What shape is the income distribution of Andrew Leigh’s dreams? Even he doesn’t know. "I don’t have a strong sense of what the right level of inequality is", he writes. "Indeed, I’m not even sure I have the right intellectual framework for answering the question."
The question is Andrew Norton’s. In the comments threat of recent post on ‘progressive fusionism’ he writes:
…‘progressives’ tend to think that there is a correct distribution of resources that can be decided in advance. However, in practice they tend to be very vague about what this correct distribution would actually look like. Andrew Leigh, for example, has written much about inequality of income, always with the assumption that less inequality is the correct outcome, but never saying what level of inequality would satisfy him.
So how should a ‘progressive fusionist‘ answer the question? The Cato Institute’s Will Wilkinson suggests that a new alliance of progressives and classical liberals might combine John Rawls’ ideas about justice with Friedrich Hayek’s ideas about markets. From this perspective, it’s not possible to decide on a correct distribution in advance. That’s because the question isn’t a purely philosophical one. On its own, Rawls’ theory doesn’t tell you what shape the income distribution should be.
‘Progressive fusionism’ is Brink Lindsey’s name for an alliance of American liberals and libertarians. He argues that both groups want to give individuals more control over their own lives:
The central challenge in cementing a new fusionist alliance–and, make no mistake, it is a daunting one–is to elaborate a vision of economic policy, and policy reform, that both liberals and libertarians can support. Here, again, both sides seek to promote individual autonomy; but their conceptions differ as to the chief threats to that autonomy. Libertarians worry primarily about constraints imposed by government, while liberals worry most about constraints imposed by birth and the play of economic forces.
The basic outlines of a viable compromise are clear enough. On the one hand, restrictions on competition and burdens on private initiative would be lifted to encourage vigorous economic growth and development. At the same time, some of the resulting wealth-creation would be used to improve safety-net policies that help those at the bottom and ameliorate the hardships inflicted by economic change.
Philosophically, Cato’s Will Wilkinson suggests, fortifying "Rawls’ theory of justice with a Hayekian grasp of the coordinating function of prices, and the dynamics of spontaneous order" or fortifying "Hayek with Rawls’ rather more intelligible normative framework".
Using Rawls’ theory of justice as an intellectual framework
Rawls was an egalitarian, but this doesn’t mean that he thought that income and wealth should necessarily be distributed equally. An important element of his theory of justice is the difference principle — a principle which tells us when we should favour a system that leads to greater inequality over one which leads to less. In a 1967 essay titled ‘Distributive Justice’, Rawls explained it this way:
The basic structure [of a social system] is just throughout when the advantages of the more fortunate promote the well-being of the least fortunate, that is, when a decrease in their advantages would make the least fortunate even worse off than they are. The basic structure is perfectly just when the prospects of the least fortunate are as great as they can be (p 138).
On its own, Rawls’ theory says almost nothing about what shape the income distribution should be. To answer this question, we need to combine Rawls’ theory of justice with a theory which explains how alternative social and economic systems perform.
What if Hayek was right?
Egalitarians have been wary of markets for two reasons. First, markets inevitably create inequalities in income and wealth. Even if everyone starts out with equal quantities of human, social and physical capital, trade in the marketplace means that they will eventually end up with unequal shares of wealth and income (Robert Nozick explains why). Second, a pure market society leaves many people with little or no income. Those without assets who are unable to work, are forced to depend on begging, charity or foraging in garbage heaps.
As a result, egalitarians have often been attracted to socialism. Since the market is the cause of inequality and poverty, the less influence the market has on a person’s level of material well-being the better — or so socialists assumed. But Hayek challenged this assumption when he argued that a planned economy can never be as efficient as a market economy. This is because it is unable to use dispersed information as effectively. He argued, in effect, that attempts to engineer a patterned distribution of income will end up reducing the well-being of the least advantaged.
