I’ve moved from my previous blog location to this one, hoping that the readability of the site will be more pleasant for anyone who chances upon it.
The concept of fairness and justice is a slippery one when it comes to economics. Especially loaded seems the phrase “I earned it.” This is invariably the defense of the wealthy and entrepreneurial classes for their comfortable material status, but the term ‘earn’ is unclear. In some contexts ‘earn’ could simply mean what one gets from a particular action. Someone can earn a medal by performing well in a race, for instance. But what if the person received a head start? Did they really earn it then? They still received it, if the judges gave it to them. This highlights the other, many times unspoken, implications of the term ‘earn,’ having to do with moral claim.
Moral claim is more complicated because it presupposes equality in means or opportunity for those who desire something. A lottery winner has a legal claim on the winnings, but random chance hardly seems like the basis that we would want to choose for determining who ‘earns’ something. We like to attribute it to effort and work ethic and creativity, but in reality, it has a lot to do with the color of our skin, our sex, and the wealth and education of our parents. Even intellectual capacity and creativity is influenced by chance, though at least here we have a bit more agency than our material circumstances.
So what does this mean for economics? It means that the phrase ‘I earned it’ really only means ‘I received it through a combination of circumstances and personal effort.’ This may not feel accurate to those who look to justify their positions in society, but it is undoubtedly true. The arguments to be made after this admission regard to what extent a person has earned their position and what their responsibilities might be to other who have received less than they deserve. This is a very touchy and personal subject, but one that tends to get avoided for the sake of politeness and comfort. If we really want to be able to say that we ‘earned’ anything, then we’d better make sure that we come to terms with the head start that many of us have been given.
An interesting article in the NY Times today got me thinking more about US tax policy and theory. The article casts the new health care bill in terms of economic inequality and argues that it is a corrective force against the rising income inequality since the 1970s. Opponents of taxation argue that government should take as little money from its citizens as possible, and that it is a matter of freedom to be able to spend one’s money as one chooses. For me, the questions that arise from this position are: How much money does the government need and how free should people be to spend their money as they wish to?
How much money the government needs depends on what the government is expected to do. Everyone basically agrees that government should provide military protection and domestic services like police and fire departments, and there is a large consensus on issues like public education, transportation infrastructure, and social safety nets for the poor, elderly, and disabled. To put it another way, the government is the best source of collective security. This security applies at least formally to all races and genders equally (though unfortunately not all sexual orientations) and covers areas like risks from attack, fire, flooding, starvation, robbery, financial hardship, and now medical disasters. Yet another way to think about these areas are protecting rights of citizens to freedom of action, belief, speech, religion, education, health, and opportunity. Really only in health care do we fall behind most other advanced nation. We in the US seem to think that it is the uninsured person’s fault if they get sick without insurance, when more likely their situation getting coverage was irrational or impossible. The government needs enough money to protect these basic rights. The idea that government should be smaller is probably correct, but it’s hard to disagree with the need for government to provide these goods and protections for its citizens.
The issue of a right to spend the money one earns is trickier than it sounds. First, the money we earn is predicated upon a system that we have accepted (through continuing to live here) and profited from. We are protected by US laws, given the services mentioned above, and profit from the opportunities that our citizenship entails. In addition to our debt to the government for these services, we are all living in a world that is socially, historically, and culturally biased. We know that heterosexual white males have a much easier time making money and achieving positions of power in this country than any other race or gender. While it is easy and comfortable to assume that what we earn is what we have a right to, it may not be the case where we have been unjustly privileged. Do the super-rich deserve all their after-tax income? What if they benefited from discrimination and a system that gives them a better chance for success than others? Then they have a moral claim (a right) to only a portion of their actual income. This is in fact the state of affairs in this country. There will always be structural inequality, so there must always be some level of redistribution to counteract it. This is where additional taxation and governmental policies must enter in again. No other organization has the ability or legitimate claim to correct these structural problems.
The government may not be anyone’s favorite institution, but it is necessary for protecting people’s rights and correcting for structural inequality and discrimination. Taxation isn’t popular, but it is morally justified.
Tea partiers would have us believe that anything that the government touches becomes inefficient and wasteful, and that they’re not operating on unsubstantiated assumptions. Many economists have written about public choice theory, which essentially points out that any time that you create a structure that gives people power you create interests that will work for their own profit. Politicians are seen as profiteers who look out for their own interests (by pleasing lobbyists who get them re-elected) and the interests of local constituents (to the detriment of the ‘public good’ eg. pork). These economists, and subsequently the tea party, advocate letting people make individual choices in their self-interest and allow the free market to balance the aggregate interests for the greatest overall benefit. They have the rhetorical advantage of both advocating individual liberty and the collective good.
