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Manus haec inimica tyrannis.

Friday, December 3, 2010

"Brother, can you spare a dime?"


There has been some comment in the Canadian media over the past couple of days about new data showing that the gap between the highest income earners in Canada and the lowest has become wider than it has been since the 1920s. Most of this comment has taken the form of fretting, but with few reasons given for why there should be such fretting. I wonder if many simply take it for granted that equality in material wealth is a basic value, and that disparities in wealth are somehow an affront to that value, to be avoided at all costs. Should equality be a fundamental value? If so, why? And if you are an egalitarian, are there any circumstances in which at least some inequality may be justified? These are all worthwhile questions, none of which it seems are ever broached when these inevitable reports come out telling us that the rich are getting richer.

In his famous work A Theory of Justice (Harvard University Press, 1971), John Rawls offered what is called his “Difference Principle”, which roughly states that inequalities in the distribution of goods in society are justified when they are reasonably expected to favour the least advantaged. Put another way, although equality is prima facie preferable, inequality is morally acceptable so long as the worst-off people in society are better off than they would be if all were equal.

More technically, Rawls argued that if we were all deliberating about the principles of justice by which our society’s basic institutions were to be configured, and if we are deliberating from behind a “veil of ignorance” — none of us knowing anything about what position we would occupy in the society being created, or about the distribution of talents, and all being mutually disinterested in each other — we would, if we were reasonable, choose something like the Difference Principle. We would not want to be worse off than anyone else, but if there were a way that we could be even better off by allowing inequality, then we would take it. The Difference Principle would ensure that if I were unlucky and ended up among the worst-off in society, I would at least be better off than I could hope to be under any alternative scheme. Strict equality is cold comfort if it means no more than that everyone gets to be equally poor.

G. A. (“Jerry”) Cohen attacked Rawls’ Difference Principle in various works, most recently in his Rescuing Equality and Justice (Harvard University Press, 2008). Cohen is (or was — he died in 2009) a Marxist and a firm defender of egalitarianism. He attacks the “incentives-based” premise at the heart of Rawls’ Difference Principle, which is the assumption that providing material incentives to the well-off will help them help the worse-off. As Adam Smith might have put it, assisting the well-off in catering to their own self-interest will have an improving effect on the lot of the poor. It’s the old “a-rising-tide-floats-all-boats” argument, also known by its other name, “trickle-down economics”.

Whether the liquid wealth rises or trickles, Cohen says that the problem with the argument is that the Difference Principle is not properly a principle of justice as such. Saying that the poor would be prudent to accept inequality arising from the Difference Principle, or predicting that they would accept it, is not the same thing as saying that they should or that the resulting inequality is just. It would be perfectly in keeping with justice if the poor were to stand their ground and refuse to go along with the distribution, even if they would be worse off as a result.

Let us use the example with which Cohen begins his discussion. In 1988 Nigel Lawson, then Chancellor of the Exchequer brought in a tax cut of 20% for the highest tax bracket, from 60% to 40%, a move he “justified” by the incentive effective this would have. The rich would then take that extra money and use it in ways that would benefit the less well-off.

According to Cohen, Lawson’s justification is a tacit admission that the rich would refuse to work harder unless they were given a tax break. The rich are, in effect, saying “Unless I get a 20% tax reduction, although it is in my power, I will refuse to help the poor.” This is no different, claims Cohen, from the kidnapper who says to the parents of the child he has kidnapped, “Unless you pay me $100,000, I will not return your child to you.” It may be prudent to pay the kidnapper, but would we wish to say that the kidnapper is justified in demanding the ransom?

According to Cohen, what the kidnapping analogy shows us is that rather than look at the putative justification for the tax cut offered by Mr. Lawson (its incentive effect), we should instead imagine that the “justification” comes from the rich man himself. Or, as he puts it, the principle of justice being espoused must pass the “interpersonal test”, that is, it must ring true as a principle of justice no matter who utters it. It must have the same purport whether uttered in the first, second, or third person, no matter who utters it. Take the following two sentences, the first uttered by Mr. Lawson, the second by a rich person.

1. LAWSON: “Cutting the taxes of the rich is justified because it will make the rich work harder and this will ultimately benefit the poor.”

2. RICH PERSON: “Cutting my taxes is justified because it will make me work harder, and this will ultimately benefit the poor.”


Sentence 2 sounds much less like a justification than sentence 1. It might pass muster if “justified” were replaced with “prudent”, but then the rich person would no longer be justifying the tax cut; at best, he would be recommending it. What’s worse, sentence 2 is virtually equivalent to the following:

3. RICH PERSON: “Cutting my taxes is justified because if they aren’t cut, then I will refuse to work harder, and the poor will stay poor.”

