Economic Equality Arguments for Welfare Programs The more fortunate have an obligation to help the less fortunate –Aristotle: generosity –Kant: charity.

Economic EqualityEconomic Equality

Arguments for Welfare Programs

Arguments for Welfare Programs

• The more fortunate have an obligation to help the less fortunate– Aristotle: generosity– Kant: charity– Mill: generosity maximizes happiness;

the happiness of others as just as important as your own

• The more fortunate have an obligation to help the less fortunate– Aristotle: generosity– Kant: charity– Mill: generosity maximizes happiness;

the happiness of others as just as important as your own

PovertyPoverty

•Poverty is widespread; much of the world’s population is poor

•Wealth is highly concentrated, even in advanced societies

•16% of US children are poor

•Poverty is widespread; much of the world’s population is poor

•Wealth is highly concentrated, even in advanced societies

•16% of US children are poor

Wealth in the USWealth in the US

• % households net worth % net worth

• Top 1% > $2.7M 35%• Top 10% > $400K 68%• Bottom 46% < $ 50K 3%• Bottom 25% < $ 10K 1%

• % households net worth % net worth

• Top 1% > $2.7M 35%• Top 10% > $400K 68%• Bottom 46% < $ 50K 3%• Bottom 25% < $ 10K 1%

PovertyPoverty• Income, too, is highly concentrated• % households income cutoff % income• Top 5% $132,199 21%• Top 20% $101,300 49%• Second 20% $ 75,000 23%• Middle 20% $ 38,885 15%• Fourth 20% $ 16,116 9%• Bottom 20% $ 9,200 4%• Inequality is increasing, and has been since

1967(www.census.gov/prod/2000pubs/p60-204.pdf)

• Income, too, is highly concentrated• % households income cutoff % income• Top 5% $132,199 21%• Top 20% $101,300 49%• Second 20% $ 75,000 23%• Middle 20% $ 38,885 15%• Fourth 20% $ 16,116 9%• Bottom 20% $ 9,200 4%• Inequality is increasing, and has been since

1967(www.census.gov/prod/2000pubs/p60-204.pdf)

Rousseau and RawlsRousseau and Rawls

• Rousseau: tolerate neither rich men nor beggars

• Rawls: maximize the welfare of the least advantaged

• Social instability: those with little have little stake in the social contract, and have incentives to rebel against it

• Legitimacy: those with little have little reason to consent to social contract. But that’s what justifies government’s authority over them

• Rousseau: tolerate neither rich men nor beggars

• Rawls: maximize the welfare of the least advantaged

• Social instability: those with little have little stake in the social contract, and have incentives to rebel against it

• Legitimacy: those with little have little reason to consent to social contract. But that’s what justifies government’s authority over them

Marx and WalzerMarx and Walzer

• Society is organized for the mutual benefit of its members

• From each according to his abilities, to each according to his needs

• People’s needs ought to be met in a just society

• People have a positive right to have their needs met

• Society is organized for the mutual benefit of its members

• From each according to his abilities, to each according to his needs

• People’s needs ought to be met in a just society

• People have a positive right to have their needs met

Equality (Nielsen)Equality (Nielsen)

• Equality of life prospects is a fundamental good

• Moral equality— equality of treatment— is a right

• Equality of treatment requires at least a rough equality of condition

• Without equality of condition,– People have different life prospects– Some have power over others– Undermining their self-respect

• Equality of life prospects is a fundamental good

• Moral equality— equality of treatment— is a right

• Equality of treatment requires at least a rough equality of condition

• Without equality of condition,– People have different life prospects– Some have power over others– Undermining their self-respect

Dworkin’s LiberalismDworkin’s Liberalism

• People have a right to equal treatment• Government must be neutral on what

constitutes the good life• Hayek: This justifies a market economy—

anything else substitutes the government’s evaluation of goods for those of the people

• But it also justifies intervention, to limit effects of unjust or irrelevant factors: discrimination, advantages, luck, talent, intelligence

• People have a right to equal treatment• Government must be neutral on what

constitutes the good life• Hayek: This justifies a market economy—

anything else substitutes the government’s evaluation of goods for those of the people

