Public Economics and Inequality: Uncovering Our Social Nature
This paper argues that the social nature of humans, absent from the standard economic model, is crucial to understand our large modern social states and why concerns about inequality are so pervasive. A social solution arises when a situation is resolved at the group level (rather than the individual level) through cooperation and fair distribution of the resulting surplus. In human societies, childcare and education for the young, retirement benefits for the old, health care for the sick, and income support for those in need, is resolved at the social level, and through the social state in advanced economies. Social situations are pervasive even outside government and play a significant role in the distribution of pre-tax market incomes.
This paper was presented as the AEA Distinguished Lecture in January 2021. I thank Ulrike Malmendier, Pascal Michaillat, Thomas Piketty, Stefanie Stantcheva and Gabriel Zucman for helpful comments and discussions. Akcan Balkir provided outstanding research assistance. I acknowledge funding from the Berkeley Center for Equitable Growth and the Berkeley Stone Center on Wealth and Income Inequality. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.