To flatten or not to flatten the wage distribution.
September 1st, 2009 | Published in Economics idea, Philosophy | 9 Comments
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.
September 1st, 2009 at 10:45 pm (#)
I’m firmly convinced that historially, the emergence of the ‘poor’ is a relatively recent thing. Oh, yes, the poor are mentioned as early as biblical times, and we’ve always had large numbers of folks who had less than others, but it is only since the Johnson presidency and that horrible idea of “the great society” have we had the modern poor. I mean those folks with color cable TV, cell phones, etc., yet demand a monthly check from the taxpayer. We have created a victim class that has wrapped themselves in the cloak of ‘poor’ as an excuse. Our government has userped the role of benefactor that was reserved for neighbors when I was a youngster. it is not an improvement.
None of your suggested changes will reverse this, nor will hard working individuals give up their independence to become a part of it. I believe that if the federal goverment were to return to its constitutional role, the vast majority of these problems would be eliminated in a generation.
September 2nd, 2009 at 10:54 am (#)
To flatten or not to flatten, that is the question.
This discussion makes me think about the larger role of government. I think there are two reasonable perspectives to take when thinking of government – you could start off with no government and no controls and then justify why we need the government to intervene; or you could start off with the government controlling everything and justify the things you choose NOT to control. You might end up in the same place, but I think the side you come from informs your perspective on things.
A sentence near the end of your post reads: “… an economic system that maintains large discrepancies in wealth …”. When you say “that maintains”, are you implying that the economic system and/or government should necessarily have a position or policy on discrepancies in wealth? I would think that discrepancies would be an outcome. If they aren’t desirable, we could come up with policies to adjust them, but we don’t necessarily have to have a policy on the front end.
Another way of looking at it might be: We currently have a progressive income tax system that, I think, goes a long way to re-distribute wealth. Taxing the wealthy more essentially takes money from them to give to the poor (or provide services to the poor). Do you view this as ‘taking’ money from the rich, or is the system simply preventing them from receiving too much? It’s a subtle change in perspective.
I apologise – long post without a clear point. Oh well. I’ll work harder next time. Back to work.
Eric
September 2nd, 2009 at 11:29 am (#)
Eric,
It is highly unlikely that your assumption could ever prove to be true, as in your example of total government to start and justify maintaining control. The problem is that those who have control only give it up when it is wrested from their cold dead hands, no matter how well justified.
Historically, civilizations have evolved with adding control after control after control, justified or not.
Bottom line is that neither approach has a track record of being fair, just or especially effective.
Our Constitution is the best example of minimum control on indivduals with maximum control on authority, as I’ve seen.
I only wish it were still being followed.
September 2nd, 2009 at 11:46 am (#)
Clyde,
My comments were intended to be a logical or philosophical approach, not an actual system of controls.
I’m from Canada, so I don’t know all the ins and outs of the American constitution. My understanding is that it follows my first approach – it assumes individual freedom then specifies the role of government and specific restrictions on freedom. Is that correct?
My thought was not whether you end up with a lot of controls or a lot of freedoms, but from which perspective you start from. You could still start out from a position of full freedom, but then specify a long list of controls that means you don’t have much freedom left.
A small-scale example can be summed up by a colleague of mine who categorizes countries around the world as being either “U-turn” countries or “no U-turn” countries. In some countries, you’re allowed to make a U-turn when driving anywhere you want, unless there is a sign specifically saying you can’t. In others, you are not allowed to make a U-turn anywhere unless there is a sign specifically saying you can.
The connection I’m trying to make regarding wages is to think about whether there is a default position that government should automatically keep wages fair or equal, or if there should only be a specific measure taken if for some reason people/society/government feels that salaries are out of line.
Eric
September 2nd, 2009 at 7:25 pm (#)
Actually, Eric, the US Constitution guarantees individual rights and freedoms while at the same time imposing specific restrictions on government. For the most part, it states what the federal government must not do.
Where we’ve gone astray is allowing Congress to pass laws that are contrary to that original ideal plan without challenge.
It makes great reading, some have said “inspired”
September 3rd, 2009 at 12:02 pm (#)
Clyde and Eric.
An interesting discussion.
Eric, I think I chose the wrong word when I said “maintains” large discrepancies in wealth. “Maintains” is too active. I think what I meant is “supports.” I don’t think anybody is actively promoting disparities of wealth as an end goal. I do, however, believe that disparities of wealth are a natural result in a market economy. If you support market economics, you support disparities of wealth.
ClydeB. I also haven’t read the US constitution. My instinct is that it is a mistake to try to move back to a simpler system that worked in the past. I’ll have to read and think more about it, though.
September 3rd, 2009 at 10:07 pm (#)
My apologies to both Stephen and Eric,
I unreasonable assume too parochial a view of the internet and the fact that a blog can be written in all areas of the earth. I just take the US onstitution for granted, not allowing for the fact that the vast majority of the earth’s population couldn’t care less.
On second thought, that sentiment applies to a growing number of our politicians as well. Too bad.
September 4th, 2009 at 4:53 pm (#)
ClydeB:
Do you have a link to an easy-to-read version of the US constitution or a summary of the material?
I’d like to read it, but I’m not sure I want to read a long detailed document word for word.
Eric
September 4th, 2009 at 8:16 pm (#)
Eric,
Thanks for asking, I appreciate your interest.
Take a look at this;
http://www.usconstitution.net/xconst_Am11.html
You can read from the Preamble through the first 10 amendments in 10-15 minutes. Every thing else has been added since it’s adoption. I think the Preamble is inspired prose, while the Bil of Rights (first 10 amendments) is the foundation of our nation.