Russ Roberts

Schmidtz on Rawls, Nozick, and Justice

EconTalk Episode with David Schmidtz
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David Schmidtz of the University of Arizona talks with EconTalk host Russ Roberts about the work of John Rawls and Robert Nozick. The conversation covers the basic ideas of Rawls and Nozick on inequality and justice and the appropriate role of the state in taxation and property rights.

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About this week's guest:
  • David Schmidtz's Home page
  • "The Meanings of Life," by David Schmidtz. First presented at the Boston University Institute for Philosophy and Religion in December, 1999.
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0:36Intro. [Recording date: April 25, 2012.] Russ: Economic justice: We are going to talk about John Rawls, Robert Nozick and the notion of economic justice generally. Let's start with John Rawls. His book, Theory of Justice, was published in 1971. Talk about that book. Guest: It begins with Rawls trying to set out a theory of justice, and he sees theorizing about justice as a project of modeling a kind of fairness, like different things can be fair, and evaluation can be fair or not, and shares can be fair or not. So, Rawls is giving us a theory about what would make shares fair. And the obvious first thing to say, which is the first thing he says is that the fair way to divide a pie would be into equal shares. But he said, there is in some theoretical way another alternative; so suppose that the pie's size is variable and that how large the pie would be, would be in part a function of how we decided to divide it. So, different ways of dividing it, possibly unequal ways of dividing it, would lead to a larger pie. And could conceivably lead to larger or smaller shares, but a pie so large that even the smallest share is something that is a larger slice than an equal share would have been of the smaller pie. And so that's the original driving motivation of that theory. So, he comes up with a principle of maximizing, maximum equal liberties for all; but there's also a principle for distributing--it's interpreted as a principle for distributing goods. But that's not literally what it says. It says you distribute inequalities in such a way that even the least advantaged ends up more advantaged than would be possible under a more egalitarian scheme. That principle is called the difference principle--distribute inequalities so as to be to the greatest advantage of the least advantaged. Russ: So, the idea would be, if it didn't affect the size of the pie, equal shares. But we are willing to tolerate inequality as long as it improves the well-being of the worst off. Guest: Improves the well-being of everyone, including the worst off. Russ: Oh, including. Guest: Yes. Well, interestingly, the first two statements of that difference principle, before 1971, actually said it in that open-ended way: make sure that the inequalities are to everyone's advantage, including the least-advantaged. Now, by 1971, he's actually changing his story, in a seemingly subtle but in fact momentous way. He says: Well, actually there are indefinitely numerous solutions out on that frontier of welfare that would be compatible with that principle, innumerously different, unequal distributions that would be good for everyone; so he said: So, what we've got here at best is an incomplete ordering principle, and we need something that's complete. And so we have to define a principle that picks out a definite spot on that frontier. So he says: Well, let's pick the spot on the frontier that is to the greatest advantage of the least advantage, so that the smallest share is as large as it possibly can be. Now, that is an intuitively obviously principle to pick. Russ: If you thought it was crucial to have a solution. It's not clear that that is ideal, per se. Guest: Well, that's a good point. And in fact, what I would say is, it isn't the job of a--this is a basic structure we are talking about defining, and it isn't a basic structure's job to pick out a particular outcome. I mean, the reason we want a set of traffic-management tools and policies, the reason we want to agree that red means stop and green means go, is that we want to minimize the cost for everyone, including the least advantaged, of getting to their destinations. So, the point isn't to be maximally advantageous; the point isn't to get everyone to the same destination. And you'd think Rawls would not have said that either; he would agree with that. But yet this idea that we need to pick a specific outcome is, I think, a subtle but major turn in a wrong direction, I have to say; that the point of basic structures is to put us in a position where we can pursue our own plans in a way that isn't threatening to each other. But to do this, it put, as Nozick is going to come along and say, in 1974--that puts people in a position where the rest of us are supposed to think our job in life as people committed to justice, or the job of our basic structure, anyway, is to make sure that those other folks out there are made so well off that if the system tried to do anything