How equal should we be?

During the past 30 or 40 years, wealth in the United States has been redistributed upward.  I think this is a bad thing.  But if you ask me how I think wealth should be distributed among income groups, I don’t have a good answer.  In fact, I would rather avoid the question.

For years I thought that inequality, as such, didn’t matter.  I believed there should be a social safety net, and I favored policies to promote a high-wage, full-employment economy, but I wasn’t concerned with the size of the gap between rich and poor.  If I have all I need, and the people on the bottom rungs of the economic ladder have the necessities of life, what difference does it make how much more other people have?  If I have a house to live in, how does it hurt me if someone such as John McCain owns so many houses he can’t remember how many they are?

The philosopher John Rawls, in  A Theory of Justice, acknowledged that a certain degree of inequality of income can benefit everyone, including the worst-off members of society.  It is right (my example, not his) that physicians be paid more than newspaper reporters, because physicians have a scarcer skill, require more years of schooling to learn their job and arguably are more necessary to society.  It is right that entrepreneurs be richly rewarded, because of the high risk and the many entrepreneurs who fail, and because if someone gets rich by creating a business that produces valuable goods and services, there is a good chance the person will use the riches to produce more valuable goods and services.

The theory of the  free enterprise system is that capitalists grow rich when they do a good job of serving the wants and needs of the public, and are thus enable to expand at the expense of competitors who serve the public less well.  When the system works this way, Rawls’ criterion is met.   The problem is in distinguishing the wealth that is acquired from creating value from the wealth that is created from what economist Joseph Stiglitz in The Price of Inequality called “rent-seeking”—leveraging your position in society to extract wealth from others.

I like to see people being richly rewarded for their achievements, such as starting or managing a successful business, or writing a best-selling novel.  I have no objection to people being richly rewarded for success in competition, such as high-stakes poker or trading on the stock market, provided their winnings come from other players and they don’t expect to be bailed out by the public.  I realize that there is always a certain amount of luck in success, but that is all the more reason to reward success.  The winner of a lottery has no more merit than anyone who bet on the lottery, but nobody would participate if the rewards were all equal.

What I have a problem with is the emergence of a privileged class, who are rewarded for attending elite schools, belonging to elite organizations and networking with other members of the elite.  They gain access to top jobs in corporations, government, academia and the so-called non-profit sector.   Christopher Hayes in Twilight of the Elites pointed out members of this class regard themselves as a “meritocracy,” but their merit consists of their credentials, not their achievements or their contributions to society.   I think the average partner in Goldman Sachs is smarter than I am, at least about how to acquire money, but having superior intelligence does not give you a right to manipulate government, commit financial fraud or swindle the so-called “losers.”

What we should be concerned about is not how much money people have (although I doubt the world would be worse off if the fortunes of the world’s richest people were measured in nine figures instead of 11 figures), but how it is acquired.  Instead of trying to redistribute wealth back downward, we should change the rules to reward producers rather than rent-seekers.  I am not concerned about how much can be earned honestly.  By “honestly,” I mean not just technically within the law, but giving actual value in return for value received.

To be clear, I do advocate that federal income taxes on rich people be returned to 1990s levels, but that is in order to cover the expenses of government, not in order to change the distribution of income in society.  Taxes at 1990s rates will not prevent rich people from being rich.  And if certain governmental measures, such as provision of public parks or public libraries, happens to benefit the public more than the upper 1 percent, I regard that as a plus, not a minus.  One of the problems with the emergence of a privileged class is that they have the power to distort the economic and political system so that it serves their desires, which are disconnected from the needs of the general public.

Notice that the top chart in this post deals with the top 20 percent of income owners, while the lower chart is about the top 10 percent.  My real concern is with the top 1 percent and top 1/10th and 1/100th of 1 percent.

Do you have a philosophy of distributive justice?  If so, how do you think wealth should be distributed?

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6 Responses to “How equal should we be?”

  1. Reddotsg Says:

    Sounds some what like what is happening in my country.

    Tq for sharing your veiws n ideas, Phil.

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  2. b-psycho Says:

    Ideally, the gains from rent-seeking and political favor should be seen as equivalent to theft, thus treated by society as void. This wouldn’t be a reform, obviously, more like an intentional dismantling.

    Failing that, if indeed such an alternative is not possible, I could see as a reform that at least somewhat touches the problem (though clearly does not end it) shifting all taxation from the complex code existing today to taxing only the gains in areas defined by rents and privilege (land value & resource extraction, plus financial speculation), from there funding a relatively generous citizens dividend. The idea there is if you cannot do away with the rigged structure, the least that could be done is to charge for the privilege.

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  3. b-psycho Says:

    I’d also add that the power of labor needs to make a comeback. A huge one. Part of the reason we have the economic conditions of today is the shifting of consumption over time from wage growth to debt, which makes the financial sector way more important and powerful than it should be. It’s like poking holes in someones boat and then charging them for material to fix it plus interest for how long they have it on there.

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  4. Atticus Finch Says:

    “What I have a problem with is the emergence of a privileged class, who are rewarded for attending elite schools, belonging to elite organizations and networking with other members of the elite. They gain access to top jobs in corporations, government, academia and the so-called non-profit sector. Christopher Hayes in Twilight of the Elites pointed out members of this class regard themselves as a “meritocracy,” but their merit consists of their credentials, not their achievements or their contributions to society.”

    That is an excellent point. Less concerned with someone being rewarded with riches by creating value and more concerned with the creation of an elite class where the barriers to entry are to large to overcome by the rest of us. Great article.

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  5. reddotsg Says:

    Reblogged this on Reddotsg's Blog and commented:
    Christopher Hayes in Twilight of the Elites pointed out members of this class regard themselves as a “meritocracy,” but their merit consists of their credentials, not their achievements or their contributions to society.

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  6. simonandfinn Says:

    Very interesting piece and perspectives. Reminds me of an article I read (couldn’t track it down unfortunately) about the elitism of the American university system and how the glorified country club track leaves a lot of people out in the cold, to the point where the only way they feel they can get in on certain jobs is through lying about their credentials (i.e. the Director of Admissions at MIT for one, http://www.nytimes.com/2007/04/27/us/27mit.html)

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