CHAPTER: INCOME INEQUALITY AND POVERTY
What is a fair distribution of income?
Many debates over economic policy are ultimately over this question. In debates over tax policy, for instance, much disagreement centers on whether high- and low-income households are paying their fair share. Unfortunately, economists aren’t as useful here as you might like. We can give you a concrete and scientific analysis of economic efficiency, but we can’t do the same for the concept of fairness.
Political philosophers have a range of views of what economic justice means and what role the government should take in the distribution of income.
John Rawls suggested that economic justice arises only if the rules of society are set by impartial people operating behind a “veil of ignorance.” According to Rawls, if the rules are determined by people who do not know what station in life they will end up filling, they will aim to maximize the well-being of the worst off person in society. Rawls concluded that the government should take an active role in redistributing income from the rich to the poor. He viewed this income redistribution as a type of social insurance.
By contrast, Robert Nozick argued that income is earned by individuals and not by society. According to his libertarian political philosophy, income is not a shared resource to be distributed by a social planner. He thought each person had the right to the fruits of his or her own efforts. If the process by which people earn their income is fair and honest, then the outcome is fair, no matter how unequal.
One thing that economists are sure of is that people’s incomes vary for many reasons. Some people work harder than others. Some jobs are fun, and others are less pleasant--and these attributes are reflected in wages. Finally, pure luck has a role. People are born with varying degrees of talent--intellectual, athletic, musical, and otherwise.
Is it fair that Luciano Pavarotti can sing better than I can? Maybe not. Should the government redistribute his income toward others, or should he be able to keep the rewards from his great singing ability? This is a difficult question that goes well beyond economics and about which reasonable people can disagree.