better for them, tried to do more for them, it would end up being less. Russ: Couldn't do it. Guest: Nozick says that is just an amazing thing to expect of a system of justice in forming basic structure that is supposed to respect us all as reciprocators and is supposed to treat us all as inviolate separate persons who come to the community with hopes and dreams of our own. Russ: Of course, not everyone accepts that; but I happen to like that one. And obviously Nozick thought that was crucial. Guest: Rawls did, too. Russ: We'll come to Nozick in more detail in a little bit, but let's still stick with Rawls. Tell us a little bit about Rawls--his background and interests. You mentioned before we started the interview that he hung out with a lot of economists. Which I didn't realize. Guest: Yeah. Among his friends were James Buchanan, Ken Arrow, William Riker, Amartya Sen. And these folks were different generations, too. But that was a group of people that formed--these were Rawls's friends and mentors, his discussion group. These were the people that he bounced ideas off of. And so the young Rawls was very much conversant with this developing field, rapidly developing at the time, field of political economy. Very much versed in the game theory and the welfare economics of the time. Very much educated in this and very sensitive to it; and very keen to bring the insights of that field to philosophy. And very successful at bringing those insights to philosophy. He lifted the profession out of a state--I think single-handed would be, well, historically inaccurate, I suppose--but I think it would be fair to say that Rawls more than anyone else kind of broke the equilibrium in which moral and political philosophers were basically saying: Well, there's some kind of dialectic of historical materialism and it doesn't really matter; we can't do much about that anyway as philosophers; it's not our job. Our job is to define terms. Or better yet, get somebody else to define terms and then we can poke holes in their definitions. He who defines a term first loses the game, basically. That was the game at the time, to just think about consistency; not worry about truth , not worry about empirical correlation. So, in effect, not worry about practicality. So, philosophy had almost proudly come to a state where it had nothing to say about politics. Or ethics, for that matter.
10:00Russ: Now, one idea that I think people have heard of from Rawls--I'm looking, I'm sitting in my office doing this interview face to face--and I can't quite see the full section of the Rs on my bookshelf, but I once owned a copy of The Theory of Justice. I may still own it. I have read maybe half of it. It's a hard, fat book. It's not easy going, so I appreciate the help. But one idea that I remember, and I think many people have heard of, is the Veil of Ignorance. Describe what that is and how it entered Rawls's formulation of justice. Guest: It's a hard book for anyone. It's a long book, and it's a very sophisticated book. He's pulling together a very large number of threads of philosophy and political economy, trying to pull them in and weave a fabric out of them. So, it's not your fault. Everybody who takes the book seriously has trouble with it. It's just full of insight. But if you think about how we get to that task of dividing the pie and really the prior task of getting the pie to the table in the first place--which I don't think he does enough to talk about that. He's talking about people as separate agents, separate persons, separate producers, and respecting their separateness in a way that utilitarianism fails to do. And part of my problem is--he goes on later, as he's divorcing himself from the political economists that formed his early discussion group--he's going on to talk about, say, the distribution of talent, and saying: Well, here's why we would originally go for that semi-egalitarian distribution that we'd only want to depart from egalitarianism--strictly equal sha res--if we could do so in a mutually advantageous direction; the obvious answer would be: well, I've got talent. I've got something in me; I've got something I want to bring to the table and I want to bring to society. But I want to be the first person who makes money from it. I want to--Adam Smith would say--I want to be esteemed for this. And I want to make money for it. But the point is, some people say, actually, I have premium talent. As a matter of respecting me as a separate person, I want to be paid a premium price for my premium talent. And Rawls would say: Well, that's a problem; I understand the intuition that people deserve to be paid what they are worth. They deserve the marginal product of their creative output and so on. But Rawls says: That's not the direction we are going to go in. We are going to go in the direction of this difference principle that starts with equality and only departs from it for the sake of giving everyone a larger bundle of primary goods. So, it's not about giving people what they deserve. It's about giving people somewhat better than an equal share. So, he says, this would be more intuitive if we imagine ourselves in a fair situation, where