Pursuit of Truthiness

my gut tells me I know economics

How to care about Equality

with 2 comments

Like many utilitarians and economists, I have a hard time caring about inequality for its own sake, even though many people seem to think it is very important.  Making poor people richer is good on standard utilitarian grounds, but it is hard to imagine wanting to make rich people poorer just to make everyone feel more equal.  How can utilitarians support wealth equality, and redistribution, without putting any value on equality itself?

One reason is as old as utilitarianism itself- the diminishing marginal utility of money.  If rich people don’t value $1000 as much as poor people, in theory we can increase total utility by taking from the rich and giving to the poor.  Wolfers’ finding that happiness rises with the natural log of income supports this.  Of course in practice this leads to incentive problems and an efficiency/equality tradeoff; this lowers the optimal amount of redistribution but gives us no reason to think it is zero.

Second is the fully general trump card against utilitarians (I hope a philosopher can tell me how to get out of this): other people say equality will increase their utility, and you say you want to increase utility, so you should support their desire for equality.

I think one version of this is influential in practice.  An economist like Greg Mankiw might not care about inequality himself, but everyone around him talks about it, so he thinks of more constructive things to say than “your values are silly”.

Another version is the “realpolitik” concern.  Bismark invented the welfare state not because he cared about equality or happiness but to stave off revolution.  Similarly, we might care only about happiness, but realize that voters may be more supportive of happiness-enhancing pro-market policies when inequality is small.  Look at the Economic Freedom of the World Index– Northern European countries like Denmark have high levels of redistribution but are otherwise very free markets.  Denmark is often rated the happiest country in the world.  I would like to see a poli-sci paper on this, or write one if none exists.  If you count the Republicans as the pro-market party (iffy), I have written a paper finding this for the US.  But one should look internationally, as well as looking at survey data on opinion in addition to actual outcomes.

There is one more utilitarian argument for redistribution that I don’t recall hearing, though I am sure it has been made.  Economists like to emphasize that the price system is an amazingly efficient mechanism for allocating resources to their highest valued use.  A common response to this point is that the system is inefficient and unfair, because a poor person who will get 10 utils from a good can be outbid by a rich person who makes 4 times as much money and gets 5 utils from the good.  Somewhere, a rich kid is ignoring or complaining about a toy that a poor kid would love to have but can’t afford.  What I have yet to hear is the obvious corollary of this criticism: the more equal incomes get, the more efficient, fair and utility-enhancing the price system becomes.  The price system more efficiently allocates resources in Denmark than in Mexico.  Perhaps Danish voters are more willing to let prices work because they actually work better in the more equal country of Denmark.

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Written by James Bailey

September 19, 2011 at 2:34 pm

2 Responses

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  1. “Other people say equality will increase their utility, and you say you want to increase utility, so you should support their desire for equality.”

    How about a general trump card to refute a general trump card: this argument is only valid if you make the assumption that other people are right about what will increase their utility. They may say that equality will make them happier, but as someone who is far smarter than they are, you may counter that they are simply wrong.

    This is in a sense an extension of the Law of Unintended Consequences; equality may indeed be a laudable goal, but it’s perfectly reasonable to counter that in order to get equality, so many undesirable actions must be taken as to render the whole procedure counterproductive (as no one would contend that equality is the ONLY laudable goal). People who promote equality typically promote it at the expense of other goals, so at any point you may deny that they are correctly weighing those goals. I suspect that this is what most “utilitarians” actually believe anyway – would anyone deny that equality is, in principle, a good thing? It’s only when you have too much of it, or rather when you improperly allocate resources to promote it over other goals, that it becomes bad. What constitutes “improper allocation” is very debatable, but I’m not sure if there’s actually any fundamental disagreement on the principles at all. We only pretend that there is for ease of conversation.

    A Philosopher

    October 20, 2011 at 7:42 am

  2. “They may say that equality will make them happier, but as someone who is far smarter than they are, you may counter that they are simply wrong.”

    It takes quite a bit of arrogance to argue that you know what makes someone happy better than they do, I don’t think I could pull it off. I guess this is what positive psychology is all about though.

    It will often be true that people are instrumentally wrong about 1) whether a proposed idea to reduce inequality will actually do so; eg communism was supposed to bring equality but in fact communist countries are the most unequal, see Kim Jong Il’s sweet water slide and starving people and 2) how much of other good things you need to give up to get equality. However, while people will often be wrong about this, it is hard to imagine they will always be wrong, so the objection is not fully general.

    James Bailey

    October 20, 2011 at 10:39 am


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