The Philosophy of Wealth Distribution- a case of Special Education

What is the ideal wealth distribution? First, let us define Wealth as that which generates a stream of income. Because people in the West now live a lot longer and get State pensions and other benefits, Wealth distribution has become much more equal than ever before. Kids also get better education for longer- this too is a type of wealth. Indeed, Public services- e.g. the Police, Army etc- are also a type of Wealth which provide a stream of services which are equivalent to Income. All this does not show up in the statistics on Wealth distribution which focuses on who owns fungible assets.

What should the distribution of private Wealth be? The answer depends on the capacity of the population to manage assets. Take Housing. If the population is slovenly, housing should be owned by the State or private landlords who will maintain them to an acceptable standard. Mrs. Thatcher's genius was to see that British people would take better care of their houses than the Council would. But this was not always the case. British working class mores had changed greatly.

Similarly, if the people are stupid and greedy, they ought not to own enterprises. But, as they become more thrifty and rational in pursuing self-interest, they should own their own businesses or have an increasing share in Corporate Equity.

However, where there is rapid technological change of a type most ordinary people don't understand, wealth distribution should worsen. The new industries should be controlled by very smart people with a better idea of what the new world will look like.

Ordinary people understand this. They aren't upset that Elon Musk or Bill Gates have enormous wealth. This is because Musk and Gates and so forth have far greater technological savvy.

In Britain, Harold Wilson redistributed wealth on quite a significant scale. But the working class turned against Labor. Why? Life was getting worse. 'Fiscal Drag' under conditions of 'Stagflation' meant workers were paying Income tax for the first time because their nominal earnings had pushed them into the tax net. Indeed, they were paying Companies to keep employing them. In other words their own pockets were being picked by a reverse Robin Hood.

It is interesting that 'Inequality studies' gained a footing in British Academia at precisely the time that the working class turned against Redistribution. More generally, as the recent experience of Greece has shown, Redistribution is not sustainable. In the end pensioners take a 'hair cut'. Entitlements collapse. In China, the 'iron rice bowl' was broken. People like Amartya Sen thought the Chinese working class would suffer. Instead they were lifted out of poverty in exactly the same manner as the South Koreans.

Nothing is inevitable in this respect. Assets should be owned by those who will make best use of them. Sometimes this means ordinary people should own their 'means of production' and their own homes and so forth. But not always. If the people are stupid and short-sighted, it is better for them if they don't own assets or at least don't have control over those assets.

Tim Sommers has an article in 3 Quarks nicely summarizing the many fallacies Academics perpetuate in this context.

A 2011 survey by Michael Norton and Dan Ariely, of Harvard’s Business School, found that the average American thinks the richest 25% of Americans own 59% of the wealth, while the bottom fifth owns 9%. In fact, the richest 20% own 84% of the wealth, and the bottom 40% controls only 0.3%.

Oddly, the 'average American' is right. The bottom fifth have considerable entitlements- the Capital value of which would probably exceed 9%. The fact is, for certain populations, long spells in prison increases life-span and health outcomes. But prison is expensive.

An avalanche of studies has since confirmed these basic facts: Americans radically underestimate the amount of wealth inequality that exists – and the level of inequality they think is fair is lower than actual inequality in America probably has ever been.

It is academics who radically overestimate wealth inequality by refusing to look at the Capital Value of entitlements. The reason some poor, but rapidly developing, countries without much in the way of Social Security have such high savings rates is because people have to accumulate assets. They can't rely on the State to be there for them during bad times.

As journalist Chrystia Freeland put it, “Americans actually live in Russia, although they think they live in Sweden. And they would like to live on a kibbutz.”

Journalists get paid to write stupid shite. Incidentally, Russia used to be a Communist country. However bad things got under Yeltsin, the people didn't want to go back to that horrible system. 

Thomas Piketty ramped up the inequality debate, a couple of years later, with “Capital in the Twenty-First Century”, a massive 250-year survey of wealth inequality. He discovered that r > g. That is, the rate of return on investment is always greater than growth.

