Over at his NYTimes.com blog, Paul Krugman talked about Ben Bernanke’s recent speech, particularly about its Rawlsian influence:
OK, this is, whether BB realizes it or not (he probably does) basically a Rawlsian view of the world, in which you think of life as a kind of lottery in which you draw a ticket that includes things like your genetic endowment as well as the wealth of your parents. And what you’re supposed to do, ethically, is support the economic and social system you would choose if you had to enter that lottery not knowing what ticket you were going to draw — if you were making political choices behind the “veil of ignorance”.
As soon as you portray the choice that way, you’ve introduced a strong presumption in favor of redistribution. After all, if you should happen to end up as a member of the top 1 percent, an extra dollar at the margin won’t mean a lot to you; but if you should happen to end up as a member of, say, the bottom quintile, an extra dollar could make a lot of difference. So you should, other things equal, favor a system of progressive taxation and generous aid to the poor and unlucky.
He’s half right about Rawls. In fairness, I know Rawls mostly via secondary sources; I’ve only ever read anthology excerpts from A Theory of Justice when I teach them, so I obviously know him in less detail than I should. But from what I understand, Krugman’s description of the “veil of ignorance” is a pretty good one, and so is his description of meritocracy as a lottery. There’s a definite idea in Rawls that if you are born smart or strong or whatever it is you possess, this fact doesn’t make you morally praiseworthy. So in a sense, a meritocracy where we reward people in proportion to their talents and abilities isn’t any more just than an aristocracy where we reward people in proportion to their wealth.
And as far as that goes, that seems right. If we give a college graduate more money or than we give someone who never graduated high school, it can’t be because said college graduate deserves the money more. Whatever it was that enabled the college graduate to climb that high – intelligence, parental income, work ethic, even being born into a community that supported him – is at some level the result of a lottery. You might say that the person who succeeds at college managed their natural gifts well so while the playing field isn’t entirely fair surely he deserves some credit. But that just raises the question a level higher. Why do we think we deserve credit for the drive that opens the way to success but not other things like wealth or natural intelligence?
But this doesn’t mean that Rawls would advocate for super-high tax rates. Dr. Krugman is missing the other side of the picture. A few passages from the ethics anthology I mentioned above (Justice: A Reader p. 214, for the interested). Rawls says that if we were all behind the veil of ignorance Krugman describes above, we’d settle on two main principles of justice:
First: each person is to have an equal right to the most extensive basic liberty compatible with a similar liberty for others.
Second: social and economic inequalities are to be arranged so that they are both (a) reasonably expected to be to everyone’s advantage, and (b) attached to positions and offices open to all.
And then a few paragraphs down:
The second principle applies, in the first approximation, to the distribution of income and wealth, and to the design of organizations that make use of differences in authority and responsibility, or chains of command. While the distirbution of wealth and income need not be equal, it must be to everyone’s advantage, and at the same time, positions of of authority and offices of command must be accessible to all. One applies the second principle by holding positions open, and then, subject to this constraint, arranges social and economic inequalities so that everyone benefits.
When I teach this reading in my ethics class, I give an example of a professional whose expertise benefits everyone, like a doctor. Being a doctor takes years of study during which you have to work hard with little immediate payout. We want a system that draws people who would actually be good doctors. If the payout is insufficient, prospective doctors might ask themselves why they should go through eight years of undergrad + med school. We all get more benefit out of a system that rewards good doctors than we’d get if that same benefit was spread around to all the people in the community benefiting from the doctor. Of course, in some careers we overpay people so much. Superstar athletes do entertain millions and provide a real benefit to their community because of the way rooting for the same team can lead to community pride (and of course the economic benefits to their cities, if any) – but would potential athletes be less drawn to train hard here if Alex Rodriguez earned $5 million a year rather than the $30 million he took in as salary in 2012? Ditto for any career. Some inequality is a good thing if it leads to more wealth or pleasure or whatever value we derive from that career, than we’d get without the inequality. But there’s a maximum, a point where further increases won’t actually lead to a better situation.
There’s also the fact that sometimes this inequality makes it hard for the very talented to do what they do well. Without bread there is no Torah, as the saying goes. I’m reminded of a scene in Cinderella Man, where an up-and-coming boxer shows up for a fight not having eaten meat in a while, and the first thing his manager does is find him some food (beef hash, if I recall), even though the price of that meal could have bought several other meals for other people. From a Rawlsian perspective this move makes sense, and not because it’s in the manager’s own interests for his boxer to do well. The boxer has a skill that will bring entertainment to everyone who sees it, so the meal that allows him to do good doesn’t just attract him to that career, it actually allows him to use his talents well.
Krugman gets some of this idea. He writes:
So why not favor complete leveling, America as Cuba? Because for many reasons, both economic and political, we favor a market economy in which people make decentralized decisions about working, saving, and so on. And this means that incentive effects become important; you can’t levy 100 percent taxation on the rich, or completely insulate the poor from any consequences of low income, without destroying the incentives you need to make the economy work.
The question then becomes one of numbers. In particular, how high should we set the top tax rate? From a Rawlsian perspective, the key thing about very high incomes is that making them a bit higher or lower basically doesn’t matter — if you are lucky enough to find yourself in the top 0.1 percent (say), the marginal value of a dollar to your welfare is trivial compared with the value of that dollar to almost anyone else. So the top tax rate should be set solely with regard to the amount of money it raises for other purposes; essentially, you should soak the rich up to the point where any further rise in the tax rate would actually reduce revenue.
I know Rawls wrote other books on political economy that I haven’t read, so perhaps Dr. Krugman is keying into something about Rawls that I’m missing here. I don’t read Rawls as saying we should only have as much inequality as we can afford before it begins impacting the outcome. He seems concerned with other kinds of benefits as well, such as the benefit that attracts people to the positions where they will be most able to benefit others, and that will give them the physical strength, freedom from worry, leisure, confidence to take risks and explore dangerous territory, and so on.
There’s one point where I agree with Rawls, and I suspect Dr. Krugman would be on board with this point: We shouldn’t reward people because they deserve it, because they worked hard or are smart or athletic or whatever else. We reward people because everyone in society is better off with their particular brand of genius being encouraged and enabled, perhaps even coddled. Sometimes we’re all better off with a bit of inequality – but we shouldn’t pretend this is about fairness. We certainly shouldn’t pretend that the rich are better people than the poor, or that the poor don’t deserve whatever assistance society chooses to give them. This isn’t about desert or worth; it’s about what leads to the most beneficial situation for everyone.
All of which makes “You didn’t build that” seem a little more believable, at least to me. We should reward the successful and recognize the risk and effort they took. But we also shouldn’t pretend they weren’t benefiting from the world they were born into, including their parental wealth, natural abilities, and community that helped them develop it. Seems about right to me.
(ETA: To be clear, when I say “makes ‘You didn’t build that’ seem a little more believable,” I don’t mean that I think Obama is endorsing a super-high tax-rate. What I mean is, Rawls makes the whole idea that no one deserves all their credit for their success a little more believable, at least to me.)