we don't come with our biases about how talented we are and how much more we should get paid than the Joneses and so on, so the thing to think about is to imagine ourselves bargaining in a situation where we don't really know where our personal interests lie. So, for example, we may think: Shouldn't someone who can throw a baseball 100 miles an hour get paid more than someone who can't? Shouldn't they in fact be paid millions of dollars? And you say: That isn't obvious. But however we decide that question, let's not let the pitchers decide it, and let's not let even the fans decide it. Let's have people decide it without knowing whether they are pitchers or people completely indifferent to the whole sport and would not watch an inning of that game to save their lives. So, get everybody in the room, get all the people representing, anyway, every perspective in the room; and have them make that decision in a truly impartial way. So the point of the Veil of Ignorance is to say to people what you are supposed to be imagining is, if you don't know who you are. So, there's x, y, and z; there's some guy out there named Russ Roberts, but you don't know that you are Russ Roberts. How much do you think Russ Roberts should get? And if you decide here's what Russ Roberts should get and you don't know that you are Russ Roberts, well then the answer you come up with will be a lot more impartial than if you do know that you are Russ Roberts. So pretend you don't know who you are. Russ: Yeah; it's actually--using the word impartial reminds me of Adam Smith's Theory of Moral Sentiments, where he often invokes the impartial spectator, a person who is impartial in, say, a dispute where two parties are angry at each other, or one who is seeking vengeance or one who has been offended. And since that impartial spectator doesn't have the emotional baggage and the bias of the participants, that's the exemplar we should turn to for how to behave in that situation. There's something of that in Rawls, right? Guest: Uh, yeah, absolutely. These are certainly fellow travelers in a tradition. Rawls belongs in more than one tradition; but the contract carrying tradition is something he has links to, and the moral sympathy tradition is something that he has links to. Russ: Now, of course, one of the problems with the Veil of Ignorance--your mentioning James Buchanan brings it to mind--is that there's no such thing as Russ Roberts when you are behind the Veil of Ignorance. There's no such thing as baseball behind the Veil of Ignorance. It's an interesting, perhaps, intellectual experiment to say how much should a bricklayer or a blacksmith or an auto worker earn if I don't know if I'm going to be that person. We take those as given in the exercise, but of course they emerge through the choices people make and the skills they have; and they all depend on the skills of the other people. So you can't even say how much should a bricklayer earn. How much should a blacksmith earn? Well, there aren't any blacksmiths any more. How does that affect our calculus? Or, we could ask the question: Well, how much a blacksmith might earn might depend on a thousand, millions of other people in the society in 1850, and what their skills are. It's an interesting suspension of disbelief, I guess, and requirement of knowledge you can't have. Guest: Yes. I guess, so James Buchanan would say we start from here. Russ: Where's here? Guest: Well, here is in the world of Russ Roberts and baseball. Russ: Yeah. Guest: And in a way I think Rawls would say: That's my theory, too; I don't disagree with that. But he would say: We don't want to start off with our epistemology situated in that world. We still want to come out of this with conclusions that are relevant to the world of people actually living. But in a way we don't start our theorizing from here. We say: Suppose we were starting from nothing; what would we build? Now, if you think about the kind of theorizing we are doing there, that will not have had at any point at the end of the day, it will just have been an idle exercise, if we don't come out of it with stuff that applies to the real world of baseball and Russ Roberts. So, when we say we are behind a Veil of Ignorance, we are not supposed to be imagining that nothing exists, that we are making a decision in a void. Russ: We are in some kind of shrouds, or togas. Guest: But at the end of the day I'm going to walk out of the door being Dave Schmidtz. But I'm trying to say to myself: If I didn't know that I was who I am and I didn't know that talents were getting rewarded like that, or I didn't know that I would have talents like that, or I didn't even know that I was particularly willing to take on risk--I knew the general facts of human society, I knew principles of economics and sociology and psychology. But I wouldn't really know anything that had a bearing on making my payoff, the particular payoff that it did. So, it really is a thought-experiment. It's not meant to be theorizing about a different world. It's meant to be theorizing about our world, but meant to make us kind of envision what it would be like to be looking at our world impartially.
