Income inequality as a freestanding problem

The New York Times ran an article today about the poor state of social mobility in the United States. Those on the left have been making these points for such a long time that I was almost bored reading through it. As usual, the reactions of bloggers to the post were more interesting.

Matthew Yglesias wrote about an abandoned senior thesis project he considered surrounding the issue of income inequality within John Rawls’ theory of distributive justice:

My idea was to look at John Rawls’ famous Theory of Justice and make the case for the system he briefly dismisses as “natural aristocracy.” That’s a system in which we would care most about the absolute living standards of the poor but not worry at all about what he calls “fair equality of opportunity” which is roughly speaking a form of social mobility. I turned out not to have much original to say on this and never did it, but I think it’s an interesting issue. At a minimum, I think speaking in these terms might help clarify the debate a bit. My suspicion, living and working in mostly progressive circles, is that most of the people upset about “inequality” are actually bothered by what they see as missed opportunities to raise living standards at the bottom or at the median. But it’s not totally clear. There’s a lot of ideological diversity on the left, and perhaps some people are in fact saying that it would be a good tradeoff to make America more equal even if that meant lower absolute incomes for middle class and poor families. But I don’t think that’s really something most of the people who say they’re bothered by inequality are bothered by.

Interestingly enough, I too had an abandoned senior thesis project criticizing John Rawls theory of justice. In my abandoned project, I was going to argue exactly what Yglesias suspects few in progressive circles actually mean when they talk about income inequality: reducing inequality can be a net-positive even if “that meant lower absolute incomes for middle class and poor families.”

The crux of John Rawls’ theory is that if we were constructing a society in which none of us knew who we would be, we would adopt certain principles of justice for that society. On the economic front, we would favor a system that distributed primary goods equally except when distributing them unequally would result in a greater absolute level of those goods for each class (roughly). So in income terms, you can think of it this way: we ought to distribute income equally except where introducing inequality would actually increase the incomes of all, especially the poor.

Since economic production is not zero-sum, it is possible that allowing for inequality will create incentives for people to work harder, which will create more economic production that if distributed appropriately would improve the living standards of all. That is at least how the Rawlsian line goes. There is a lot to critique about this line, and I think G.A. Cohen’s critique of the idea that inequality would ever be necessary to increase the standards for all is pretty devastating.

This is not where my abandoned thesis project was going to go however. I was going to argue — and I think it is correct — that we might reasonably construct a society that opposes some introductions of inequality even if those introductions would improve the absolute incomes of everyone, including the poor. The basic omission on Rawls end is that he ignores the non-economic harms of inequality. There is evidence that suggests that relative inequality by itself contributes to problems like obesity, mental health, physical health, education, imprisonment, social cohesion, social trust, violence, teenage births, child well-being, and more.

Given that people value the things that are hurt by inequality itself — not just the absolute poverty it might create, but the inequality itself — there must be some limit to the amount of income-improving inequality that we would want to introduce. Assuming it were necessary (i.e. ignoring Cohen’s objection that it is not), we probably would want to introduce inequality that raised all of our incomes to the point where we had all our material needs met even if doing so caused the social ills listed above. From there, we might still favor introducing inequality to get more and more luxuries.

But at some point, an improvement in everyone’s absolute income level would not be worth the other damage the inequality required to create that increase would cause. For instance, at a point, we surely would value the foregone social cohesion that results from creating even more inequality than the amount of extra income that introduction of inequality might provide to us all.

What follows is that it would be totally reasonable in certain conditions to favor more income equality even if making it happen decreased the incomes of all. So, Rawls’ difference principle is an inadequate theory of distributive justice. This is a fun intellectual debate to have, but it really has no relevance to contemporary debates in the Unites States: our inequality is such that we can simultaneously create more equality through redistribution and improve the absolute income level of the poor. There is no trade-off between the two at the current moment.

The three big conservative philosophical frameworks

Conservatives are pretty shifty in arguments. One moment they appear to be concerned about the poor and how taxes will ultimately hurt them and kill their jobs. The other moment they seem to think the poor don’t deserve anything anyways. Most folks — no matter their political leanings — do not consciously think about the philosophical frameworks that the justifications for their opinions tend to fall in. Although rigid frameworks are probably a bit reductive, they can be useful tools to understand what exactly people are saying. The following three conservative philosophical frameworks can account for almost all of the conservative rhetoric and arguments out there these days. I offer them here to hopefully help those who want to understand and better analyze conservative justifications.

Utilitarian arguments used to be much more prominent among conservative political thinkers. Economists especially relied upon the idea of subjective utility and growth to argue that unrestrained free markets were the way to go. The way this argument works is probably familiar to most. Because low-tax, low-regulation markets generate economic growth while allowing individuals to choose for themselves what to purchase, utility is supposed to be ultimately maximized by conservative economic policies. Milton Friedman, probably the most famous libertarian of the 20th century, was the most prominent advocate of this way of thinking. When asked whether redistribution should be pursued, Friedman’s response was almost never about who deserved what income or the violence of taxation; instead, it was about how taxing the rich would ultimately hurt the poor, undermining the whole purpose of the project.

The closest resemblance to this kind of reasoning these days has to be the right-wing rhetoric surrounding “job creators.” Doing anything mildly redistributive through the government is claimed to reduce overall employment, thus hurting the poor. There is a lot to be said in response to this kind of viewpoint, and obviously I am not very moved by it. But for the purpose of this post, just note how the argument works. The problem with moves towards redistribution is not so much that it takes from the productive and gives to the parasites or that the process of redistributive taxation is intolerably forceful or aggressive. Instead, the problem is that it will reduce utility because of the negative economic impacts that follow.

