Opinion & Commentary

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Fairness is not equality

Steven Schwartz | Australian Financial Review | 26 November 2012

Barack Obama says it’s “the defining issue of our time”. Wayne Swan calls it a “poison” that “has infected our politics” and the Australian Council of Social Service (ACOSS) fears it is getting worse.

What is this scourge? Is it the increasingly futile war in Afghanistan, the dangerously changing climate or the horror of child abuse?

No, the poison seeping through the body politic is income inequality. The rich, it appears, are getting even richer.

Why should we care?

According to Richard Wilkinson and Kate Pickett’s 2009 book, The Spirit Level, we should worry about income inequality because it increases crime, lowers life expectancy and, worst of all, makes you fat.

It seems the stress produced by envying the rich (“social status differentiation”) causes people to overwork just to keep up with them. To calm down, they gorge on comfort food and, when all else fails, turn to crime.

In contrast to The Spirit Level, which focuses on the social costs of inequality, Nobel laureate economist Joseph Stiglitz’s recent book, The Price of Inequality, is concerned with inequality’s economic consequences.

Because wealthy people save more of their income than the less well off, Stiglitz says income inequality reduces overall economic activity.

He calls for a more equal distribution of income, which would increase demand, stimulate growth and give more people the chance to realise their full economic potential.

One way to reduce income inequality is to get rid of the rich. If Bill Gates, Warren Buffett, Rupert Murdoch and their billionaire friends could be persuaded to emigrate from the United States, income inequality would decrease overnight.

According to Wilkinson and Pickett, their departure would make Americans healthier, more law abiding and thinner. If Stiglitz is correct, it would also increase economic growth.

As a social policy, deporting billionaires presents a practical problem. Given the pernicious social and economic effects of their presence, what country would provide them with a home?

So, instead of deporting the rich, ACOSS, Wilkinson and Pickett, and Stiglitz prefer to increase their taxes. They call for a top income tax rate of 50, 60 or 70 per cent; higher inheritance, capital gains and gift taxes and, if the rich have anything left, a wealth tax too.

An election platform proposing soak-the-rich tax increases would not be attractive to rich people but it might be a vote winner among those who believe income inequality is unfair. Wayne Swan seems to think this, but is he correct?

Fairness and equality are not synonyms; sometimes income inequality is not only fair but also preferable to equality.

Consider this example, adapted from one proposed by political philosopher Robert Nozick.

Imagine an isolated town of 1000 people, each of whom has an identical wealth of $10,000. One citizen – a singer called Kylie – decides to stage a concert. Those who attend will be charged $100. No one is forced to buy a ticket, but everyone in town decides to hear Kylie sing. At the conclusion of the concert, the town, which once had perfect wealth equality, now has massive inequality. Kylie is more than 10 times richer than everyone else.

If the initial (equal) distribution of wealth in the town was fair, and if it is just to allow people to voluntarily exchange their money for something they want (assuming their desires are not harmful to others), then it is hard to see why the final (unequal) distribution of wealth should be considered unfair.

To return the town to equal wealth, the government would have to confiscate Kylie’s earnings and refund everyone’s ticket. This really would be unfair. Kylie did not force anyone to buy a ticket and she would surely think twice before giving another concert. Without income inequality, the town would be deprived of Kylie’s music.

The same contingencies apply across society; without income inequality the world would be a poor, drab and unfair place.

As a decent society, it is right that we ask those with more to make greater contributions to society.

We must provide everyone with a social safety net, a decent education and good health care, but income equality is not achievable, it is not desirable and it is not fair.

Steven Schwartz is senior fellow at The Centre for Independent Studies and former vice-chancellor of Macquarie University.