19:37Russ: I think it's a powerful, really thought-provoking idea. Guest: Probably in philosophy it was the most provocative idea of the 20th century. Russ: And the book itself, the rest of the ideas, what were its impact? One of its impacts was that it encouraged Robert Nozick to write a different book than Rawls had written. But before we talk about Nozick specifically, what's been the impact of The Theory of Justice, Rawls's book? Guest: Well, it's hard to say. It's certainly changed the profession of philosophy. It probably changed the Academy--the social sciences--quite generally. As to what has had a larger impact outside of the Academy, there probably hasn't been anything more influential than Peter Singer's conversations about animal welfare, and so on, animal experimentation and factory farming. Whereas Singer has had relatively little influence within the Academy. But Rawls has been much more influential inside the Academy, I think, by far, than any other philosopher in the 20th century. But I think he's really shaped thinking. I mean, the thinking was going to really change anyway, to what we don't know, but he's taken a profession that had really gone into navel-gazing mode and started talking about: We're going to define terms and come up with consistent definitions of terms. And he took that and dragged it into, instead, a state where philosophers were talking hard about what to do about practical affairs. What's the right thing to do? What can we at least single out as what can be condemned or something like that? So, Rawls, had, in a way, relatively little to say about global justice, for example; but he's had many, many students who have gone on to say: Well, given that this idea is as striking, intuitive, compelling as it is, that we should be trying to do as much as possible for the least advantaged, given that the least advantaged are actually on the other side of the world, like do they count? Are they part of this equation? Are they part of the group we are talking about? Are their advantages on a par with the disadvantages and advantages of the poor in New York? Peoria? Tucson? Russ: Yeah. It's a good question. Guest: Some people are working on that now. They are working on it to some degree because of Rawls.
22:46Russ: Let's turn to Nozick. 1974, he's a colleague of Rawls at Harvard, and he publishes Anarchy, State, and Utopia. A book I also once owned. I don't see it on my shelf. You see it? Guest: Yes. Russ: Well, that's a relief. It's still here. And I have read the whole thing. I read it I think when I was 20--or 21?--20. Guest: The kind of person who would steal that book probably has an inordinate respect for property rights. Russ: Why do you mention that? Guest: Well, that's why it's still there. Russ: I'm not sure what you mean. You are wondering why no one has wandered in and stolen it. I don't think anyone stole my Theory of Justice. It may have, I don't know--hang on; let me just eyeball it. I get your joke now. Slow on the uptake, being the non-philosopher in the room. So, you are suggesting my copy of Rawls has walked. I suspect I lent it foolishly. And there is some moral complication to that issue. Guest: It was assisted walking. Russ: Yeah. Anyway, I was electrified by Nozick, when I read it. Of course, I wanted to be. Guest: It's a great book. Russ: I was on his side. It bristles with creative and interesting ideas. And it is not, in my view, as systematic as Rawls. Which makes it a more entertaining read, but a harder take-away sometimes, as a whole. So, what did Nozick try to do in that book, and how does it relate to Rawls? Guest: I think it's a little bit unclear, might have been a little unclear even to Nozick, what he was trying to do. But there are three parts of it. And the biggest second part of the book was more than anything else a response to Rawls. And so there he is setting out an alternative perspective on justice and distributive justice. People say that Nozick didn't have any premises or foundations, and that's just not true. But what is true is that he borrowed his foundations from Rawls, to a large degree. He said: Well, suppose Rawls is right, that people are separate persons with lives of their own to live and that their utility, it isn't up to somebody else to decide how their utility trades off against someone else's. They have rights. And the aggregate isn't a trump. So, maybe that's question-begging. But if that's question-begging, then Rawls is question-begging, because that's Rawls's premise; and Nozick said: Suppose that's right. Suppose we took that on board and really believed it. I don't think we are going to get Rawls's conclusions if we do that. I think if we take that premise on board, what we are going to actually end up with is a puzzle about how to justify the emergence and enforcement of a state-imposed rule of law in the first place; but also in an ongoing way. So, he comes up with different categorizations of principles of justice and with the tasks of forming an order out of principles of justice. He distinguishes between historical and patterned principles, and he says that Rawls's theory is actually a patterned principle, based on a patterned principle, the difference principle, and that is, Nozick wants us to consider an historical alternative. Russ: Which is? Guest: Well, let me set out the distinction from the ground, then. So, you might say, a principle, say--he distinguishes between the idea of current time-slice principles, where he says you would evaluate the justice of a situation by looking at a snapshot of the situation and saying: Are the shares the right size in that situation? You don't care how the shares got to be that way. You don't care who produced what. You just look at the shares and you say, for example: Well, if the shares are unequal size, then that's that. That determines that the distribution is unjust, is illegitimate. Russ: That's Nozick describing Rawls. Guest: Yeah. In effect. Russ: Because Rawls ignores how they got there.
