With the presidential election only weeks away, it is time to return to our quadrennial series on the issues. While each Tuesday we will spotlight specific topics like the deficit and aging, I thought a philosophy definer was the right place to start.
Where are we going? To the “good” society.
A “Good” Society
Today, let’s base the idea of the good (or virtuous or just) society on income redistribution. Whenever government taxes us, it is “redistributing” what we earn through taxes. The redistribution occurs when your tax dollars are spent on others (and maybe you too). It can wind up as an unemployment program, government funded healthcare or social security.
In one study, researchers tried to determine who had more of a preference for redistribution. Basing their conclusions on two sets of tradeoffs, they explored the choice between equality or efficiency and giving more to oneself or to others. With wiser policy formation a goal, their data indicated that proponents of efficiency slightly outnumbered those who selected equality and “fair-mindedness” was much more popular than giving less. They did though emphasize that there was considerable heterogeneity within different income groups and between men and women.
Out Bottom Line: Tradeoffs
Rather like the subjects of the redistribution study, we too can decide the tradeoffs that we prefer. Then knowing those tradeoffs, as economists, we can start to identify the type of society we support. We can recognize that when government tells us to give the dollars that we earn to others, it might be diminishing our incentive to generate that income. And with that contraction comes less of a drive to use resources efficiently. And you know where that takes us. We wind up with a lower economic growth rate and less for everyone. But we do have more equality and perhaps fair-mindedness. (I know these are broad and debatable assumptions. The one constant is that there will always be a tradeoff.)
So, if we remember only one word for the entire election, that term should be tradeoffs. And every Tuesday, as we consider the issues, we will return to the tradeoffs.
My sources and more: If you were just going to read one book on the equality-efficiency tradeoff, I suggest Arthur Okun’s Equality and Efficiency: The Big Tradeoff. After that, this paper on equality, efficiency, distributional and political preferences is the perfect complement.