Sentence 3 makes the rich person sound much more like the kidnapper. Cohen’s point is that a true principle of justice must be utterable by anyone. Since the incentives-based justification of inequality can be offered by the rich themselves only at the cost of sounding hopelessly greedy, hypocritical, or callous, it fails to justify inequality, however much it might recommend it.

That is the essence of Cohen’s “interpersonal test” of justice. However, there are some problems with it. First, let us assume, which I think we must admit is the case with the vast majority of wealthy people, that the rich person did nothing to earn his wealth at the expense of the poor. Whatever the reasons for the poor being poor, they have nothing to do with the rich person taking from them what was theirs.

Next, instead of trying to justify a tax cut for the rich, let’s imagine Nigel Lawson trying to justify a redistribution of wealth from the rich to the poor (yes, difficult to picture, I know, but try anyway). If we are to apply the interpersonal test, it seems to me that we should apply it to the poor person as well:

1*. LAWSON: “Taking money from the rich through taxation and giving it to the poor is justified because it will help the poor.”

2*. POOR PERSON: “Taking money from the rich through taxation and giving it to the poor is justified because it will help me.”


Now there is something strange about 2*. It’s not so much that what the poor person says is wrong. Rather it sounds odd coming from him. We cannot be sure it’s not just as self-serving as the rich person’s justification of his tax cuts. The poor man may indeed need money badly, but his justification still comes off as unseemly somehow. It sounds even more indecorous if instead of saying “and giving it to the poor” sentence 2* said “and giving it to me”.

Perhaps what Cohen’s interpersonal test really shows is that moral norms exist barring certain parties from offering justifications of certain kinds. This does not mean that a tax cut or a wealth redistribution is unjustified. It merely means that not just anyone can offer a justification in support of them. The situation is much the same as where a judge must recuse himself from a case in which he has a personal interest. If the judge doesn’t recuse himself and happens to find for the side with which he has an interest, his judgment must be suspect, even if a more impartial judge would decide the case the same way.

Interestingly though, sentence 2* might work better, or sound less unseemly, if it was uttered as a collective appeal, coming from the poor as a group or class:

3*. POOR PERSON: “Taking money from the rich through taxation and giving it to the poor is justified because it will help us.”

It is strange how this sounds better when it is uttered in the first person plural. Is it possible that this underlying social (or moral?) norm governing such appeals is at least partly the reason why Marxist or socialist egalitarian claims are almost always claims based on class? Food for thought. If libertarianism and socialism are inextricably bound up with individualist or collectivist claims, respectively, then it seems the two sides are doomed to talk past one another.

I am also not convinced by Cohen’s claim that the poor would be justified in standing on their rights and refusing to go along with the inequality proposed under Rawls’ Difference Principle, even if it means they will be worse off as a result. Imagine, quite plausibly, that Mr. Lawson and the rich person justify the tax cut in this relatively candid way: “This tax cut is justified because, although it will make some (i.e. rich people) very well off indeed, even the poor will be better off with it than without it.”

Put this way, it seems to me that the ball is very much in the poor person’s court; if he wishes to reject the tax cuts, he must make some appeal to justice. I think this will be a hard case to make, for he must justify why he is entitled to hold back everyone in society, rich or poor, on the basis of an abstract notion of egalitarianism which, in the circumstances proposed by the Difference Principle, does nobody any good. He simply has no reasonable grounds to refuse his consent (keeping in mind that envy is not a reasonable ground). He would come off seeming pointlessly pig-headed (and it would seem equally pig-headed if he somehow got the rest of his class to go along with him).

This brings us to a position that looks very much like that of Harvard philosopher T. M. (“Tim”) Scanlon, a close friend of both Rawls and Cohen, who proposed roughly that a principle is just if it cannot reasonably be rejected. Now the word “reasonably” is made to do a lot of work here, and I do not have space to pick it apart. But I do not think that the worst-off person can reasonably reject the Difference Principle. On the other hand, the worst-off may reasonably reject a particular application of the Difference Principle. For example, perhaps it could be demonstrated that as a matter of empirical fact, Nigel Lawson’s tax cut would fail to have the intended incentive effect. But this is not the same thing as rejecting the principle itself.

Now, Cohen would say that the poor person is justified in rejecting the Difference Principle, because, if the incentive would get the rich man working harder, then he ought to work harder without the incentive; he should not need the incentive to do what is his duty. Social solidarity should make him want to work harder. But is working hard really a duty? It certainly is where, for example, I’ve promised my boss I would and he is paying me to do so. But what if I am rich and self-employed? And let us not forget that the rich are not the only ones who could conceivably be working more than they are.