28:06Guest: But he's [Nozick's] saying: Here are the possibilities, basically. So, the two basic categories he wants to talk about are historical and time-slice. But it's actually a little bit harder and more complicated than that. So, you could also distinguish between a more time-sensitive or context-sensitive principle, which, call it an end-state principle--that's what Nozick calls it--where you might not exactly take a snapshot and say unequal shares entails injustice ; you might say: Actually we should be looking at lifetime income, say. And if the Joneses and Smiths have the same lifetime income, then that is equal in the way that justice requires the outcome to be equal. And so even if the Joneses and Smiths have different incomes at a particular time or different net wealth at a particular time--because, after all, Jones is 20 and Smith is 50 and Smith has been accumulating both talents and skills and connections and wealth for 30 more years than the other has--then that would be inequality and injustice by the lights of current time-slice principle, but the end-state principle says: No, that's not the point. The snapshot isn't the point. The whole picture is the point. Now, pattern principles, then, are principles that say we have to look we have to look at a particular pattern. And the pattern might not actually be like slices of a pie. It might be a pattern of treatment. So, you might say: Are those people doing worse than others because there is a prejudice against hiring people of their minority group or their religious group or people of their sex? And so you might say: That might be where we'd locate injustice. You'd say there's a systematic pattern of inequality here. Even if people actually had the same income, you might say: Well, those people had to work twice as hard for it; or, those people had to wait twice as long for it. So there can be a pattern of justice that's a more subtle thing. And Nozick says: Okay, that's more plausible; but it's still not my theory. It's still not a historical theory. Historical theory: there are rules about how you come to own something. And the main question is going to be: Did you acquire that by using force? Or did you acquire it by voluntary consent? If anybody who had a claim to that baseball ticket said: Hey, give that to Russ. For whatever reason. Maybe he paid for it; maybe he's just more of a baseball fan or something like that. Maybe it's your birthday. Something like that. Russ: Or the current holder is not a nice person. Guest: Well, could be. Lots of different transfer principles we could talk about, too. But basically, Nozick said: No matter what the result is, the result isn't where the rubber hits the road. The result isn't where the justice question gets resolved. The justice question gets resolved when we look at how the transfer actually occurred; and did the transfer occur legitimately. And Nozick says the pre-eminent principle of legitimate transfer is consent. Russ: So, if you have the ticket and I ask you for it and you give it to me voluntarily, versus I hold you up at gunpoint for the ticket, the second case even if I'm the bigger baseball fan, is irrelevant because, is unjust because I used force. And the first case, even if I'm the smaller baseball fan, is just because you gave it to me. Guest: Yep. Russ: Or I bought it from you. But it was voluntary.
32:15Russ: So, the problem with that, which I'm sure people--I can't remember, Nozick talks about it in the book--is that many of our advantages in life, and of course this has become a huge study in economics recently , are given to us. We don't earn them. My children are born in the United States. They are born in the United States of a certain parental endowment of genetics and environment. The odds are good they are going to be above the median in material well-being. They may not. They may choose a path that's less rewarding materially. But it's certainly open to them to be well above the median if they choose to be. Is that fair? Just because it's voluntary--they didn't steal it from anybody? What's Nozick's answer to that? Put the stress on voluntary exchange, versus expropriation. Guest: Let me kind of start at the start, if you don't mind. Nozick is working in a Lockean tradition, trying to develop an alternative to Rawls's theory. And so Locke is starting out responding to a fellow named Lord Filmer, who basically said all the earth was given to mankind in common. But, no, that can't be right; because if it were the case that we all were common owners, then nobody could do anything. We'd all be paralyzed. We wouldn't have the right to take a breath or to stand, even just to simply stand our ground without getting the permission of everybody else in the human race to stand there. So, Filmer says that can't be right, and therefore it can't be the case that God gave the world to all mankind; God gave the world to Adam and then Adam passed it on to his children. And that's how it ended up in the hands of Adam's distant descendants--namely today's kings. Russ: Us. Guest: No, the kings. Russ: Not us. Guest: So, Locke made fun of that; he mocked that. But he also came up with a pretty sustained argument against that. Now, Locke didn't talk about us appropriating our talents, per se. What he talked about is appropriating land. But Nozick comes in understanding that we need to have some kind of theory about how we originally become the owners of anything at all. Now, there's this principle which we already talked about, a principle of just transfer; so if that ticket belongs to me, the way you acquire property in that ticket is by doing justice to the claim that I have prior to yours; and so you do justice to my