Stephen Monrad

I have been thinking more about my crusade fighting for equal pay for all. Here’s where I stand now.

While I think the world would be a better place if all workers were paid the same hourly wage, other people can justifiably disagree. There is no purely moral reason that I can think of to argue against allowing some people to be richer than others, even much richer.

Instead, I am going to take a stand on the bottom end. I am going to try to argue that everyone needs to have access to a job that pays enough to raise them out of poverty. There needs to be a decent minimum wage. Jobs need to be available for everyone. I’d be satisfied if everyone could achieve at least a decent minimum standard of living where they could find enough food, clothing, and shelter to stay healthy and hopefully be happy.

What happens at the top end of the income distribution doesn’t matter as much as what happens at the bottom end. I’m going to focus on what is most important.

I’m starting to wonder if equality and fairness are actually quite different concepts.

My last post on parachuting money from the sky started me thinking. Many people like lotteries and gambling. If money were perfectly evenly distributed in the ideal world of my imagination, people would probably create lotteries and other gambling opportunities.

Many people seem to be happy parting with a few dollars here and there if it gives them a chance to become rich. Even a remote chance seems to be worth the cost of a lottery ticket.

My guess is that what people are really buying is an escapist fantasy. People with more ordinary incomes believe that some of their problems would be solved if only they had more money. Even if their chances of winning are slim, the lottery ticket lets them dream of a world where their financial troubles disappear. Even when people lose, they get a benefit from buying the ticket.

If escapist fantasies make people feel better, maybe having a small chance to get rich helps everyone.

So long as everyone has some chance of becoming rich, it is hard to argue that inequality is unfair. It is even hard to argue that it is even harmful.

I’m going to have to think some more about this.

To remove the role of incentives when thinking about fairness, suppose a crazy dictator wanted to distribute $1 million at random. His plan is to drop it from an airplane and whoever’s property it lands on gets to keep it.

He’s thinking of two options: 1) Throw one big bag with all the money in it so one person gets it all and becomes rich. 2) Scatter one dollar bills to the wind so lots of people get a little.

Which option is fairer?

Assuming that the money toss is random, everyone has an equal chance at getting money however it is thrown. There isn’t anything inherently unfair about either option. There are no favorites.

The results, however, are very different. In the million dollar case, one person is made very wealthy. The result is inequality without any justification. In my opinion this is not good. Inequitable distributions of money are unfair even if the mechanism is unbiased.

A few hundred years ago, people did almost all production by hand. Animals helped a little, but the value of what an individual could produce was limited. Production was a local process mainly aimed at meeting local needs. It made sense to pay people based on the value of what they produced because there wasn’t all that much variation in the value of what people did.

Today the situation is different. Technology amplifies our production immensely. Machinery makes it easier to mass produce physical things. Ideas and knowledge can be transmitted at almost no cost. Markets are no longer primarily local. Items are routinely traded around the world.

Today, successful people can deliver value to thousands or even millions of people. The path to wealth today is to produce something that can be scaled up and delivered to the masses. Even if you earn only a few dollars per sale, if you sell to millions of people, you become very wealthy.

In one way of looking at things, successful people deserve their rewards because they have made the lives of millions of people better.

What I find troubling is that the difference in reward for winning and losing far outstrips the difference in the inherent value of what people do. Bill Gates earned billions of dollars developing software. If we wound back the clock and removed Gates from the field, someone else would have developed the winning operating system and launched a different software empire. In fact, there were plenty of people developing operating systems at the time. Someone else could have stepped in to fill the gap without doing any extra work.

Today, financial rewards are much more loosely connected to effort. Does it make sense to pay people for their success when the difference between runaway success and also ran is so small?

Another reason why well-off people might not care much about the plight of the poor is how we respond to overwhelming problems and statistics.

If a child falls down a well and is trapped, it catches our interest. It is a specific child down the well. The emotion and concern of the child’s family are palpable. The rescue effort has an achievable goal that can completely solve the problem. We emotionally respond to stories like this in the news. We may even crack open our wallets and send money to aid the rescue effort. When the child is eventually save, we all feel a visceral sense of relief.