The rate of return on successful investments must be greater than that of aggregate growth, otherwise the enterprise or underlying asset changes hands because of 'Value discrepancy'- i.e. a smart person will pay more for a thing than it can yield the current, stupid, owner.

The rich really are getting richer – and the poor?

But the composition of the rich keeps changing. One reason for this is immigration. Smart people move to where they can do astoundingly well. When they arrive they may be poorer than average but, within a decade, they are leaving the indigenous population in the dust.

Well, not so much. The post-war middle-class, Piketty warned, may well have been a historical anomaly.

The Edwardian rentier class was a historical anomaly. Essentially, its members hadn't insisted that they be taxed at a much higher rate so that a credible offensive military doctrine was maintained. In America, the rich should have used their money to provide fiscal and monetary hedges against a Sock Market crash and monetary contraction. The irrationality of this class caused it to be pauperized by high taxes and inflation. On the other hand, the entrepreneurial class and skilled workers found ways to evade taxes and used inflation to get the better of the creditor class- i.e older people, widows, orphans & the like.

Economic inequality is likely to get worse – and never get better – without coordinated international action.

Coordinated international action is an oxymoron. Nations compete with each other. If America decides to tax its entrepreneur out of existence, Europe and China will be delighted to take them in.

The good news is that not one, but two, serious candidates in the current Democratic Presidential Primary are endorsing versions of Piketty’s “Wealth Tax” – Bernie Sanders and Elizabeth Warren. (And, by the way, the English-translation of Piketty’s latest book, “Capital & Ideology” is due out in March.)

So, we may be able to thank Sanders or Warren for a Trump second term.

So, what should the distribution of wealth be? What does justice have to say about wealth inequality?

Nothing. Justice is a service industry. We pay a little money for a Justice system so that if we are the victim of an injustice, we have a means of gaining redress. The thing is demand driven. By contrast, Politics can say something about wealth inequality. But when it does something about it, the result is generally counter productive. Idi Amin threw out the Asians so as to improve equality of wealth. The thing was a disaster. That's why Musaveni let the Asians back in and why, unlike Amin or Obote, he is still around.

Here are some of the main positions philosophers have taken. Libertarians, or as they are sometimes misleadingly labeled, “classical liberals”, don’t believe that the distribution of wealth is a matter of justice at all.

Nonsense! They think the State should protect justly acquired assets. However, it should prevent unjust enrichment- e.g. by unfair business practices.

Utilitarians think whatever distribution maximizes the overall amount of wealth (or utility, really (see the caveat below)) is just.

Rubbish. They believe in the diminishing marginal utility of wealth. They want to maximize a Social Welfare Function based on a cardinal measure of utility.

Welfare state liberals, sufficientarians, and many of the advocates of Universal Basic Income (UBI) think that there should be a certain minimum level of wealth that no one should have to fall below.

No. They say there is an entitlement to a social minimum, not that the underlying asset should change ownership. It would be foolish to give the Capital Value of Social Security payments to a drug addict.

Egalitarian liberals argue for a still more equal distribution. John Rawls, for example, argued that the least well-off members of society should be as well-off as possible. But Rawls still allows for inequality where it works to the benefit of everyone. Some socialists, Marxists, and G.A. Cohen go all the way. They think the distribution of wealth in society should either be straight-up equal or, as in Marx’s famous (notorious?) formulation, “from each according to their ability, to each according to their need”.

What Marx actually said was that till technology and human nature so changes that people only work because they enjoy working Society should aim to reward each according to his contribution. This was a feature of Soviet economics and also the main argument put forward for reform in China in the Eighties.

Here are just a few of their arguments.
Wealth is not just out there waiting to be distributed by the state. Wealth is created. Things mostly come into being already attached to someone, i.e., owned, the result of someone’s labor. Hence, there is nothing for justice to distribute or redistribute. People own themselves and whatever they can acquire by laboring or free exchanges with others. Justice is just preventing force, fraud, and theft.

This is the Lockean 'intermingling of labor' view.

Here are just a couple of problems with this view. The current distribution of wealth is, in fact, mostly the result of force, fraud, and theft.