Rawls’ difference principle says that we shouldn’t trade off the well-being of the least advantaged in order to achieve greater equality in the distribution of resources. Hayek’s analysis says that the well-being of the least advantaged depends on a system that produces a significant degree of inequality. So if Hayek is right, Rawlsian egalitarians ought to choose a social system that includes market institutions and, as a result, sacrifices a certain amount of equality.
From a progressive fusionist perspective, the best systems would probably include a significant amount of income redistribution and government funding for services. Hayek supported both measures. In The Constitution of Liberty he wrote:
All modern governments have made provision for the indigent, unfortunate and disabled and have concerned themselves with questions of health and the dissemination of knowledge. There is no reason why the volume of these pure service activities should not increase with general growth of wealth. There are common needs that can be satisfied only by collective action and can be thus provided for without restricting individual liberty. It can hardly be denied that, as we grow richer, that minimum of sustenance which the community has always provided for those not able to look after themselves, and which can be provided outside the market, will gradually rise, or that government may, usefully and without doing any harm, assist or even lead in such endeavors (p 257-258).
How much inequality?
It’s difficult to know what set of rules and institutions would best satisfy Rawls’ difference principle. And unless you know what these rules and institutions are you can’t begin to model the resulting level of inequality. Everything from rules about corporate governance, intellectual property rights and the design of the income support system will influence the result. And on top of that the issue is further complicated by the fact that well-being is a broader concept than income or wealth (not to mention the problem posed by foreigners).
… if markets are as massively productive as we libertarians believe and compounding returns to growth in the long term are taken into account, you could probably justify no more than very basic safety nets, for fear of distorting the economy and dramatically lowering everyone’s goods in the future.
Perhaps one way to have a more productive debate about these kinds of issues would be to use computer simulations — something like an economically sophisticated version of the computer game SimCity. Users could select their preferred rules and institutions and have the software simulate the way their hypothetical society might develop. Since the simulation would apply economic theory to generate the outcomes it would be more interesting if users had a choice of theories to play with. Users could experiment with different tax and welfare regimes and watch as GDP grew or contracted, poverty rates rose or fell, and citizens chose to stay or leave.
What’s the point?
While philosophy students might enjoy debating the similarities between Hayek and Rawls, is this debate likely to influence real world politics? There are two reasons for being sceptical. The first is that few people either know or care about Hayek and Rawls. And this includes most politically active classical liberals and left-leaning liberals. Even at the great purple heart of the left wing Australian blogosphere, Rawls has few supporters. Similarly, most libertarians and classical liberals have only a vague idea of what their Austrian hero actually wrote.
The second problem is that political movements form around policies rather than principles. As the philosopher Richard Rorty argued, "Principles are useful for summing up projects, abbreviating decisions already taken and attitudes already assumed." What they are not useful for is creating new movements. People who change the world often form alliances with others who agree with them on what to do but disagree about why.
Rorty argues for something that sounds a lot like Andrew Leigh’s experimental approach to reform. As usual Rorty credits the idea to another philosopher:
John Dewey hoped that democratic politics would cease to be a matter of batting plausible but contradictory principles back and forth. He hoped that it would become a matter of discussing the results, real or imagined, of lots of different social experiments. The invidious comparisons I am suggesting amount to saying: Look, a lot of good experiments have been run, and some of them have been pretty successful. Let’s give them a try.
But it’s worth remembering that the link between practice and principles is two way. People decide what policies are likely to produce good results based on their ideas about how the world works. And, in turn, the results they get shape their ideas. For example, think about how the experience of stagflation in the 1970s changed people’s minds about Keynesianism.
Part of what keeps a new progressive alliance from forming is that people mistake differences in ideas about how the world works for differences in moral principles. Left-leaning liberals look at the policies classical liberals support and assume that the motivation is to redistribute income from the poor to the rich. And classical liberal look at left liberals and assume that they are motivated by an envious desire to punish the rich even if it means making everyone worse off.
Starting a conversation about principles may be the best way to challenge these assumptions and encourage the two groups to start working together on new policy ideas. Maybe we should try it and see what happens.