Economic Theory – John Rawls – The Difference Principle is Both a Solution and Part of the Problem – 30 April 2012

Let us consider the following story:

(Point In Time 1) There is a small difference between the fortunes of those most well-off and the fortunes of those least well-off. This small difference is sufficient, however, to provide an incentive system. Those with less money compete in the economy to offer goods and services, and those who provide the best of these earn more money. The economy, overall, is efficient enough to provide a good living even for those least-well off.

(Point In Time 2) There is a large difference between the fortunes of those most well-off and the fortunes of those least well-off. This is the case BECAUSE AT POINT IN TIME 1, THOSE MOST WELL-OFF USED THEIR ECONOMIC POWER TO GAIN CONTROL over the political and social system. Wages are driven downwards to the point where people come to realise that there is no longer a functional incentive system, because it is unlikely that any amount of work will gain them any more money. The economy, if it remains efficient, will only provide a good living for those most well-off, and it does so off the backs of the least well-off.

Okay, everyone got how this story works? Now let’s talk about the philosophy of John Rawls.

The ideal of Rawls (which he describes in his work as the “Difference Principle” which governs the generation of just outcomes in a “property-holding democracy”) is best illustrated by Point In Time 1. The decay of his ideal is best illustrated by Point In Time 2. However, the decay occurs because of something that _happened_ at Point In Time 1 (the part of the story I wrote in capital letters).

I am a big fan of Rawls, and his description of what constitutes political justice is, in essence, the same as my own. My problem with him, insofar as I have one, is that he seemed not to be concerned that the power relationships created at Point In Time 1 also overwhelm justice, leading to the situation at Point In Time 2 that even he would see as unjust.

Obviously, we are now pulling into a Point In Time 2 in most of the industrialised world right now, because we have let the distribution of capital concentrate into the hands of a vanishingly small number of people.

Rawls insisted on a “Wide Dispersal of Capital” for his just society, and of course, that’s an important criterion. But it’s not _just_ a question of redistribution we need to confront here. A redistribution occurred after World War II and we had a good run at creating more or less Rawlsian societies across North America, Europe, Japan and Oceania from the 1940s through the 1970s. We have been there, and we have done that. We can certainly do it again, too.

What we also did during that 1940s-1970s period, however, was lose sight of the need to defend those redistributive policies over time. We tired of paying taxes, and we fretted about government spending practices. The poorly-thought-out solution? Letting in Margaret Thatcher and Ronald Reagan and the rest of that bunch, allowing them to take an axe to the redistributive framework, and watching as “property-owning democracy” became a plutocratic autocracy. We let Point In Time 1 become Point In Time 2.

What we need to do is turn that back, and this time, protect the fairness of the macroeconomic system by keeping the level of stratification in society within reasonable limits.

In other words, “Vive la pétite différence” but “Régler la grande différence”. Rawls’s Difference Principle is fine, so long as it is supported by the Plutocracy Corollary.

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