claim by asking me if you can have it. And I say: Well, what are you proposing? And then you make an offer of some kind; and I say: Yeah, that'll work for me; and then we make an exchange. And now you are the owner of the ticket. I've relinquished ownership. But if we suppose then that my talents--either my talents came into the world as my property or my talents came into the world as the world's property as it were--the human race's property--which actually is more or less like Rawls's theory in the end; but that's what Nozick wants to repudiate. Russ: Rawls's being that it's the world's property. Guest: Yes. So, Nozick basically says: What Locke says there's got to be some way in which we can do things with the world. That is, if this is supposed to be a theory that has something to do with respecting separate persons, then it's got to have something to do with separate persons having the right to sustain themselves, to feed themselves--with the emphasis on themselves, that if they can't even put food in their mouths, well then there's nothing respectful about that. Nothing individualistic about that. That's taking a theory to an extreme that prevents it from ever having anything to do with our world. And so Nozick says we do want our theory to have something do to with helping people solve problems and live lives in this world. So, he says the way we acquire land is by mixing our labor with something to which nobody else has a claim. And that latter part is not a throwaway. That's a really important part of the theory. He's not saying: If I can run out onto your lawn with a shovel and turn over a few scoops then I come to own your lawn. It's like the only way for me to come to own your lawn is by coming up with a mutually agreeable arrangement with you. But if nobody has a claim--if you don't have a claim--then the thing that I do when I dig up a mushroom or plant a row of carrots is, I am investing, I am mixing myself with that land, with that product, in a way that nobody else is. And it's not that that has to be some extremely strong claim being created. The point is it's a unique and exclusive claim. The only way for somebody else to come along, the only way for you to come along later and say, I'll take some of those carrots, thank you, or, I think I'll share that mushroom with you, is by ignoring the similar claim that I've made previously. When nobody else has a claim to it then I'm not ignoring anybody, I'm not mistreating anybody, I'm not failing to respect anyone's separateness. But the person whom comes along second needs to get my permission then, in order to not be disrespecting me as a person. So, it doesn't have to be that strong a claim for it to matter that it was the first claim, and there really would be a disrespect involved, in the same way that any bear understands that if you get to the territory second, that first bear is going to stand there and even if the bear is smaller than you, that bear is going to say: I'm going to fight to the death for this, because otherwise I lose my identity. So, even bears understand that it matters who gets there first. And people understand that, as well. So, the thing about your talents is--in a way, it's very implicit in Nozick, but implicitly the idea is this: I can exploit my talents; I can make use of my talents without making anybody else worse off, without putting anybody else in a worse position; but nobody else can come along and commandeer my talents, can enslave me for example without mixing their labor with something I do think of as mine and I quite reliably and predictably will think of as mine; and that nobody can really avoid thinking of as mine. If we talk about it at all, we will talk about it as mine.
39:52Russ: Nozick of course gets into the appropriate role of the state, and he comes down, if I remember correctly, arguing that--and I have to confess, although I found it exhilarating at the time, thinking back on it I find it a little less exhilarating in terms of its elegance--but his argument is, because of economies of scale, that the state has the authority or justness of performing a police function. But I want to step aside from the many things we might argue and discuss what the state could do, and just focus on the one, which is redistribution. So, if the state raises taxes, not for revenue purposes--that's what I want to put to the side--but merely to redistribute income. So, we've got these baseball players who can throw a baseball 100 miles an hour; we've got people with great voices who can entertain and make millions of dollars a year as a result, like the baseball players, actors and actresses with good looks. And I'm going to accept the fact--obviously Nozick thought it was important--that all these people work very, very hard. When you talk about your talents, there is a tendency to talk about your talents as an endowed gift. Some part of it is, obviously. But what a modern athlete has to do to be a successful earner of those high returns is unimaginable, I think, to most casual sports fans. I don't think they realize the amount of work that gets put in, the relentless effort. I'll put a clip up attached to this of one very moving and informative about this. Taking that as a fact, that some people can throw a baseball faster or sing better, are in demand for whatever reason, and that they've combined hard work to get there, is it unjust then to take a share from them and give it to others, against their will, merely to push the distribution of income toward that egalitarian, equal share outcome? I know what Nozick's answer is: Nozick's answer is No. But the average American, when confronted with the veil of ignorance--what do you think that person