Distributing incomes to match what each of us deserves

I received a very kind note from someone I had spoken with at the Historians of Economics conference the other day which I had discussed here. She sent me two articles, one from the economist Greg Mankiw, and the other from a philosopher, Peter Bauman. Mankiw was trying to justify the distribution of income in a market economy, and the philosopher, oddly, was almost trying to defend Mankiw. Neither, however, satisfied me, so this is what I wrote back.

Had a quick read of the two articles. Mankiw was such superficial nonsense I could barely stand it. I was pleased that the reply by the philosopher picked out some of what I thought. It was not what I thought you had meant since we were talking about pricing in a market economy, which does have a major ethical dimension since if you try to manage an economy without using the market mechanism you end up like Venezuela. Not understanding that and having such folly turned into national policy has left millions destitute and in the hands of tyrants everywhere.

As for distribution of income, the core issue of an economy is how do you get people to undertake the various jobs that need to be done, such as cleaning blocked sewage pipes. And then if you are looking at questions like how do we make economies grow and how do we get innovation, well there are additional questions that need to be answered.

As a first approximation, which you may not like, as I was reading the articles, it occurred to me that the greatest injustice – far beyond anything related to incomes – is the injustice that the teams each of us follow almost never win the Grand Final. Some people therefore get fantastic pleasure in life while the rest of us have to get by supporting losing teams, often for years and years on end. Seems very unfair to me. You may not think that is much of an analogy, but it is closer than you think. As Bauman was trying to point out, the nature of the world makes it difficult to relate economic contribution to reward.

I see all those folks who read Marx when he was first published for whom nothing could have even possibly been done at the time to make their lives one tenth more prosperous and less difficult than lives turned out to be half a century later, although these were different lives. And lives became even better half a century after that by 1960, and then half a century later we are where we are today, living much better than anyone in the 1860s. And still so many are dissatisfied. Income distribution is a misery index with no practical value since however you slice it, the distribution of income in a market economy is closely related to the production of goods and services. Disturb the first and you disturb the second, and not only is no one better off, but tens of millions become much worse off. Did I mention Venezuela?

The politics of envy has ruined more lives than almost any other human trait, other than the lust for power.

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