There are problems with this explanation of economic and political reality, however. First, individuals acting in their own self-interest frequently do not aggregate into the socially optimal outcomes. This failure is due to a number of characteristics of free markets: They quantify demand through price, thus shifting decision-making power to the rich. They operate on expectations of supply and demand rather than reality and are therefore vulnerable to mass optimism or pessimism (bubbles). They remove accountability of producers and consumers by stripping products of their context through the price mechanism (Where and how were your food and clothes made?).
Second, markets allocate efficiently most of the time, but it is not clear whether efficiency should be the end goal of allocation. I don’t believe that we really want a completely efficient allocation of healthcare, because by definition it would leave ‘inefficient’ people like the old and terminally ill without care. If we do not really want complete efficiency, but rather want a principle of justice and equality to guide resources like healthcare, then we need to direct markets and create incentives to promote those principles. This is where the government comes in.
Government is the only option we have to regulate industries as big and complex as health and finance (and sectors as important as education). Additionally, individuals in this country have direct influence over and checks and balances on government power, while they have none over markets (because we as individuals can’t interfere with others’ private property). I agree that government is not the most efficient option to allocate resources. However, in addition to efficiency being a poor moral compass free markets have inherent tendencies that are antagonistic of social goods. So let’s see how we can improve government, not get rid of it.
President Obama is catching a lot of flak these days for his compromises, stalled initiatives, and tentative stances. It’s interesting that we ascribe negative connotations to these realities considering that in theory I think most people view compromise and bipartisan consensus to be good things. I think the fundamental problem is that the way politics functions is based on distancing a candidate from his or her opposition, and cooperation and moderation are not good tactics for that strategy. Obama, by working to find middle ground, is being criticized from both sides for not supporting their agenda. The question is, then, can his approach work politically? Will the American people have patience with an inherently messy, vague, and time consuming approach to politics? Even if the people can wait, will the politicians have the self-control and value the public interest enough to refrain from vilifying compromise and consensus as political weakness? Then, of course, there’s the relationship between what the politicians say and what the people perceive. It really takes both public patience and political restraint to be able to accomplish meaningful change. How likely is this combination? I’m afraid not very. I do believe, however, that we have been given an opportunity in Obama to really accomplish something. The president has a powerful gift for communication and clear thinking that is evident in most of the decisions he makes. The question is how much of a difference it will make
Well, so much for a supermajority. After the Republican victory in Massachusetts today, the Healthcare bill looks to be in trouble. According to a NY Times article, this leaves the Democrats with two options: find support from Republicans, or try to pass the Senate bill as is in the House. It will be interesting to see where this ends up. While I’m disheartened at the potential loss of healthcare reform power, I am unsurprised that the Republicans rallied and shifted the momentum. Any time that one political party is in the driver’s seat the other party has the advantage of playing the blame game and portraying the political scene as one of threat to the country. The perception of threat and culpability for all current woes is a powerful motivator for voters, and that was displayed today.
I think that this has less to do with political scapegoating and tactics as it does with the structure of the system itself. In a two-party system, there is a tendency to find an equilibrium point, and the self-correcting nature of politics through the mechanisms of blame and fear is inherent in the structure. This has positive and negative consequences, including moderate positions on issues, balanced discussions, but also an inability to make sweeping changes when there is no immediate threat of danger. Healthcare and government regulation of business and the environment are two areas where we are failing to deal with slowly growing problems that will have (and are having) serious implications for our economic and ecological wellbeing.
I’m afraid that it will either take a squeeze through the house of representatives or crippling compromises to get the healthcare bill through now, and neither one will be any help to President Obama in this politically precarious time. Best of luck to you, Mr. President.
I’m just reading about the Obama administration’s intention to charge banks that were allocated funds through the bailout bill $50 billion or so over the next ten years, if not more. This seems like a thinly-veiled politically-motivated mistake to me. Maybe I’m missing some big part of the logic, but as I understand it, the banks were forced to take the money in the first place, so not only did the government require that the chosen banks be a part of the bailout, but now they’re charging fees based on the fact that the banks took the money! Another problem is that the banks have already paid back the money (with interest) that they were given in the bailout. According to a NY times article, “the administration is justifying the levy by arguing that banks were responsible for causing the financial crisis in the first place.” This is also based on a misunderstanding of the causes of the crisis. Not only are the causes widespread and complicated, but the government itself is implicated in the building of the asset bubble. Examples include the Federal Reserve policies of easy money, regulatory failures related to complex financial derivatives, and their encouragement of Fanny and Freddie to make imprudent loans.
Finally, to have these narrow-minded and judgemental pronouncements come at a time when the news dominating the financial-political sphere is about high executive bonuses indicates that the move is pandering to a populist political fad rather than appealing to sound logial or moral principles. I’m fairly disappointed by Obama’s push for this, though if understood in the light of some of the other battles that he’s fighting, I can grant some leeway if it helps him get healthcare legislation pushed through.