If we respond to the plight of one child trapped in a well, you would think we would be enormously concerned about problems of starvation and malnutrition that afflict millions in poor countries. In general we are not. Instead of responding to the situation, we ignore it.

The problem is that the scale is too big. We can’t visualize millions of starving people. The problem is so large that we can’t envision a solution. The problem lacks a compelling narrative. With nothing to engage us on a human scale, it is easier to rationalize the problem away. We convince ourselves that the world is a cruel place.  It’s sad, but nothing can be done.

Maybe what I need to do to drive home the need to flatten income distributions is to find some compelling stories about the problems specific poor people face.

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.

I just finished reading the book How We Decide. On page 204 Lehrer cites a study that found that 90 per cent of the people in the study didn’t change political affiliations between 1965 and 1982. This is surprising because those years were tumultuous: Vietnam war, fall of Nixon, stagflation.

This observation that people rarely change their political leanings once they reach adulthood rings true with me. I know that my opinions haven’t changed in the 17 years that I have been able to vote. It seems that once people make up their minds on issues like politics, they are immune to argument and evidence.

This is also true in religion. Those with strong faith tend to maintain their faith. Atheists only rarely become believers. Again, argument and evidence have little effect.

One of my biggest fears is that people’s views on economics is like this too. Some people like free markets. No matter what I say or do, they will maintain their beliefs. I’m not actually criticizing these sorts of people as being stubborn. I’m equally guilty. I don’t like free markets and am also unlikely to change my mind.

The problem is that productive discussions about economics aren’t possible if people are mainly defending their beliefs. I’m not sure how to do it, but I have to somehow find a way to circumvent people’s strongly held opinions (or change my own perhaps).

My goal is to create an economic system that can meet everyone’s needs reliably. Is this a crazy, unrealistic goal? Am I wasting my time?

To start with, my goal may be unattainable. There is a distinct possibility that any system that attempts to organize production efforts of a very large number of people will be unstable. People are complex. Large groups of people are even more complicated. Maybe the best we can hope for is an economic system that meets the needs of most people most of the time. Perhaps some people will always fall through the cracks no matter what.

The risk that my goal is unattainable doesn’t actually bother me much. I believe that the benefits of the type of economic system I am trying to develop are worth the risk of failure. If it can’t be done, so be it. It’s still worth the chase.

The question I sometimes ask myself is “why am I taking on such a difficult task?” Am I seeking fame and fortune? If that’s my goal, there’s probably an easier path for me somewhere else. I’d make more money as an accountant or a lawyer. If I want fame, I could try running naked through the streets.

My motivations must run deeper than fame and fortune. I think I have a vision of what a better world could look like, and I want to do what I can to make it a reality. I like working on developing my ideas. I think it gives me a sense of identity.

Strangely, if lots of people were working on the ideas I am trying to develop, I’d probably go do something else. I think I like being on the edge of something new. I want to be different, perhaps even unique.

From the outside, much of what I am doing may seem impractical and of little value. I, however, get a lot of enjoyment from the work. So long as I am having fun with it, I don’t mind being a bit of an odd-ball.

I have just reviewed my posts on the 10 different problems I identified in my August 6th post. It seems to me that the problems fall into three categories.

First, there is the problem of incentives. This is a fundamental problem. If people work hard only because they expect to earn more, then equal pay is a bad idea. My belief is that people need to feel that they are fairly compensated for the work they do. What feels fair depends on social norms and history. I am going to have to think more about what motivates people.

Second, there are problems of enforcing rules about pay. The type of enforcement required would be quite similar to current tax and commercial law. Generally, the success of enforcement hinges on the level of acceptance of a system. If people liked an equal pay system, they would be much more likely to comply with whatever rules and regulations are needed to maintain it.

Third, to move to a society with equal pay for all would require a major redesign of many institutions. Education systems would need to be redesigned. Tax systems would need to be adjusted. Immigration and emigration policy would need to be reviewed. Large scale changes to important institutions is risky.

While I don’t believe that any of these problems are insurmountable, together they make a transition to an economy where everyone is paid the same wage risky. If a country chose to move to a system where wages were much flatter than they are today, it would probably take decades to implement and work out the problems.

I’m travelling for a few days and won’t be posting. I’ll be back to blogging on Wednesday.