• But it also justifies intervention, to limit effects of unjust or irrelevant factors: discrimination, advantages, luck, talent, intelligence

Three Levels of AidThree Levels of Aid

• Safety net: meet basic needs (food, clothing, shelter, medical care)– Ongoing– Temporarily (with a time limit)

• Liberal equality: also, enable poor to improve their own condition (child care, education, nutrition)

• Difference principle: also, improve condition as much as possible without causing harm to poor

• Safety net: meet basic needs (food, clothing, shelter, medical care)– Ongoing– Temporarily (with a time limit)

• Liberal equality: also, enable poor to improve their own condition (child care, education, nutrition)

• Difference principle: also, improve condition as much as possible without causing harm to poor

Arguments vs. Welfare Programs

Arguments vs. Welfare Programs

• Obligation to help those less fortunate is imperfect

• A matter of virtue, not of justice• So, people should not be compelled

to help

• Obligation to help those less fortunate is imperfect

• A matter of virtue, not of justice• So, people should not be compelled

to help

Perfect v. Imperfect ObligationPerfect v. Imperfect Obligation

Poverty isn’t a serious problem

Poverty isn’t a serious problem

• Standards of living have risen: a family at the poverty line in 2000 is better off than the average family in 1970

• Households in bottom quintile: almost all have telephones and TVs; 75% have cars; many own homes

• Government help and off-the-books income matter: bottom 20% report income of $9,200 but spend over $22,000.

• Standards of living have risen: a family at the poverty line in 2000 is better off than the average family in 1970

• Households in bottom quintile: almost all have telephones and TVs; 75% have cars; many own homes

• Government help and off-the-books income matter: bottom 20% report income of $9,200 but spend over $22,000.

Income per capitaIncome per capita

• Rich households have more people, who work longer hours: those in top 20% work twice as many hours as those in bottom quintile

• Top 50% is workers work 60% of the hours for 70% of the income

• Rich households have more people, who work longer hours: those in top 20% work twice as many hours as those in bottom quintile

• Top 50% is workers work 60% of the hours for 70% of the income

Taxes equalize (2000)Taxes equalize (2000)

• Earners Income Taxes paid Income

• Top 5% 21% 37% $132,000

• Top 25% 42% 84% $ 55,225

• Top 50% 70% 96% $ 27,682

• Earners Income Taxes paid Income

• Top 5% 21% 37% $132,000

• Top 25% 42% 84% $ 55,225

• Top 50% 70% 96% $ 27,682

Income mobilityIncome mobility

• Social and economic groups are fluid

• Someone in the bottom 20% is more likely to be in the top 20% than the bottom 20% ten years later

• Social and economic groups are fluid

• Someone in the bottom 20% is more likely to be in the top 20% than the bottom 20% ten years later

Earnings MobilityEarnings Mobility

• Quintile 1988 earnings 2000 earnings %+• Top $74,826 $80,209 7%• 4th $51,177 $56,013 9%• Middle $36,874 $42,410

15%• 2nd $25,476 $32,837 29%• Bottom $13,136 $27,194

107%

• Sphere Institute: 180,000 Californians, 1988-2000: median figures, by quintiles

• Quintile 1988 earnings 2000 earnings %+• Top $74,826 $80,209 7%• 4th $51,177 $56,013 9%• Middle $36,874 $42,410

15%• 2nd $25,476 $32,837 29%• Bottom $13,136 $27,194

107%

• Sphere Institute: 180,000 Californians, 1988-2000: median figures, by quintiles

Philosophical ArgumentsPhilosophical Arguments

• Liberty: You are free to live as you choose, so long as you don’t harm others

• Other people’s live aren’t yours to dispose of

• So, others have no right to your help• Government is created to preserve property• Government may protect people from harm,

and establish a framework for liberty-- nothing else

• Liberty: You are free to live as you choose, so long as you don’t harm others

• Other people’s live aren’t yours to dispose of

• So, others have no right to your help• Government is created to preserve property• Government may protect people from harm,

and establish a framework for liberty-- nothing else

Hayek’s ArgumentsHayek’s Arguments• Pluralism: There are

different goods, which may be compared differently; only market allows people to value things appropriately

