular expenditures. There is no evidence that better health and longer life expectancies in general increases gender inequality in longevity. Similarly, transferring resources in an attempt to reduce income inequality reduces an economy's productivity growth, and productivity growth is the most effective way of helping the poor. Who can deny that it is better to be poor in a prosperous country than in a poor one?
For historical readings on factors involving life expectancy, longevity, and economic well-being by health and gender, see the biography of Thomas Robert Malthus,Concise Encyclopedia of Economics, and his Essay on the Principle of Population (including, in the 2nd-6th editions, Malthus's seminal in-the-field studies comparing records of births/deaths/longevity by nationality, race, and gender across countries and political processes).
Finally, one can object that the political process is incapable of reducing the longevity difference between men and women. There are so many interacting factors involved in life expectancy outcomes that empowering politicians to reduce the longevity gap would, given the voters' rational ignorance, expand politicians' latitude to pursue unrelated political objectives. Indeed, politicians could enact policies that increase the gap and reduce increases in life expectancies without worry that the harm would be noticed, let alone blamed on them. In comparison, it might seem straightforward for politicians to reduce income inequality by increasing taxes on the wealthy and transferring the money to the poor. But politicians have demonstrated little ability to reduce income inequality despite the enormous amounts of money they have been transferring, supposedly for this purpose, for decades.5
Once voters express themselves in favor of allegedly noble objectives, such as reducing income inequality with transfers, almost none of them take the trouble to determine where the transfers actually go. This allows politicians to improve their re-election prospects by largely ignoring income inequality and directing most of the transfers to politically influential interest groups (think farmers, exporters, university students, small businesses, businesses too large to fail and now investment bankers) and to large numbers of the general public (think Social Security and Medicare recipients, and homeowners who receive tax breaks in the form of interest deductibility on interest payments), few of whom are poor and almost none of whom are chronically poor. Interestingly, politicians are not reluctant to inform the public that income inequality has increased rather than decreased. Indeed, they often exaggerate any increase.6 Politicians have noticed that they can blame the failure of existing transfer programs to reduce income inequality on such things as corporate greed, failure to increase taxes, and immigration. And they use that failure to justify yet more transfers that can be used to increase their election prospects rather than to reduce income inequality.
Gender inequality in life expectancy is something that government's forced transfers can do little, if anything, to reduce. Fortunately, politicians have not yet seen an electoral benefit from attempting to reduce this inequality. Greater longevity for men is desirable independent of comparisons with the longevity of women, and it is best achieved when government is largely limited to enforcing the general rules of private property and voluntary exchange that promote freedom and prosperity. By contrast, politicians have found it politically advantageous to exaggerate income inequality and convince the public that it is a serious problem demanding more government transfers. The reality is that political attempts to reduce income inequality with transfers are frustrated by the same considerations that would frustrate an attempt to reduce gender inequality in life expectancy with transfers. Helping the poor by reducing poverty is desirable independent of comparisons with the wealth of the rich. And, as with greater longevity for men, improving the income of the poor is best achieved by the freedom and prosperity that result when government is restricted to enforcing the general rules of private property and voluntary exchange.
Frank, Robert H., Falling Behind: How Rising Inequality Harms the Middle Class. (Berkeley: University of California Press, 2007).
Haveman, Robert, Starting Even: An Equal Opportunity Program to Combat the Nation's New Poverty. 1988.
Layard, Richard, Happiness: Lessons from a New Science. (New York: The Penguin Press, 2005).
Lee, Dwight R. "Who Says Money Can't Buy Happiness," The Independent Review. Vol. 10, No. 3 (Winter 2006): 385-400.
Lee, Dwight R., "Redistribution" in David R. Henderson (ed.) The Concise Encyclopedia of Economics (2008).
Okun, Arthur M., Equality and Efficiency: The Big Tradeoff. 1975.
Reynolds, Alan, "Has U.S. Income Inequality Really Increased?" Policy Analysis, No. 586 (Washington: Cato Institute, January 8, 2007).
Sawhill, Isabel V. "Poverty in the U.S.: Why Is It So Persistent?" Journal of Economic Literature 26 (September 1988): 1073-1119.
See Layard (2005) for a thorough and sympathetic discussion of this view of money and happiness.
See "Married People and Widows Found to Outlive Widowers." Joel Greenberg, NYTimes. July 31, 1981.
This ignores the dead-weight loss from taxation and the administrative cost of transferring money from taxpayers to those receiving the transfers.
One never knows for sure what income inequality would be without the tremendous increase in government spending in the name of helping the poor since the 1960s. But we do know the income inequality has not declined much, if any, since the 1960s, and those who want the government to transfer more to the poor claim that income inequality has increased. For a discussion of some of the political difficulties involved in attempts to transfer income to the poor from economists who favor such transfers see Haveman (1988), Okun (1975) and Sawhill (1988). For a short discussion of this difficulties from someone who is not favorably to these transfers, see Lee (2008).