Another reason not to worry too much about the supposed incompatibility of equality and freedom is the fact that an equal level of monetary resources promotes freedom. Money in the form of a relatively decent income allows us to choose from and engage in a wide variety of activities. It makes it possible for us to buy the commodities and services we want to buy, and consequently do with them what we want to do. (Of course, within the legal limits that determine what can be commercially traded and how traded goods can be used; e.g. we can’t buy people, and we can’t use the guns we buy to kill people). As a result, we have a wider choice of life plans and more means to pursue our chosen plan.
This is freedom in one sense of the word: more choice. Freedom in another sense, namely the ability to do what we want without interference, looks absolutely anemic compared to this. After all, what good is the absence of interferes when the world we live in offers us only very few options or none of the monetary resources to choose and pursue options. This freedom from interference is hardly valuable, if it is freedom at all.
So, if we agree that monetary means promote freedom in a certain sense of the word because these means broaden our sets of choices, then I guess we’ll also agree that a more equal distribution of money, wealth and income promotes freedom: it gives people who receive more money in the new, more egalitarian distribution more freedom, without necessarily diminishing the freedom of those whose resources are diminished in the new distribution. The monetary freedom of the rich isn’t necessarily reduced after income redistribution and after reductions of income inequality, because of diminishing marginal utility. The ability to buy a fifth yacht doesn’t increase anyone’s freedom in any sense of the word. And taking away this ability doesn’t reduce anyone’s freedom. On the contrary, if the monetary means that could have been used for this fifth yacht are instead given to a number of other people who don’t have a lot of money, then these means will benefit the freedom of those other people, and aggregate freedom will have increased.
So that’s a good reason to reduce income inequality. However, it’s probably not a good reason to eliminate income inequality completely, for four reasons. First, even if, ideally, people have a right to the same extent of monetary freedom as it is defined here, that doesn’t mean they should have the same amount of money. In order to be able to do the same things and have the same choices, different people need different amounts of money. The handicapped, for instance, may need more than average.
The second problem with equal money is that it would mean deep and frequent violations of property rights, and property rights are important, perhaps just as important as freedom (and no, property rights and freedom are not the same thing: the former are a means to interfere with the freedom of others, namely the freedom of others to use goods that belong to you).
A third problem created by equal income is related to incentives. And finally, equal income doesn’t combine well with considerations of desert (one definition of desert is that people deserve different levels of monetary wealth for their contributions to society, culture etc.).
We could react to these different considerations by framing the issue as one of value pluralism: income equality and freedom are important values, and so are desert and property. The difficulty would then be to balance these different values which, it turns out, are sometimes contradictory. That would mean limiting the equalization of income at some point before total income equality, at a level that is compatible with respect for property rights (also limited), with due consideration of incentive problems (also limited), and with recognition of the moral value of desert (also limited).
There’s possibly some Gini value that would hit this balance. This Gini value of x gives a level of income inequality at which monetary freedom is maximized for a maximum number of people. A value lower than x (the lower the Gini value, the more equal the income distribution) resulting from higher levels of income redistribution would not increase the monetary freedom of the poor because the amount of money taken from the rich has become so high that it doesn’t just eat away at marginal utility but also produces disincentives high enough to reduce the size of total social wealth.
We could try this kind of delicate balancing between redistribution on the one hand and incentives produced by rewards for deserving actions on the other hand. (Alternatively, we could also drop income equality as a value and instead focus on a so-called sufficientarian approach in which we would try to give people enough monetary means to achieve a certain level of freedom – freedom as it is understood here – regardless of the means and freedom of the people at the top of the income or wealth distribution. However, I’ll leave that option aside for the moment).
Let’s have a look at this:
We start of with the dark red and dark blue lines, indicating a certain distribution of income and freedom respectively (gray “1st”). You have some people with less income (left side), and therefore also less freedom (in the sense of freedom as a large set of choices and the monetary means to pursue them). Then we redistribute some income from the people on the right (those with more income and more freedom) to the people on the left (black “1st”). As a result, the freedom curve moves (black “2nd”). But the people on the right, although they lose income, don’t lose freedom (due to diminishing marginal utility of income). Redistributed income (pink line) doesn’t match the equality line, since we want to reserve some space for incentives and desert (the area above the equality line and beneath the pink line). As a result, the freedom line also doesn’t match the equality line.
However, there are some problems: we’re dealing here with a somewhat strange notion of freedom. Freedom is obviously much more than the use of monetary means to choose and pursue goals. Also, we don’t want to promote consumerism. The problem with consumerism is that the truly important parts of life can’t be bought, and that focusing on consumption tends to sideline those important parts. It also has ecological disadvantages.
And another problem I already mentioned: some people will be worse off if money is equalized because they need comparatively more money just to have the same capabilities. Hence, rather than equalizing money we should perhaps equalize capabilities.
- Spirit of the age (economist.com)
- Ray Brescia: When the Rich Get Risky: Inequality and Financial Crises (huffingtonpost.com)
- What’s income inequality got to do with it? (economist.com)
- Un-Level Ground (online.wsj.com)