Tuesday, October 2, 2018

Inequality should be explored from the social and not individual perspective

I just re-read, Gregory Mankiw's (in)famous defense of the top 1%, where he implicitly or explicitly argues that: (a) inequality results from payments for significant contributions to society; and (b) inequality does not lead to inefficient economic outcomes or harms equality of opportunities.   The paper also criticizes Raw's defense of income redistribution. 

This paper (as many other discussions of inequality) tend to adopt an individual-based approach (not surprisingly coming from neoclassical economics).  The questions are about individual incentives, individual just or unjust payments, comparative levels of utility, Pareto efficiency (that is, can we make somebody better without making anyone worse), etc.  But is this the best perspective?  What about if we adopt a social perspective?  What is we assume that our responsibility is to use resources in a way that everyone can live better while minimizing the costs on the environment?

If we adopt that and only that approach, three questions become central:

a. Won't a more equal distribution of income improve societies' ability to provide  enough income and rights to live a good life to everyone?

b. Is there any evidence to assume that a jump from high inequality to low inequality (not to perfect equality which is an unrealistic goal) will lead to significant costs in terms of economic growth?

c. Is there any evidence that the creators of Apple, Harry Potter or ET (to name the people that Mankiw uses in his defense of the rich) would not have made exactly the same contributions with less income rewards?  Why is it that Steve Jobs in the discussion of his life and success at Stanford does not mention money but dreams and passion?

I think there is increasing evidence that the answer to each of these yes, no and no: there is just no doubt that societies will be better off and we will meet our obligations to each other in low inequality environments than high ones. 

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