Morning Must-Read: Chris Dillow: How I Would Defend Inequality

Chris Dillow: How I would defend inequality: “Defenders of inequality are doing a desperately poor job….

…Tim Worstall’s claim that the tax and benefit system already does a lot of redistribution fails to engage with the argument that pre-tax inequality might be a bad thing. And Greg Mankiw’s claim that the rich deserve their fortune barely counts as an effort. Even if we concede–heroically–that high salaries are due to high marginal productivity, questions remain such as: what about Rawls’ claim that talents are arbitrary from a moral point of view? Do people really deserve to have been born at a time when their marginal productivity is high[?]… And even if people do deserve credit for cultivating their own ability, they hardly deserve credit for the fact that others’ inability to do so renders their ability scarce…. More intelligent rightists, such as Hayek or Nozick, have acknowledged that the link between merit and income is weak. So, is it possible to defend inequality better? The issue here is not one of free markets: it’s perfectly possible for a free marketeer to worry about inequality precisely because so much of it arises from market imperfections or state interventions such as bank subsidies, QE, crony capitalism or copyright laws.

Subject to that caveat, here’s how I would try to defend inequality: 1. [If] bosses and bankers… were paid less, they would seek other ways of satisfying their self-regard…. There’s a reason why the word ‘efficiency’ appears in the phrase ‘efficiency wage models’. It’s because it might be efficient to bribe workers not to exploit their power…. Some policies to curb high salaries would merely shift incomes between the rich…. One of the best ways to increase equality would be to create countervailing power…. But there is no demand for such policies…. It’s our neighbour’s new car or our colleague’s pay rise that upsets us from day to day, not footballers’ million-pound salaries…. One big fact… warns us not to expect a growth bonanza from egalitarian policies…. [because] long-term economic growth doesn’t vary much across countries or time…. I’m not sure about these arguments…. But I suspect they are better than wibble about desert.