This was stolen from a comment on this week’s EconTalk with Richard Epstein.
The concept of the rich getting richer and the poor getting poorer is oft-repeated, although according to my Google results, many of the top hits are articles disproving it. Despite this, sources from the Washington Post to Gawker to Thomas Piketty have talked about inequality and its negative consequences.
On EconTalk Russ Roberts stated the following:
I want to create a Rawlsian veil of ignorance…where we’re going to imagine different states of the world, but you don’t know where you’re going to be in those different states.
First state of the world is 1900. You might end up being a rich person or a poor person. The next state of the world is 2016. Again, you might end up being a rich person or a poor person. I think most people alive today…would prefer to have a random shot at a 2016 life than even actually to be in the upper 10% or 5% in 1900.
This is a fascinating application of the Rawlsian veil of ignorance, an excellent moral and political philosophy tool. As Russ states, under a veil of ignorance, we take a society and imagine that we could be randomly assigned the life of anyone in that society. Usually this is used comparatively to accept or reject certain layouts of society. For example, I’ve personally heard economists discussing surveys based on the Rawlsian veil of ignorance where most citizens would choose to live in a more equal society than they think they live in. Interestingly, most people underestimate the level of inequality in most western countries compared to the actual level of inequality, and would choose societies more equal than what they estimate society to be. The implication is that people’s own revealed preferences when they put themselves in the position of an outsider is to advocate for more income redistribution.
However, there are some links between economic growth and inequality; it may be hard to have one without the other. If that’s the case, an important question to ask is whether you’d want to be in a poorer economy with low inequality or a richer economy with high inequality. Russ’ thought experiment does this pretty well. It’s also worth comparing today’s economy with the 1970s or 80s. Would you choose to be randomly placed in more equal 1980 or less equal 2016? Today cars are safer, communication is better, food costs less and more varieties are available, and life is better in immeasurable ways.
What if you were guaranteed to be in the top 50% of the world in 1980? What if you were guaranteed to be in the top 50% of the US in 1980? What level of wealth would you need to guarantee before you stopped risking being a poor person today? It’s an interesting question, and uses our own intuition to counter the notion of the “rich getting richer and the poor getting poorer”.