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Political Philosophy

Economics, Fairness, & Stability

[digg-reddit-me]A friend asked me recently in response to my Reagan Revolution posts:

A. Would you rather have sustained economic growth where 90% of the growth goes to the rich and 10% to everyone else?
or
B. Economic stagnation and contraction where everyone stays at the same level except the rich lose a chunk of their proportionate wealth?
[edited slightly for clarity]

I think my friend may be surprised at how close America already is to Situation A. The top 20% of Americans own over 84% of America’s wealth and make just under 50% of each year’s income. Of the growth in America’s economy in the past 10 years, most of it has gone to the richest 5%. (See the Federal Reserve’s Chartbook – warning – a massive pdf. Also, for easier to read charts, see this and this.)

The question my friend seems to be proposing is: Is this disparity inherently wrong? Not necessarily. But it raises a number of difficult questions.

Fairness

Do you really believe that the top 20% of Americans has done work or provided value to society sufficient to deserve 84% of the wealth? If you’re just looking at income – do 20% of the people do 50% of the work each year? Or do these 20% of people provide 50% of all things of value? Is it possible that this distribution can be just? It does not seem to me that it can – unless you postulate that a day’s work for the average person in the top 20% is worth a week’s worth of work for the average American. 

Stability

A second question is whether a system in which such a high percentage of income disparity is sustainable. Certainly, when wealth is concentrated to such an extent, it undermines both the freedom of the market and democratic institutions. The freedom of the market is based on competition – which is undermined by the concentration of wealth. Democratic and market institutions are based on a free flow of information which can be controlled with sufficient wealth. For a time, as long as enough people benefited, this might be sustainable – but at some point, the concentration of wealth would reach a tipping point that would force a change. And that is only if all goes well – if growth ceases, or ceases for the majority of the people, then such a system would collapse. (This is what we are facing now.) The only way such a lopsided system could be sustainable would be with massive government intervention to maintain those institutions and mechanisms necessary for stability or intervention to spread the wealth around. 

It sometimes seems to me that conservatives forget that the free market exists because of – not in spite of – government interventions. And that some percentage of an individual’s success is due to the society and market created and maintained at least in part by the government.

The real problem I have with the construct of the question is that it might be asked another way: Would prefer massive injustice or collective misery? I’d like to think we can do better than either.

One reply on “Economics, Fairness, & Stability”

I have all sorts of misgivings about defining justice as a statistical distribution. Justice is basically getting what one deserves, and it’s almost impossible for an external observer to accurately tell from a given statistical distribution how much of that is deserved and how much isn’t. It would require a superhuman intelligence, some kind of god. Or a computer the size of half of Belgium.

We cannot even tell what the “fair” price of a very simple good is supposed to be, this is why we better let supply and demand decide it – so as a complicated good as human achivement in total, that’s almost impossible to tell what’s the fair price of it.

So I think it’s simply not a question of justice. Individual actions can be scrutinized whether they are just or not, but the whole state of things as they are just cannot.

I prefer more inequality when it is deserved, and more equality when it is not. I think that is justice. What else could justice be?

However, it’s so horribly hard to determine what is deserved and what is not, that a few years ago I realized I must be more or less a freemarketist even though I don’t really like the underlying individualism and “desire-ism” behind all that, because it’s such a hard question that it’s better to have a distributed way of resolving it, on a per-transaction level, and that’s basically the market.

I’m open to alternatives, but myself I cannot find any.

A massive computer could perhaps calculate something better, but how could we even decide what the inputs should be? Score talent between 1 to 10, effort between -10 to 20, savings between 5 to 30, stuff like that? It involves huge amounts of value judgements I just don’t want to make them, I’d rather let the people do it in their everyday transactions.

Basically, your question sounds like a huge social engineering project. Do you really think it is possible to find a middle way between the two and engineer things so that it happens that way? I find such ideas insanely over-ambitious. People find it hard enough to get their own children do what they want, getting a whole society to do what you want sounds almost impossible to me.

My suggestion is to just set up a framework, a good and just framework and then just leave things be withing that framework, do not try to engineer an expected outcome, it won’t happen.

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