Stephen Monrad

In recent posts, I have explored at length the challenges of flattening the wage distribution. Eric commented on the summary post about equal pay that he thought the discussion was interesting but not inspirational. I think Eric is looking for more reasons why it would be worth going to all the trouble of flattening wages. What is the benefit?

My simple answer to that is that the people who are currently very poor would end up better off.

The harder problem is to find a compelling reason why successful people should care what happens to people who are very poor.

The philosopher John Rawls proposed an interesting thought experiment he called the Original Position. If you want a detailed explanation, you can follow this wikipedia link. The basic premise is to think about how representatives of a population would create rules and regulations if they didn’t know who they were representing. Put another way, how would you want the rules of society to be set up if you believed in reincarnation.

If reincarnation is a random process where your soul comes back again and again at random, there would be a high probability that you will be poor in future lives. This reincarnation story isn’t as pure and clean as John Rawls’ original position, but it gets the idea across simply.

My guess is that people who believed in reincarnation of this sort would be much more charitable towards the poor. It’s in your own self interest to improve the lot of the majority in society.

Even if you don’t believe in reincarnation, the egalitarian principle to draw from the thought experiment is clear: your good fortune is still largely a matter of luck. You support the system because you happen to have come out on top.

A person who wins a lottery will thank their lucky stars that they bought the ticket they did. Before they won, though, the decision to buy the ticket had a very low expected benefit. Lotteries don’t end well for most people.

Is our support for an economic system that maintains large discrepancies in wealth driven by the views of those who succeed? If it is, perhaps a broader perspective is needed.

In yesterday’s post, I concluded that most people like freedom even if it means they make mistakes and suffer the consequences.

Does this mean that markets are good because people are free to buy and sell whatever they want? In principle, I’d say yes. In practice, I say no.

If market economies worked reasonably well, I’d be content. The problem is that, for a lot of people, they don’t work well. Freedom in a market economy is a choice between one sort of misery as opposed to another. If you can’t find work, your freedom isn’t much use to you.

As an extreme analogy, a person stranded on an isolated island has complete freedom. Nobody is going to tell them what to do. Are they happy? Probably not. While they are free to do whatever they want, there isn’t much worth doing.

Market economies are like the island for many people. They are free to do whatever they want to do, but their opportunities are severely limited. The fundamental premise in the work I am doing is that by giving up some freedoms others can be gained. Specifically, I believe that if we give up some freedom in how prices are set, we can grow the economy to a point where people can reliably find work. Being able to reliably find work creates greater control over ones life than being able to haggle over prices.

The philosopher Immanuel Kant once said “Science is organized knowledge. Wisdom is organized life.”

When I argue that we are irrational, what I am really arguing is that we aren’t wise. I don’t think we are particularly good at organizing our lives in sensible ways.

I do concede, however, that we are quite good at organizing knowledge. We are good at science. We are good at being clever.

Being clever has made us more powerful. We can build cars, fly airplanes, and even go to the moon. We can build roads, cities, and countries. We can dramatically alter the world we live in. The problem is that we don’t know how to direct our newly developed power. In many cases, we act unwisely.

I have been watching a lot of TED talks online. They are very good. It is fun to watch people talk about things they are passionate about.

Charles Elachi, a director at the Jet Propulsion Laboratory, gave a talk (http://www.ted.com/index.php/talks/charles_elachi_on_the_mars_rovers.html) on Mars rovers and cited the following quote from Ralph Waldo Emerson: “Do not go where the path may lead, go instead where there is no path and leave a trail.” For Elachi, this means that it is best not to look in the same places other people are looking. There is more to be gained by trying brand new things than making incremental improvements to existing ideas.

This struck a chord with me because this is exactly what I am doing with my economics ideas. The ideas are far outside the mainstream so I am definitely looking in new places. The way I am trying to develop and promote my ideas outside of academia is also unusual. The work I am doing may go nowhere. However, if I am successful, I like to think that I will leave a trail that others can follow. It’s a nice image.

At a deeper level, I think that while there are usually many obstacles in the way of trying new things, the potential gains are huge. People with different ways of doing things need to be encouraged to take risks.