I don’t always work as hard as I could. As a matter of fact, a socialist planner might disapprove of my writing this blog post, not only because of its content, but because there is inevitably something else I could be doing that has more value to society and to the poor. Following this logic, it is easy to see how people’s personal aims and projects — “personal prerogatives” in philosopher’s jargon — could be swamped by the needs of the rest of humanity. In making it the duty of each to make everyone happy, we could end up all being miserable. This is an outcome all too visible in those places that have attempted to thoroughly institute communism or socialism. I do not wish to discount the value of social solidarity; here, as in the rest of life, balance is needful.

It’s hard enough to look out for the interests and welfare of one’s family and friends. It’s an unbearable burden to be responsible for looking after the needs of an entire society. Even worse, it might be ineffective. Perhaps that is why we have traditionally distributed the burden among families and friends. I like to call this the moral “buddy system”. Sometimes the buddy system fails, requiring backups, the so-called “social safety net”. But again, this is a far cry from the kind of demands a thorough socialism would put on the individual.

From what little I’ve learned about human nature, I can say that people like to conserve their labour where they can, and to devote a certain portion of their time and effort to leisure, and to play (Lord, how the world needs a philosophy of play right now! Something comparable to Huizinga's classic, Homo Ludens). This is true not only of the rich. To get them to give more of their labour than they currently wish to give requires either incentives or coercion. Offered sufficient incentives, they will work voluntarily, their dignity as persons will be respected, and they will be paid whatever their labour is worth to those who offer the incentive. Since the only kind of incentive Cohen’s mode of argument allows for is the fuzzy and unreliable fellow-feeling of social solidarity, and since when it comes to social solidarity demand is usually greater than supply, resort to coercion will be found necessary. Under coercion, a person does not work for herself, her dignity as an autonomous individual is not respected, and her labour is forcibly extracted from her by others at a discount. This is the very essence of communism.

On the other hand, it must be recognized that people who are desperately poor typically do not have the luxury of picking and choosing between whatever incentives are offered. They must take what they can get. I know because I’ve been there. In such cases, it’s a stretch to say that they are free, that their labour is voluntary, or that their dignity as persons is respected. There must be provisions so that such people can also participate in the market in a dignified manner. These people can make a claim based on justice to some share in society’s wealth. However, this is not the same thing as the sort of strict egalitarianism that Cohen advocates. It does however support my belief in the need for a guaranteed minimum income, one more robust than current welfare rates provide. (I imagine this will sound strange to those who know a little about me. The Spectacled Avenger is full of surprises. And he is, after all, a Red Tory.)

It must also be said that Cohen’s comparison of the rich person to the kidnapper is rather a shabby move. It borrows whatever rhetorical effect it has from the fact that the kidnapper is by definition involved in wrongdoing, and thus his actions are unjustifiable ab initio. This is not the case with the rich person, unless Cohen assumes from the start that the rich person somehow got his wealth by nefarious means and at the expense of the poor, an assumption which is neither obvious nor warranted (though to Marxists it is an indispensible article of faith).

If the rich person has committed a moral trespass, then Cohen ought to be able to name it. Being rich is of itself no crime. Unless it is a wrong simply to be in contravention of a moral norm enjoining equality. But that assumes there is such a moral norm. I do not believe there is. I believe that there are prudent reasons for discouraging vast disparities in income, but I do not believe there are moral reasons (except perhaps in the cases of desperate need outlined earlier). I further believe that if we focused on those prudential reasons rather than the moral ones, we might have better luck in convincing the wealthy to give a little back. Automatically branding them as somehow criminal or morally degenerate is unfair and only makes them understandably more resistant. Appealing to the prudence and good sense of the rich, showing why it is in their own long-term interest and in the interest of their children not to allow too great a disparity, would be more productive than scolding them. We need to develop an ethic among the rich of feeling that they are a part of society — not a target of it — and that the well-being of others can contribute to their own well-being. Taxation is necessary if we are to have even the rudiments of a society, but taxation is unlikely to achieve a change in morals, at least not a change for the better.

