On Income Inequality

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There is a scene in drama The West Wing in which one of the characters, Josh Lyman, says:

Imagine before you are born you don't know anything about who you'll be, your abilities or your position. Now design a tax system.

John Rawls's philosophical original position posited this idea.

I'd like to write a longer piece about how the economics of this are only a smart part of the philosophy, but in summary the important part here is that this is the ultimate justification for unequal taxation. If we had to agree to a social contract before we knew our own mortal capabilities, or our birth parents and their socioeconomic situation, the world would look a great deal different than it does now. It was, more than anything, this argument which swayed me from a purely Libertarian view of economics. We are, in a great part, the sum of our circumstances. There is no doubt that many intangibles, such as determination, perserverence, grit, courage, play roles in success, beyond the strength and wits we are born to. But both nature and nurture are properties of circumstances.

I believe in incentives. The marxist motto of "from each according to his ability, to each according to his need" is a complete abrogation of incentives. The problem with marxism in terms of utility is that great strength, intelligence, and determination mean nothing when you have no motivation to use them. When one man has a knife and the other a gun, there is no inequality if neither has the will to wield the weapon.

On the other hand, the laissez-faire capitalism espoused in the Ayn Rand-ian heroic dramas, which has great appeal to me, ignores the veil of ignorance completely. It rightfully celebrates the best of man - and the concept of man as a heroic being. It has appeal as such, especially to those who believe they do or can rise to such heroics. And yet all such emotions are generated from an ex post facto look at circumstances. But one thing rings true: when people believe it is easier to come by what they need via social extortion than work, they will extort rather than work.

It is in the fertile middle ground where we must work. We must balance considerations so the impetus to achieve is still high, but recognize that when we look at the least capable and the least fortunate, we have to realize: there, but for the Grace of God, go I.

There is a philosophical disingenousness on both the left and right, to my perception. The left uses terms like 'economic justice', without quantifying justice; they give rise to the perception that "fair" means all having the same thing, and Americans (rightfully) recoil. The right talks about "redistribution of wealth", as if everyone who was hurting and economically in need was more interested in stealing their money than working.

Some side facts:

In 2006 In 2006, the top 1 percent of tax returns paid 39.9 percent of all federal individual income taxes and earned 22.1 percent of adjusted gross income. I often see half of this statistic quoted - that the top 1% pay 40% of all taxes. To be clear, to be in that 1%, the lower bound of your income must be well over $250,000 per year.

There has been dispute over what this poll means, but Brookings Institute wrote:

An October 2000 Time-CNN news poll showed that 19 percent of Americans thought that they were in the high income group that would benefit from proposed tax cuts - defined as roughly the top 1 percent of the distribution.

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4 Comments

That last bit is surprising to me--I was shocked when I realized I was in the top 10%. I wish they weren't conflating misunderstandings of policy proposals with misunderstandings of demographics.

This is interesting:

http://en.wikipedia.org/wiki/Household_income_in_the_United_States

partially because it connects "Household Income" to "mean number of earners".

And you can contrast that with:

http://en.wikipedia.org/wiki/Personal_income_in_the_United_States

So "personal earnings" for the 10% has a lower bound of $75k, whereas "household earnings" for the top 10% has a lower bound of somewhere between $100k and $150k.

I agree that we cannot simply decide economic solely with our wallets or our hearts.

But here's something I remembered while reading your article. I used to work as a shipping clerk. Now I'm a writer, but I enjoyed the people with whom I worked. One of them was a man who enjoyed reading the international shipping manual. He loved organizing the stock room--when time permitted--and sending things big and small throughout the world.

I know another woman who drives a city bus. She loves driving the bus and at the time I knew her, had no greater aspirations.

So, here's my thought. What if people were motivated to excel not because of money, but for love of what they do. Take writers, for instance: historically writers don't make as much money as someone else who is a skilled laborer. But money isn't our motivation. Love of what we do is our motivation, it keeps us going.

The counter argument is that not everyone can do what they love. However, I am not of that belief. I believe there is a job out there for everyone, and when we find that, writing, in my case, then we find a satisfaction that runs far deeper than mere capital drive.

Keep writing novels and short stories and blogs, Mr. Wallace. I enjoy everything I've read, or heard, so far!

Jon - thanks for the comment.

I faced a decision about two years ago. I was at a crossroads; a game company I admire a lot was setting up shop in Austin, where I lived. I'd love to do writing or design for a game (and have on hobby projects), but at the same time, a company I had been consulting for wanted me full time. It necessitated a move also, but there was a huge difference in what I could expect in pay doing writing/design work on a game versus taking the job.

Ultimately, I opted for the money. And there is a "cost" associated with that; ultimately, it is doing something I enjoy less. (Although I am by no means unhappy; but this is not my 'passion', per se.)

Supply and demand have their role in ensuring needs are filled, just like any other commodity. I agree that there is probably a job out there everyone would love, but I'm not convinced that if everyone took the job they loved that we would have the right allocation of people. If we had 500% more game designers and 20% of the doctors we have, would we be better off? Supply and demand in professions, in the form of rising and falling salaries, play a role in regulating this.

I see it not much different than a couple negotiating over chores. "I hate doing the dishes; you do them, I'll vacuum AND take out the trash."

Except in the case of professions, there may be many things you enjoy, to a greater or lesser degree. Like many choices, professional direction is not a black and white issue.

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This page contains a single entry by Matt published on October 16, 2008 12:45 PM.

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