An Economic Theory of Justice?

17 Aug 2017 12:30 PM | Mike Lillich (Administrator)

By Oren M. Levin-Waldman

First published online by the Yonkers Journal.

In his now famous A Theory of Justice written more that forty five years ago, John Rawls asks us to imagine ourselves living under a veil of ignorance. Under this veil, we have no knowledge of our abilities, attributes and resources and similarly we have no knowledge of the abilities, attributes and resources of others. Under such a veil, just what governing arrangements would we choose?

These governing arrangements include the economic along with the political, and the sum total is about choosing a theory of justice that will be deemed to be fair. Rawls rejects the utilitarian theory which asserts the greatest happiness for the greatest number, which also accords most closely with pure democracy. Rather he asserts the principle of the priority of the right over the good.

This is often taken to mean what is correct over the whims of the masses. Or it means that people would choose a set of arrangements that protect their rights from those that might seek to take them away because it would suit the preferences of the many. In other words, most people, he assumed, would opt for procedural justice rather than substantive justice.

What exactly does this mean? If the priority is of the right over the good then society does not have to be equal in terms of outcomes, but it does have to be equal in terms of standing before the law, access, and opportunity. Once the veil is removed it will become apparent that not all are equal in terms of their endowments and that those with more abilities and talent will have more.

And yet, the very nature of the global economy seriously challenges many of the assumptions behind the veil of ignorance. If we didn’t know that the forces of globalism would drive down the wages of those without any special skills, then it makes sense to choose arrangements that still speak to equality of opportunity.

If, however, we knew what the outcome of a global economy would have been, we might have chosen a set of arrangements that not only would ensure that each has the same thing, but would fully redistribute wealth and income from the wealthy to the poor. In other words, it is possible that even under a veil of ignorance in a global economy that if presented with a scenario of rising inequality we would opt for a simple formula of over taxation of the wealthy and redistribution.

Still, it doesn’t follow that redistribution needs to be the response to rising inequality. Perhaps under the veil of ignorance we could be told that there is rising inequality and one set of arrangements that could be chosen are institutions that would guarantee liveable wages and would ensure that wages would continue to rise? Might this not be another version of the priority of the right over the good?

Amidst all the debates over what types of economic policies ought to be pursued is the question of which are most likely to increase people’s dependence on the state and which are more likely to ensure greater personal autonomy. For some reason, policies like the minimum wage are often presented as state interventions that infringe the freedom of workers to work for wages below the established floor.

And yet, if we are all paid poverty wages, we cannot be autonomous, especially if we have to rely on social supports from the state to make up the difference. Nobel laureate and philosopher Amartya Sen has defined poverty not only as having little money, but of being deprived of one’s capabilities.

It is hard to know what this means exactly. Are we deprived of our capabilities because our poverty rendered us unable to develop the skills necessary to command higher wages? Or are we deprived of our capabilities because poverty leaves us unable to function as truly independent and autonomous individuals? We do know that those with more resources — higher income — are more likely to participate in the civic affairs of their communities.

Data from the Current Population Survey (CPS) shows that as family income increases from below $30,000 a year to just between $30,000 and $60,000 a year, civic participation increases exponentially. Already there would appear to be an argument for a $15 an hour minimum wage. We also know from some studies that it is at $15 an hour that individual reliance on social supports from the state would begin to decrease.

If we assume that the development of capabilities entails individuals being able to develop themselves because they now have greater autonomy to do so, then the priority of the right over the good has to consist of choosing institutions that will prop up wages, especially in the greater global economy.

After all, we do have to assume that people still want to be free and not have their rights trampled upon on the whim of the many. A set of arrangements that simply redistributes on the grounds that one who has been successful owes it to others to surrender one’s wealth is not a system that is protecting one’s rights.

Of course, the retort might well be what about the rights of the masses not to be in poverty? Fair enough. But that obligation is not on those with wealth, but on society as a whole. Society can fulfill its obligation to protect the rights of all to live autonomous lives by simply establishing and maintaining labor market institutions that will ensure that everybody can earn a liveable wage.

The median voter theorem holds that the more inequality there is, the greater will be the distance between the median wage and society’s average income. What the median voter theorem does is determine the tax rate for the purposes of redistribution. But the same objectives could just as easily be accomplished with higher minimum wages and strengthening collective bargaining.

In other words, the median voter theorem follows the logic of utilitarianism whereas support of labor market institutions follows the logic of priority of the right over the good. Were we to apply Rawls’s theory of justice to addressing growing income inequality, it stands to reason that under the veil of ignorance that most might opt for strengthening institutions, because it would also accord with our well established tradition of procedural justice.

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