Finally, on a more superficial note, I find it curious that Cohen characterizes the incentive effect as a threat on the part of the rich person to refuse to work harder unless he gets a tax cut. Usually, when such a tax cut is contemplated, the purpose of the policymaker is not really to get rich people working harder. Quibble if you wish about their remuneration, but most of the rich people I have known already work incredibly hard. It’s not like a 20% tax cut will free up 20% more of their time or brains for work. The key aim is to get them to expend or invest their money, not their labour. The hope is that they will do this in a way that will stimulate the economy. They can only do this if the money is theirs to expend or invest. Now, whether a tax cut actually has this beneficent effect is an empirical question, but to characterize it as a threat by the rich to withhold their labour from the poor is a canard. In propagating this silly notion, Cohen betrays his gross ignorance of the most basic concepts of economics. If there are to be tax cuts, I would also advocate that policymakers also put some thought into ways to encourage the rich to expend or invest their freed up wealth in ways that will have the intended good economic effects. Experience has shown that these effects do not always magically materialize.

Cohen believes that inequality under the Difference Principle might be assented to out of prudence, but not out of justice. I believe the same about equality: I don’t think that justice demands equality, but prudence dictates that we not allow too much inequality. According to Justinian, justice is constans et perpetua voluntas ius suum cuique tribuendi, “the constant and perpetual will to give to each man what is his due,” (Institutes, Bk. I, tit. 1). What is a man’s due is what he earns, not what others earn. But it is in his interest to share some of what he has, more often perhaps than he’d like to believe.

* * * *

As a postscript, it should be mentioned that the report I referred to at the beginning contained two notable facts that somewhat mitigate the pessimism it might engender. First, despite the fact that the rich are getting richer, the poor do not seem to be getting poorer. Their income is stagnant (although my hunch is that they’re working harder to maintain this status quo). Of course, if government transfers are considered as income, then the fact is, at least among the very lowest of income levels, income is downwardly rigid: if you’re already on welfare, barring changes in government policy, your income is not subject to downward pressure in the same way that a middle class income is; similarly, if your income is $0, then it simply cannot get any lower. This may mean that it’s really middle class incomes that are the bellwether for measuring the growth of inequality. Just a thought.

Second, the report noted that around 67% of the income of the richest 1% of Canadians comes from wages and salaries, not from capital gains and other financial rents; for the richest 0.01%, this figure is a rather astonishing 75%. This trend is historically unusual. In the 1940s the top 1% earned 45% of their income from wages and salaries. They might be overcompensated, but at least today’s rich actually seem to work for a living.

Here’s another interesting fact I recently read in the business section of one of the local newspapers. According to the OECD, in 2008 the US collected 70% of its revenues from the richest 10% of its citizens, which technically makes it the most progressive tax system in the world (using “progressive” in its narrow tax policy sense). This figure, though true as far as it goes, is extremely illusory. The US tax system only seems progressive because in the US the wealthiest 10% are so very much wealthier than the other 90%. In other words, inequality accentuates the “progressive” nature of the tax system. If 90% of GDP goes to the wealthiest 10%, then even under a flat tax rate, revenue would disproportionately come from the wealthy, and more so where they are taxed at a progressive rate.

6 comments:

  1. Not to quibble, but is it really possible for the poor to get poorer? If you're a single mother and you've been evicted, there is nowhere to go but up.

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  2. Precisely, which is why I wrote:

    "Of course, if government transfers are considered as income, then the fact is, at least among the very lowest of income levels, income is downwardly rigid: if you’re already on welfare, barring changes in government policy, your income is not subject to downward pressure in the same way that a middle class income is; similarly, if your income is $0, then it simply cannot get any lower."

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  3. Tangentially related, I present this for your consideration.

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  4. It's more than tangentially related. Canada's rising infant mortality is really shocking. Unfortunately, the author's argument commits a rather basic fallacy: correlation (of economic inequality with infant mortality) does not entail causation. On the other hand, it could be partly implicated, although such a steep increase in infant mortality correlated with such a relatively small increase in inequality, especially in light of universal health care seems a rather strange phenomenon. But who knows?

    The point Dobbin makes towards the end is interesting and backs up some stuff I've been reading by Gordon Tullock on wealth redistribution.

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  5. Tullock says that there are at least three motivations for why governments redistribute wealth, and they don't necessarily sit well with each other. At the end of the day, most redistribution takes money from the rich and the poor and gives it to the middle class. In other words, there is a lot of rent-seeking going on, despite the rhetoric governments feed us to justify transfers. Enough wealth is redistributed that if it were simply given in a lump sum, the poor would be no longer poor. Instead it's mostly given to people who don't need it but who are well-organized.

    Yet another reason why I believe in a guaranteed minimum income. It would remove government's power to help the affluent (i.e. middle class).

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  6. By the way Joe, care to submit a guest blog on the topic? You certainly needn't agree with my views.

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