Rubbish! People who have wealth would soon lose it if all they did was beat people and steal money and defraud each other. Even the Mafia Don has to 'go legit' at some point if he wants to hang on to his wealth rather than get blown up by his rivals.

Robert Nozick, one of the most influential philosophical libertarians of the twentieth century, recognized this. In a much-overlooked footnote in “Anarchy, State, and Utopia”, he suggested that we would need something like 200 years of Rawls’ “difference principle”, before we could start to have a just libertarian social order.

This is very silly. The fact is people in the 'Rawlsian original position' would choose a Social Insurance scheme. They wouldn't endorse the 'difference principle' because they would have been taught, according to Rawls's stipulation, enough Econ 101 to know that under Knightian Uncertainty, regret minimization is the way to go. Insurance is regret minimizing. Political Philosophy is for cretins.

Also, things rarely come into being as the result of a single-person’s labor. As Obama said, “You didn’t build that” – at least on your own.

That was the problem with Obama. He said 'We can' not 'I will'. What did he build? Obamacare? The Bench appears to think the individual mandate is unconstitutional. What about the Iran deal? That sure worked out fine.

Often, then, the question of how the returns on collective effort should be divvied up is unavoidable.

But this question is idiographic, not nomothetic. Within a family, the answer to this question changes over time. Similarly, within an enterprise, the answer changes depending on the 'shadow price' of different types of labor input.

The state’s role is not helpfully viewed (as many libertarians suggest it should be) as simply enforcement of a mutual protection pact.

Mutual protection includes Social Insurance against various types of risk. It is very helpful indeed to view the State as a collective 'regret minimizing' agent whose existence is required by Knightian Uncertainty. If there was no Uncertainty, there would be no need for the State. Rational agents could insure themselves against all contingencies.

Developed economies are almost impossibly complex cooperative ventures.

Actually, developed economies have lower Kolmogorov complexity than undeveloped economies. A perfectly developed economy can be represented by a price vector and its dynamics would be easy to simulate.

Whatever role markets should play in modern economies, asking how their fruits should be shared is not just a reasonable question, it’s an inevitable one.

Only if one is paid to act as a child minder to a bunch of Credential seeking cretins.

There’s a crucial misunderstanding that is easy to make here. The question of how wealth should be distributed is not, or at least not mainly, the question of how wealth should be redistributed. The distributive question, or at least the one Rawls, Cohen, and other analytic philosophers are asking, is what would the ideal distribution of wealth be – all other things being equal.

If all other things are equal, then whatever we are looking at doesn't matter in the least. It is not 'entangled' with anything else. It doesn't matter what name we give to the Nicaraguan horcrux of the neighbor's cat. Ceteris really is paribus, in this case. However, the distribution of wealth is connected to factor inputs and reproductive chances and almost everything else.

It doesn’t follow, from the answer to that question, that we should immediately seize everyone’s holdings and redistribute them according to that principle.

Nothing follows from the answer to a silly question. On the other hand it is very wrong and utterly wicked to call the Nicaraguan horcrux of my neighbor's cat Dorcas instead of Mildred.

Rather, the principle gives us a background ideal as a reference point going forward. Knowing what distribution of wealth we think is ideal helps us make decisions about taxes, property law, corporate law, and everything that touches the basic structure of our society.

Nonsense! Any jurisdiction which does this will see massive exit. I won't go to a judge who decides cases on this basis. He may decide that a homeless dude should be allowed to enter my flat and rape me to keep warm.

Why not, then, view whatever distribution of wealth maximizes the overall wealth of society as a whole as the just one?

How the fuck are we supposed to know this? Suppose wealthy people in Britain had been able to foresee the future. They would have insisted on a massive Capital levy to finance Rearmament in 1933.

That’s utilitarianism.

No that's utilitarianism without diminishing marginal utility of wealth- what could be called 'Hicks-Kaldor' efficiency.

It’s effects over the last 150 years on philosophy, economics, law, and even the design of factories and prisons would be hard to overstate.

But the importance of philosophy would be difficult to understate.

It makes sense too, right? Why shouldn’t the distribution that creates the most wealth be ideal?