• Knowledge: Knowledge and concern are distributed; no one can know or care enough to promote the welfare of people in general

• Pluralism: There are different goods, which may be compared differently; only market allows people to value things appropriately

• Knowledge: Knowledge and concern are distributed; no one can know or care enough to promote the welfare of people in general

Using people; LibertiesUsing people; Liberties

• Use: Socialist planner uses people to achieve his/her own ends for society

• Unification: There is no line separating political from economic liberty; restrictions on economic freedom also limit political liberty

• Use: Socialist planner uses people to achieve his/her own ends for society

• Unification: There is no line separating political from economic liberty; restrictions on economic freedom also limit political liberty

IncentivesIncentives

• Incentives: Welfare programs increase poverty– Reward something, & you get more of

it-- make poverty less difficult, and you get more poverty

– Penalize something, & you get less of it-- tax productive people more heavily, and you get less production-- less income, less growth, fewer jobs, fewer opportunities

• Incentives: Welfare programs increase poverty– Reward something, & you get more of

it-- make poverty less difficult, and you get more poverty

– Penalize something, & you get less of it-- tax productive people more heavily, and you get less production-- less income, less growth, fewer jobs, fewer opportunities

VirtueVirtue• Virtue: Welfare programs undermine virtue

– Reward the unproductive– Encourage sloth, poor planning, poor decisions,

dependency, deviance– Penalize the productive– Penalize work, delayed gratification, independence– Penalize saving, caring for relatives, marriage,

private charity, voluntary associations, religion

• Virtue: Welfare programs undermine virtue– Reward the unproductive– Encourage sloth, poor planning, poor decisions,

dependency, deviance– Penalize the productive– Penalize work, delayed gratification, independence– Penalize saving, caring for relatives, marriage,

private charity, voluntary associations, religion

Gammon’s LawGammon’s Law

• Bureaucracies are economic black holes: inputs rise while outputs fall-- they use more and more resources to do less and less

• Public choice theory: Bureaucrats act for their own good, not for the public good

• Only $1 out of every $3 spent on welfare ever reaches a poor person

• Hayek: The worst rise to the top; some things that work in theory don’t in practice

• Bureaucracies are economic black holes: inputs rise while outputs fall-- they use more and more resources to do less and less

• Public choice theory: Bureaucrats act for their own good, not for the public good

• Only $1 out of every $3 spent on welfare ever reaches a poor person

• Hayek: The worst rise to the top; some things that work in theory don’t in practice

Sowell’s ArgumentSowell’s Argument

• Equality of treatment and equality of conditions contradict each other

• Equality of conditions, opportunity, life prospects, etc., is unattainable

• Differences are universal, inevitable, and ineliminable

• Equality of treatment and equality of conditions contradict each other

• Equality of conditions, opportunity, life prospects, etc., is unattainable

• Differences are universal, inevitable, and ineliminable

Murray’s LawsMurray’s Laws

• Imperfect selection: Rules always exclude somebody– People complain about

injustice, unmet needs– Political pressure– Programs expand

• Imperfect selection: Rules always exclude somebody– People complain about

injustice, unmet needs– Political pressure– Programs expand

Murray’s LawsMurray’s Laws

• Unintended Rewards: social benefits increase the value of being in the target condition– Reward people for being poor --> more

poverty– Penalize people for working --> less work– Getting job entails loss of benefits;

effective tax rate on working poor is often over 50%

• Unintended Rewards: social benefits increase the value of being in the target condition– Reward people for being poor --> more

poverty– Penalize people for working --> less work– Getting job entails loss of benefits;

effective tax rate on working poor is often over 50%

Murray’s LawsMurray’s Laws

•Net Harm: The less likely it is that the target behaviors will change voluntarily, the more likely the program is to do more harm than good

•Net Harm: The less likely it is that the target behaviors will change voluntarily, the more likely the program is to do more harm than good