Friday, July 18, 2014

Unlearning Economics — The Ethics of Inequality

One of the areas Thomas Piketty's book Capital in the 21st Century does not address, at least in much detail, is exactly why (economic) inequality is a problem. Piketty worries that inequality may be undemocratic, as those with large fortunes influence the political process; he also worries that inequality may create social and political tensions; and he argues that a dominance of inherited inequalities may suck the life out of capitalism. On the other hand, he states that some inequalities may be desirable in order to promote entrepreneurship and achievement.Yet he never explicitly spells out his political position on why, when and how much inequality is desirable, or indeed why it should be considered a problem in itself. In the hopes of filling this void, I will present a case below for why inequality may not be ethically justified.
The Ethics of Inequality
Unlearning Economics

See also Chris Dalby, Who Are The World’s Richest Oil Barons? at OilPrice

By what right do a handful of individuals own a bulk of the world's petroleum and natural gas resources that are the common heritage of the creatures of the earth? And a handful of corporations the rest, other than that which is owned by "sovereigns" like Saudi Arabia, read the royal family. This brings up the question as to whether expropriation of the commons is ethical. Even John Locke, who is regarded as the father of propertarianism, grounded the supposed natural and inalienable right to the ownership of private property in personal use.


Ryan Harris said...

By what right do a handful of individuals own a bulk of the world's petroleum and natural gas resources that are the common heritage of the creatures of the earth?

Oil and gas are owned by the creatures of the earth until they are extracted, then title transfers to the person that captured them upon extraction. (in the USA) Arises from exact same common laws as hunting a deer or duck or fish on your land. Companies and Bonds and Machines don't just float from your neighbors property onto yours and become yours. Ever. The assumption in economics of Just Deserts and Capital explodes right there. The oft repeated notion that land is just another form of capital isn't true. For the Record, Kock makes most of their money by processing oil and gas into fuel and chemicals, not by simply owing or producing it.

All production from the land is done for society at the behest of and on behalf of government. People roll their eyes and refuse to accept the deep and profound legal consequences of that statement, but it is the basis of land ownership. You grow a piece of corn and it is interstate commerce whether it is for you to eat or for sale on a market. It's the law, like it or not.

And from there you get to the notion of government regulation of common usage to pooling resources and cooperation to prevent pollution and resource over use and waste. Environmentalism.

It's all a very well designed system that gives the right to produce to a few but allows government final say on what is produced, how it is produced and how much of what is produced is given back to government.

It is completely inaccurate to claim that production is done in-spite of government or because of crony corruption when in reality it is all done to help provision government and her citizens. Producers are rewarded for their efforts not because it is fair or equal but simply because they do it. And anyone can. Nothing stops anyone from buying mineral rights and drilling a well. Or buying land and harvesting Deer or corn or...

You simply can't talk about inequality and labor markets but not talk about how wealth comes from property. And property law.

Most economists just call it "capital" and leave it there but I roll my eyes and dismiss all that because it's ridiculous to ignore the intricate system of laws that have been developed over thousands of years to responsibly encourage the exploitation of resources for everyone's benefit.

Tom Hickey said...

"You simply can't talk about inequality and labor markets but not talk about how wealth comes from property. And property law.":

Exactly, and other institutional arrangements that affect ownership and distribution, too.

These are not natural arrangements but the result of positive law, which implies politics, which implies power relationships.

Are these power relationships established institutionally consensus or imposition — the result of government of the people, by the people and for people, or an imposition of a power elite based on ownership (plutonomy) similar to power relationships under other conditions (monarchy, tyranny, etc), as Aristotle observed over two millennia ago. Aristotle classified plutonomy as a form of oligarchy opposed to popular democracy. Aristotle considered a republic to be oligarchic in constitution.

I don't see how an ethical case can be made for wealth far in excess of that resulting from personal use, as argued by Locke. Greater wealth results from property law that is arbitrary, and subject to change by a more powerful counter-force, either legally as in elections or extra-legally as in revolution.

Conversely, if one argues that there is no strong ethical argument against inequality, then there is also no ethical reason for following the law, which is seen as merely a matter of convention and imposed institutional arrangements, whose basis is force.

Then it becomes a matter of the ownership class being able to force others into a relationship that they may not accept owing to the inequality involved, and there is no rationale for their not revolting and changing the power relationships if they are able.

All of these arguments simply rationalize different points of view, each attempting to show that it is "right," when the reality is different factions vying for power.

Ryan Harris said...

'different factions vying for power'

Voters have the power to force change. Of that I'm confident, even with all the lobbyists and money. I still think our basic elections are fair.

What I'm not sure is the soft side of why people vote form factions and create policies, parties and politicians that act against the voters self interest.

People are fairly sophisticated though when it comes to their own money and their own interests so I'm reluctant to think they are acting 'stupid' but some deeper self preservation and team building part of innate human nature.

Tom Hickey said...

I don't think that there is a rational explanation for complex social factors such these because the are a lot of extra-rational aspects involved, many of which are as yet poorly understood. Some may not even have been discovered.

Here's an example: I Was Poor, But a GOP Die-Hard: How I Finally Left the Politics of Shame

Owing to the possible downside, it is extremely important to realize as a society that there is no single "right" solution. These things can go in a lot of different directions as history shows.

When things get really out of balance there is something like a French Revolution and Reign of Terror. Moreover, social instability leads to higher crime, domestic social unrest, and international conflict. This alone is good enough reason to proceed on the basis of We're all in this together, instead of It's every man for himself.

Can't happen here? A sufficient shock that rocks the system is capable of catalyzing many consequences depending on the reaction.

But even in normal times, a reasonably efficient and effective social system should be able to deliver relative distributed prosperity.

Where serious problems really arise is in have and have-not societies, so hollowing out of the middle class is something that societies like the US with increasing inequality need to be concerned with.

BTW, Keynes delved into this in his essay, The end of laissez-faire (1926).