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a blog from young economists at Nova SBE

Inequality and Distributive Justice, old sport

Let me use the following lines to present a case where economists should not be blind to the contribution of political philosophers.

People that usually defend income inequality argue that it is acceptable if it is combined with income mobility. In other words, if a today’s poor entrepreneur can be converted, through hard work and a creative mind, in tomorrow’s millionaire, the social order remains just. The problem with this viewpoint is Alan Krueger’s The Great Gatsby Curve. In the following graph he shows a positive relationship between inequality (measured by the Gini Coefficient) and intergenerational immobility – an elasticity that displays how much a rise in family’s income affects expected revenue of the individual.

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Source: Krugman

The difficult aspect to refute is, as Joseph Stiglitz describes it: one of the mischaracterizations of those of us who want a fairer society, is that we’re in favor of total equality, and that would mean that there would be no incentives. That’s not the issue. The question is whether we could (…) reduce some of the inequality by curtailing monopoly power, predatory lending, (…). All of those kinds of things, what I generically call “rent seeking,” are things that distort and destroy our economy.

Not so long ago, the benefits and burdens of the economic position were perceived as fixed either by God or by the ruler. More recently, when it was understood that governments could have a significant impact in redistribution concerns, by making and changing laws, the topic became inescapable.

For instance, John Rawls, the most influential liberal egalitarian of the XX century, had a substantial argument in favor of the redistribution of income: if on the one hand people could decide before they were born (the veil of ignorance) the type of society they would live in but, on the other, they could not choose their level of wealth, they would select one where there are some kind of insurance for the poor. Nevertheless, there is an unending discussion for and against redistribution and, consequently, the role of the government (Mankiw).

The main idea I want to emphasize here is that this debate cannot be done only by economists. I do not claim that positive economics, when properly done, is not important. Quite the opposite: it can provide clear guidance for the causes and effects of choices. What it is not able to achieve is to tell us what should be done. For example, when an economist prescribes a given policy implementation (the government should spend less or the Central Bank should increase interest rates), the public opinion often believes that this recommendation is coming from purely “scientific” grounds. However, sometimes, they are putting on normative moral principles regarding the relative importance of unemployment, inflation and the long term impact of debt on growth. Moreover, while economists centralize their efforts exhausting the notion of utility, political philosophers use a broader diversity of concepts.

To conclude, economics has a lot to learn by being open to other fields of knowledge.

João Pereira dos Santos

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Author: studentnovasbe

Master student in Nova Sbe

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