Anyone who read my last post will no doubt have sensed that I’m having a lot of difficulty summoning up much enthusiasm for the current politics of the NDP in Ontario, in particular, their willingness to assign redistribution of wealth priority over the need to solve certain pressing collective action problems. Thinking about the issue reminded me of the opening paragraph of a book I read recently, by Samuel Bowles (The New Economics of Inequality and Redistribution):
Socialism, radical democracy, social democracy, and other egalitarian movements have flourished when they successfully crafted the demands of distributive justice into an economic strategy capable of addressing the problem of scarcity, and thereby promised to improve living standards on the average. Redistributing land to the tiller, social insurance, egalitarian wage policies, central planning, and providing adequate health care and schooling for all have been attractive when they promised to link a more just distribution of economic reward to enhanced performance of the economic system as a whole.
The writing here is not entirely transparent, but the central claim is an extremely important one. When trying to promote greater equality, it is a mistake to think that one can simply take the existing social product and redistribute it. Why? Because it creates too much social conflict, and will ultimately be undone. To the extent that the left has been successful in promoting greater equality, it is by proposing schemes that simultanously expand the social product and distribute the benefits in a more egalitarian fashion (relative to the background market pattern). The best example of this, to my mind, is social insurance, which achieves important efficiency gains and promotes greater equality.
From this perspective, to focus on distribution alone, or worse, to focus on distribution at the expense of efficiency, is a terrible mistake. Here’s a slightly more polemical way of making the point (this time from Robert Lucas) which I found quite striking:
Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution. In this very minute, a child is being born to an American family and another child, equally valued by God, is being born to a family in India. The resources of all kinds that will be at the disposal of this new American will be on the order of 15 times the resources available to his Indian brother. This seems to us a terrible wrong, justifying direct corrective action, and perhaps some actions of this kind can and should be taken. But of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor. The potential for improving the lives of poor people by finding different ways of distributing current production is nothing compared to the apparently limitless potential of increasing production.
This overstates the case a bit. When one is increasing production, it is perfectly legitimate – indeed, in some cases urgent – to concern oneself with how the benefits of increased production are being distributed. One cannot simply say “let’s increase production, and worry about distribution later,” because as we have seen, the increased production is not unowned, and once it is in someone’s hands, it is very difficult to redistribute. The important point, which Lucas is making (in a right-wing way) and Bowles is making (in a left-wing way), is that it is extremely pernicious to focus exclusively on distribution, or to focus on distribution at the expense of efficiency. The central challenge for the left is to think up new patterns of social organization that will make everyone better off and produce greater equality. Just imposing higher taxes on the rich manifestly fails to satisfy this criterion.