While this framework is still around of course, conservatives — especially younger conservatives — have shifted away from it and towards other other philosophical approaches. It has its obvious flaws. The most glaring flaw is that comparatively speaking, strong social democratic countries appear to have generated the best overall utility of any political system implemented thus far. They serve as an empirical check on the idea that redistributive taxes and well-run universal state services are a drag on overall welfare. There are also of course more theoretical objections to the idea that redistribution is always somehow utility-destroying. After all, taking a dollar from a rich person and giving it to a poor person should almost always increase overall utility if done efficiently.

Procedural Justice
Conservatives who are a bit scared of making the utility argument — as they should be because it is probably the weakest one they have — often fall back on a procedural justice framework to justify their viewpoint. Procedural justice theories rely on the idea that a just economy and political system is one that follows just processes. So long as just processes are followed, whatever outcome that results is necessarily just. The conservative/libertarian thinkers most prominent in this camp are Robert Nozick, Murray Rothbard, and the super-bizarre internet sensation Stefan Molyneux.

The conservative procedural justice account can get pretty complicated at times, but most have probably run into the basic elements of it from time to time. The account emphasizes free exchange, free association, and voluntary agreements. Advocates of it drone on about self-ownership and non-aggression, two qualities that they think libertarian economic processes possess. When someone complains about their terribly low wages and work conditions, these are the guys who retort back “but you voluntarily agreed to work there didn’t you?” Taxation is called theft, aggression, and slavery because it is not consented to.

I think this account is probably the strangest one, mainly because as far as I can tell the 19th century anarchist philosophers successfully beat back all the libertarian procedural justice arguments that are now popping back up again. But without getting too involved in that whole discussion, I just hope here to emphasize the way the framework works. The procedural justice position is not concerned with utility and it is not concerned even with giving people what they deserve necessarily. It is only concerned with following just processes even if those processes result in widespread misery.

Desert Theory
Desert theory has to be the most American of the conservative political theories. It is at the root of the ideology of the American Dream. According to desert theory, we want to design the economy and political apparatus in a way that gives people what they deserve. What do they deserve? Well, conservative constructions of desert theory are generally based upon productivity: you should be paid equivalent to the amount of value you add to the economy.

The most famous proponent of desert theory among American conservatives is of course Ayn Rand. In her philosophy, the super-rich basically make everything in the world and they deserve everything they get and probably even more. Paul Ryan, the much-praised House Republican from Wisconsin, is reported to be a huge fan of Rand’s work, possibly explaining his atrocious budget plan which was clearly Rand-inspired.

The problems with this approach are numerous and the word “privilege” probably goes the furthest in counteracting this idea. One’s race, class, gender, family, and all sorts of other non-meritocratic things have enormous impacts on how well one does in life. Once this is conceded, the whole desert theory approach becomes very vacuous very fast. Nonetheless, the framework persists in one form or another. When people talk about welfare mothers living off the dole, they typically have in mind some sort of desert theory of justice. When they talk about how rich people work hard and how poor people are lazy, they typically have in mind a desert theory of justice. On the desert view, our aim should be giving people what they deserve from their hard work, not maximizing utility or necessarily following just processes.

As far as I can tell, these three frameworks encompass about 99% of what comes out of the mouths of conservatives in one form or another. Either they are concerned about utility, just processes, or just desert. Often of course, they jump from one to the other right in the middle of a discussion if they find themselves pinned down. But, now that you know these frameworks, you can at least identify when those jumps are happening and begin to better understand what exactly the conservatives are trying to get across when they argue.

One more swipe at flat tax advocates

Yesterday’s post about the strangeness of the flat tax position sparked a lot of conversation. I noticed some confusion here and there on what I was saying, so I thought a brief restatement might be helpful.

The flat tax advocate usually talks about not wanting to make rich people pay more, or punish them for their success. Suppose a person motivated by that goal had to choose from the following three tax systems:

  1. Head Tax (taxing a single amount for everyone)
  2. Flat Tax (taxing a single rate for everyone)
  3. Progressive Tax (taxing income at increasing marginal rates for everyone)

Someone who wanted to avoid charging the rich more should choose (1) over (2), and (2) over (3). But, the flat tax advocate chooses (2) over (1) and (3). This makes no sense. The flat tax option by its very design makes rich people pay more just because they are rich.

The only reason to favor a flat tax over a head tax — if you are someone who has the same mindset as most flat tax advocates — is because you think that differential marginal utility matters. That is, you think that taking $1 from a poor person creates more harm than taking $1 from a rich person, and that therefore taking the same dollar amount from each is unfair.

But the same thing that leads you to think the head tax is unfair should also lead you to think that the flat tax is unfair. That is, taking 30% from the income of a poor person creates more harm than taking the same amount from a rich person. Therefore, someone interested in evening out the amount of utility each person has to forego would favor a progressive tax.

So, basically the flat tax advocate is just in a totally untenable position. The reasons used to support a flat tax over a progressive tax actually lead us to support a head tax. The reasons used to support a flat tax over a head tax actually lead us to support a progressive tax. No reasoning that I can think of — at least not of this moralistic sort — would ever lead you to think a flat tax makes the most sense. It simultaneously “punishes” the rich for making more income and forces the poor to give up more (in terms of utility) than the rich. The flat tax position strikes me as completely incoherent.