The Questioning Christian

Why income earning power isn't an acceptable measure of "fairness"

(From a Facebook discussion about income inequality:)  As I get older I get less and less enamored with using income as any kind of proxy measure of net human contribution, and by extension, of "fairness." Income is determined by the vicissitudes of whatever the marketplace happens to value at the moment, and markets are notoriously prone to short-term thinking and to encouraging participants to burden others with their "externalities," that is, with their side-effect costs such as emission of air- and water pollution. (Socialize the costs, privatize the profits.)

EXAMPLE: For several years I've volunteered a few hours a year in the Real Men Read program, reading "chapter books" to underprivileged elementary-school kids (I was recruited by a close family friend who's a teacher).  I can easily argue the case that in the long term, no one is more important to society than school teachers. Yet we pay even the best teacher a tiny fraction of, say, the income that Martin Shkreli has managed to capture.  The marketplace has highly valued his skills and has rewarded him accordingly. But his income is in no way a valid measure of his long-term contribution as a human being and thus of what's "fair" for him to get.

 

(In fairness to Skreli, I think he might well be mentally ill — or at least he's putting on a good show of it for his criminal trial — but my point remains.)

We just don't know enough about human motivation

In a Facebook thread, a conservative friend writes: "And yet, those economies where it was 'sink or swim' have thrived throughout history (in contradiction to those that were socialist)." I moved my response here.

That's an oversimplification. Sink or swim does provide a certain motivation, but humans generally aren't willing to just let others sink, even when the others' problems are their own "fault."

That's why we have laws requiring hospitals to treat emergency cases, even when the patients should have bought health insurance. That's why we have food stamps.

For that matter, that's why first responders and volunteers risk their lives to rescue people from their Harvey-flooded homes and streets, even though those people had [fouled] up by ignoring earlier warnings to evacuate.

We simply don't understand human psychology as well as we need to. In particular, we haven't developed a broadly-accepted, tested, general theory about what it takes to promote socially-desirable behavior.

Sure, we have various notions along those lines. A lot of those notions, though, are no more evidence-based than, say, bleeding a feverish patient to (supposedly) reduce the fever, as physicians used to do centuries ago.

In that vein, I thought this Kristof piece from a couple of months ago was quite thought-provoking:

... Consider baseball: Some teams pay players much more disparately than others do, and one might think that pay inequality creates incentives for better performance and more wins.

In fact, economists have crunched the data and found the opposite is true. Teams with greater equality did much better, perhaps because they were more cohesive.

What’s more, it turned out that even the stars did better when they were on teams with flatter pay. "Higher inequality seemed to undercut the superstar players it was meant to incentivize, which is what you would expect if you believed that the chief effect of pay inequality was to reduce cooperation and team cohesion," Payne notes.

Nicholas Kristof, What Monkeys Can Teach Us About Fairness (NYTimes.com June 3, 2017) (emphasis added).

This lack of a true understanding of human motivation, and how to apply that understanding to motivate "useful" behavior, is the basis of a lot of political disagreement. For example:

• Today's GOP leadership thinks that tax cuts for the wealthy are a panacea for the economy; they think that such cuts will supposedly incentivize the wealthy to create jobs. Sure, the Laffer curve ~sounded~ good back in the 1970s. But from what I've read, most non-right-wing economists have concluded that, at the very least, the Laffer curve has been taken too far. ("If a little is good, then more would be even better — right?")
• On the other side of the aisle, some leftists seem to think that we could solve all our social ills by imposing punitive taxes on the rich and giving everyone a universal basic income (UBI) and free health care. That strikes me as likely to be a fantasy, for several reasons I won't take the time to discuss.

In sum: We just don't know where the sweet spot is for getting people to do useful things. Hell, we don't even agree that much on what we mean by "useful." And in any case, the sweet spot is likely to move around over time, just as weather patterns do.

The best we can do, I submit, is to stay focused on seeking the best for others as we do for ourselves, and to face the facts as they are revealed to us.