David R. Henderson  

A Prediction about Brookings

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Greg Mankiw announced on his blog today that he will be speaking at a Brookings Institution event tomorrow. The topic: "40 years later- The relevance of Okun's 'Equality and Efficiency: The Big Tradeoff.'"

Here's my prediction: Most, and probably all, of the speakers, whatever their view on policy, will fail to make a clear distinction between equity and equality. Why do I say that? Here's what I wrote in "Economic Inequality: Facts, Theory, and Significance:"

Most economists judge how just or "equitable" an income distribution is by how equal it is; they don't ask how people obtained what they have. In short, the majority of economists have a purely end-state view of justice. Typical, for example, is economist Joseph Stiglitz, former chairman of President Clinton's Council of Economic Advisers. In his textbook, Economics of the Public Sector, he writes:

Consider again a simple economy with two individuals, Robinson Crusoe and Friday. Assume initially that Robinson Crusoe has ten oranges, while Friday has only two. This seems inequitable. Assume, therefore, that we play the role of government and attempt to transfer four oranges from Robinson Crusoe to Friday, but in the process one orange gets lost. Hence Robinson Crusoe ends up with six oranges, and Friday with five. We have eliminated most of the inequity, but in the process the total number of oranges available has been diminished. There is a trade-off between efficiency -- the total number of oranges available -- and equity.

Notice that Stiglitz does not even bother to tell the reader how Crusoe and Friday obtained what they have. He doesn't tell because the process is irrelevant to him; all that matters is the end state. He initially hedges by saying it "seems" inequitable rather than it is inequitable, but by the end of the paragraph, the hedge is gone and Stiglitz comes right out and says that inequality is inequitable. Stiglitz is not alone. Many economists move almost seamlessly between the words "equity" and "equality" as if they were interchangeable.

I would love my prediction to be wrong.

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CATEGORIES: Income Distribution

COMMENTS (8 to date)
James writes:

A very reasonable prediction.

If inequality can be good or bad depending on the transactions that led up to everyone's current holdings, then redistributive programs that only take current holdings into account become hard to defend. If Friday stole both oranges from Crusoe, it's hard to argue for more transfers in the same direction.

Since most of the economists at Brookings like redistributive programs that only consider current holdings or income, they probably never saw the transaction history as important, or if they did they no longer do.

Of course that's mostly just in theory. In practice most of the people who defend transfers from the rich to the poor wind up supporting transfers from the young to the old, which usually means transfers from the poor to the rich.

Matt Moore writes:

Please link to more on the difference.

Incidentally, here is the first line from the Wikipedia entry for equity (economics) :
'Equity or economic equality is the concept or idea of fairness in economics',

Ryan writes:

Another prediction: participants will frequently make claims about inequality that are actually about poverty.

Jack PQ writes:

Another way to put it: ask someone "What is the *right* amount of economic inequality?" They will answer, "I don't know, but less than we have." Fine, then "How much less?". They'll reply, "I don't know." Precisely. Because some income inequality is deserved. How much is deserved? No one knows. So the "income inequality" debate is one that, from the get-go, does not have an answer.

*Someone might reply instead "No inequality at all." Implying either communism or a failure to grasp the concept.

Kristoffer Ahlstrom-Vij writes:

Matt - see Nozick's book Anarchy, State and Utopia for a classic criticism of end-state theories of distributive justice. Also, Barbara Fried has a nice paper criticising Nozick on this point: 'Walt Chamberlain Revisited', Philosophy & Public Affairs vol. 24, no. 3, 1995: pp. 226-245.

MG writes:

Good point. If all this was simply about making a value judgement, the language of "seems" inequitable could be accepted. When it is about appealing to charity, it may even be justified. But when it is to compel redistribution (or takings without compensation), your challenge should have to be addressed head on.

In order to maximize the well-being of society, I don't think we should be aiming for equality of outcomes or equality of opportunity (which are the usual targets). Instead I think we should be aiming for equality of freedom (i.e. rights). The first two strategies necessarily depend on coercion, whereas the third strategy obviously depends on freedom.

vikingvista writes:

Does Stiglitz think it inequitable that his income exceeds that of an economist who possesses only an 8th grade education an works no more than 2 days per month, advising the Eureka dogcatcher?

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