The Occupy Wall Street protests have exposed a fundamental dilemma at the heart of economics. People want economic growth, but they also want a fair distribution of wealth. Unfortunately, these two goals are not fully compatible. It is a tragic but inescapable fact that the conditions most favourable to economic growth also tend to widen the gap between rich and poor. Conversely, policies designed to reduce inequality also tend to hamper growth.
Take land reform in Zimbabwe, for example. Taking farmland away from the few whites who used to own it and redistributing it to hundreds of thousands of blacks has certainly reduced inequality, but it has also resulted in a much poorer society. Or, to take a less extreme example, the efforts of Bill Clinton and George W Bush to promote property ownership among low-income households led directly to the housing bubble which, when it burst in 2007-8, made the whole world poorer.
Rent controls have been imposed in many cities around the world with the intention of helping poorer tenants, but the result is that landlords and builders tend to supply less housing. National minimum wages lead to higher levels of unemployment. And so on.
From one perspective, the harmful effects of all these policies is reason enough to scrap them. What does it matter if the gap between rich and poor gets wider, so long as the poor are better off than they were before? This attitude was epitomized in the statement by Peter Mandelson in 1998 that "we are intensely relaxed about people getting filthy rich, as long as they pay their taxes."
Yet this is a minority view. Most people care about equality as well as about economic growth. Some strong evidence for this comes from experiments involving something called the "ultimatum game." In this game, two strangers are paired up and given a sum of money. One of them - usually referred to as the "proposer" - has to decide how to divide up the money. The proposer might suggest a 50-50 split, or she might drive a hard bargain and offer only 10 per cent to the other person. The other player - usually referred to as the "responder" - can either accept this offer or reject it. If the responder accepts the offer, each player walks away with the share of the money stipulated by the proposer. If the responder rejects the offer, each player walks away with nothing.
According to game theory, the proposer should always offer the smallest amount possible. And Peter Mandelson would no doubt recommend that the responder should always accept the proposer's offer, no matter how small it is. After all, some money is always better than none.
But this isn't what people actually do when they play this game. Instead of offering the smallest possible amount, most proposers offer between 40 and 50 per cent of the money. And on the few occasions that proposers offer less than 20 per cent, responders reject about half of those offers.
These findings have been replicated many times in studies all around the world. It's an almost universal pattern which strongly suggests that most people care about other things in addition to their own personal gains and losses - things like fairness and equality.
Yet the fact that economic growth and equality are not fully compatible means that societies must trade off these two goals against one another. If we care at all about equality, we must decide how much economic growth to sacrifice in its pursuit. In other words, societies must decide how much poorer to make everyone in order to prevent the poorest from becoming too deprived.
Nobody wants to live in a society like Zimbabwe. But nor, it seems do many people want to live in a society where the free market reigns supreme and maximum growth is pursued at the cost of ignoring inequality. The real debate is about where, on the spectrum between these two extremes, society should locate itself. But that debate cannot begin until the champions of deregulation admit that their exclusive focus on economic growth puts them in the minority. Nor can it begin until the Occupy Wall Street protesters admit that there is a price to be paid for greater equality. Only when those who are angry at the way global finance operates explain how much poorer they want to make us all, in their pursuit of greater equality, will they silence those who accuse them of incoherence.