We don't know what will prove to be wealth and what will turn out to be a white elephant.

But would you like to move to a society where the total amount of wealth is much higher than in our society, but in which one person owns 99% of that wealth – and everyone else lives in abject poverty sharing the 1% left over?

Maybe. It depends on what else is on offer. If everybody else is starving- or at risk of obliteration from an asteroid strike- abject poverty sounds good. The other thing is dynamics matter. If our kids have a chance to climb into the patrician class, we may think the risk is worth it.

Or would you think a society just if 10% of the people in it were slaves, but the other 90% were very, very well-off because of those slaves? Would you like to live in the wealthiest society in history, if in that society the richest 1% owned more that the bottom 90%? By the way, you do, if you live in the U.S.

And people paid good money to emigrate to America even when it had slavery and 'robber baron' industrialists.

The trouble with utilitarianism is that we do, and should, care about, not just the total amount of wealth, but how that wealth is distribution.

Utilitarianism assumes the diminishing marginal utility of money. It favors redistribution.

One last example. Which would be fairer? A society where two people equally split 100 units of wealth or one where one person has 101 units of wealth and the other has 1?

It depends. The latter is fairer if the other guy spent all his time raping the richer one and is now in jail.

Libertarians would say it depends on how the wealth came to be. But utilitarians don’t care about that. They must always favor the second highly unequal distribution as long as the overall total is higher – even if (for some weird reason) it was the person left with 1 unit that created all the wealth.

Only a variety of Utilitarianism which doesn't have diminishing marginal utility says so.

Does that seem right?

No, the only thing that seems right is calling the Nicaraguan horcrux of my neighbor's cat Mildred rather than Dorcas.

Here’s a different possibility. Maybe you should care about creating a society as well-off as possible (as utilitarians do), but not at the expense of everyone or, in particular, not at the expense of the least well-off. Welfare-state liberals, sufficientarians, and many advocates of UBI think a fair distribution of wealth would be one where, however overall wealth gets distributed, a certain basic minimum is provided to everyone.

But, a better method is collective insurance. But the thing has to incentive compatible so as to prevent adverse selection and disincentive effects. The problem with insurance schemes is that it is easy to get the actuarial science wrong. There could be an unexpected entitlement collapse. But this is also true of U.B.I.

Maybe, I ‘m wrong, but I think this is the bare minimum required of a decent society – of justice. A relatively well-off society, one in what Rawls called “reasonably favorable circumstances”, should (and can) provide a minimum level of wealth to everyone.

No it shouldn't. A drug addict or a guy who wants to buy machine guns so as to massacre his work colleagues should not have any wealth whatsoever. He may be entitled to some food stamps or a nice cozy padded cell.

But how do you set that minimum? Who’s to say what it is? Well, think about what kind of society you would want to live in. You probably want to be free in various ways, but you also want to be as well-off materially as possible. If you didn’t already know your social position or your talents and abilities, you’d probably choose, if you could, to live in a society that maximized your prospects for being materially well-off. Whether you were the most well-off, or a member of the most well-off group, wouldn’t be as salient to you as the question of whether you might be one of the least well-off members of society. Given that we are talking about a society that overall is pretty well-off, arguably, the thing to do would be to go all-in for the least well-off being as well-off as possible. This is the conclusion of Rawls’ argument from an “original position” behind a “veil of ignorance” – and his “difference principle”. And one way to think about it is as a natural extension of the view that we need a social minimum. We need a social minimum, we might say, and that minimum should be set as high as possible.

In which case you have to impose tough migration controls. Chances are you'll end up with badly paid 'guest workers' who have no right of settlement.

You'd probably also get a lot of hostility to groups with high fertility.  As time moves on, you'd get social exclusion based on Tiebout sorting- i.e. people with few dependents move to areas where Schools and Retirement homes etc are of poor quality.

But why should there be inequalities at all? If our natural talents and abilities and social position are unearned, why not just go for strict equality? Well, for one thing, because some inequalities benefit everyone – including the least well-off. One central way that they do that by incentivizing the talented to contribute and work hard by giving them a larger share of wealth in return.
But why do the talented need to be incentivized? If I am one of the talented and I accept the argument for the difference principle, then I know that if I work harder without demanding greater compensation, I can help the least well-off even more. This will result in a stricter equality than that demanded by the difference principle. Now, as a practical matter, I might think that we do need to incentivize the talented in this way. But that practical need is not a matter of justice. In fact, it’s unjust of the talented to demand to be incentivize in this way. They are holding the rest of us hostage, demanding ransom to work to their fullest capacity. If they accept the difference principle they should want to make the least well-off as well-off as possible and should spend their energy and effort doing so without threatening to boycott contributing unless they get more. This is G.A. Cohen’s argument in “Rescuing Justice and Equality”. It is related, of course, to the long history of such arguments by Marxist, utopian socialists, et al.

The problem here is that if you misuse a word, all you have done is to tell a stupid lie. A person who is raping you may say you are very unjust for not paying her for her services. Then you get hold of a poker and smash her head in saying she is very unjust for getting her blood on your nice clean poker.

People who don't want to be raped are holding rapists to ransom by unjustly denying them access to their orifices. G.A Cohen was holding society to ransom by refusing to clean my toilet. Instead he shat higher than his arsehole and got paid to do it.

Maybe, Cohen’s right. But here I am tempted to borrow from the libertarians. Cohen’s view results, I worry, in “the slavery of the talented”.

Talented people fuck over the Cohens of this world. Even if they are slaves, they create 'Slave Dynasties'. Fucking over stupid people is a talent. Sometimes it is the only talent that matters.

While I think libertarians are wrong to argue that any social scheme that does not attempt to distribute wealth based solely on individual contributions is wrong, I still think there is a limit to what should be demanded from people.

This is a wholly empirical matter. States want an unlimited amount of resources. But they have to settle for a sustainable stream of tax revenue. They may promise to redistribute this but want to minimize the amount they actually transfer.

It’s one thing to think that, overall, we should aim to make the least well-off as well-off as possible. It’s another to think that unless everyone tirelessly labors to make everyone equally well-off, they sin against justice. The principle that governs the overall distribution of wealth it is not, I would think, also the one that specifies my charitable obligations – or what morality in general requires.

What is important is that assets are owned by those who can allocate them most efficiently. Charity has the same adverse selection and preference revelation problem as Government action. Mechanism Design is difficult to do but it can be done provided those with agency are the right end of information asymmetry and they act in a regret minimizing way.

But all of my arguments here have been relatively simple, superficial even. This is meant to be the beginning of a discussion, not the end of it.

But it is an uninformed discussion. This is a matter for empirical, positive, economics. We may as well speak of what the law of gravity ought to be as what the distribution of wealth ought to be.

And I should also say that I have been treating the distributive justice debate between philosophers as though it is only a debate about the distribution of wealth. This is a serious simplification. Philosophers debate both the distribution that justice demands and what the distribution is a distribution of.

They may debate what they like but everybody now thinks they have shit for brains. It is obvious that the distribution of wealth is a distribution of assets which yield income over time. Economists and Accountants and Actuaries spend a lot of time deciding what is or isn't an asset. At one time a PhD in Philosophy was an asset- you had higher life time earnings with one. Nowadays, the reverse is the case- unless you are in fact an utter cretin.

This second debate is sometimes called the debate over “the currency of egalitarian justice” (see, Cohen). No one in that debate actually proposes that wealth, much less money, is the right stand-in for what we should be distributing. Instead, they propose that we distribute primary goods, resources, welfare, unchosen luck, capabilities, the opportunity for welfare, utility, access to advantage, or the like. However, I think these arguments apply well-enough to the distribution of wealth to be useful. You might disagree.

Useful to whom? This is a matter where the layman has superior knowledge to the philosopher. That's why the layman refuses to study philosophy. He gets a trade and encourages his kids to apply themselves to STEM subjects. If they are stupid, they are welcome to try Econ. If they are mendacious, they should study law. Only if they are utter cretins is a credential in this worthless subject a matter for approbation. Those with special needs need special education and Philosophers are very very special indeed.