would say? It seems to me they are just two orthogonal theories. Rawls--would most people, not you and I, say: Well, behind a veil of ignorance I don't know if I'm going to be one of the gifted ones who works hard or one of the gifted ones who squanders talent; I might end up being one of the non-gifted ones; I might have an IQ of a low number and be endowed with a lazy temperament and I am not going to live very well; and I might be a gifted person with tremendous drive, a Michael Jordan or Steve Jobs, and I might end up with multi-millions. Where would justice lie there in the mind of an average thoughtful person? Would they find redistributive taxation offensive or admirable? Guest: So, two perspectives on this. One perspective would be that on the one hand, that pitcher who is excelling now who did something to make something of himself, make something of his talent. So, like you say, the labor is really there. And even some folks on the left, like David Miller, will say: the point wasn't whether the pitcher or Wilt Chamberlain worked extremely hard or took extreme risks. The point is there was a certain amount of work that went into it, and work that, after all, Wilt did, not that somebody else did. And so that is the thing that establishes Wilt's presumptive claim. It doesn't mean that he shouldn't be taxed for various purposes mainly but it does mean Wilt is the one that has such claim of justice that has anything to do with being deserving or merit or investing in creating the talent, bringing the talent to the table. So, that's one perspective. Now the counterpoint to that is a person who will say: Yeah, but in a way you are failing to understand the way in which the community's involvement goes all the way down. So, it isn't just you that worked. It's your parents that worked and your grandparents that worked and actually your parents' employers, your parents' teachers, your parents' grocers, cabdrivers. So, all of society worked to put you in the situation that you are in. Okay, so that's one perspective; that leaves us with a real understanding why people would disagree about this, why it would seem quite intuitive. Both sides of that debate would seem quite intuitive. Now the only thing that I would want to add to that is I would say: Okay, but let's remind ourselves, are we talking about a liberal society-- Russ: When you use the word liberal, you mean classically liberal or modern liberal? Guest: Ambiguous between them. Just a theory that believes that an individual is a real thing. It's not a scholarly, fictitious construct or something like that. There really are people in the world, and people really do have their own hopes and dreams, and people aren't mere pawns; they actually are agents taking responsibility and making decisions. Now, you can say that at the end of the day, society owns people. People don't own themselves. You can say that, and probably say that consistently; but you are not saying something liberal when you say that. So at the end of the day, for a liberal, you have to make sure you are on the right side of this question. When somebody says: Okay, I got it; I wouldn't be where I am today without my teachers and cab drivers and parents and all kinds of other people; but I don't like this deal ; I'm going go home now; I'm going to leave the country, perhaps, if you don't mind. Who gets to say: Sorry, you aren't enough of a self-owner that you don't have a right to say no? Maybe we want your kidney, maybe we want your blood, maybe we just want your labor, maybe we want to restrict what you can do by laboring for yourself and your family. And at some point we say: Well, let's be reasonable and let's go along with this to some extent. But still, there's a fundamental matter of principle, a question that needs an answer at the end of the day, which is: Do I have the right to say No? Do I have the right to walk? Do I own myself? So, the fact that you can think of other people who helped me, or you just imagine--how do you know that I'm not an orphan? Maybe in your imagination all kinds of people helped me. Tell me at what point other people helping me made me your property. Because if there was no point at which I became your property, then excuse me, but I'm going to go home, and I'm going to take all of my toys with me. If you want some of my toys, if you want me to share my toys, treat me like an adult, treat me like a self-owner, and make me an offer. And you might make me an offer that I'm perfectly willing to accept. I might say--and this was the thing you were excluding--yeah, I want to be part of a community, I want a community that has a real infrastructure; in fact, I want to be part of a community where the roads are free. Not that I think that anything is really free; I realize that I as a taxpayer will be paying for the free roads. But the point is, I want to minimize transactions costs because I want it to be as cheap as possible for my customers to get to my store. And so I would rather pay for that in part of my taxes than have to put up a toll road and have my customers have to pay to get to me. So, yeah, I want public goods, even things that aren't inherently public. Russ: Many goods aren't public goods that are provided. Guest: Yeah. So, I'm willing to pay for it; I regard my paying my share for it as a way of respecting me as a separate person; I'm in. You want me to fight for my country and maybe get killed in the process? I hate the thought, but I'm in; I realize that sometimes my share is going to be big. I'm in for my share. Now, you say I should also be willing to regard myself basically as somebody else's property. I should regard my talent as belonging to somebody other than me. I say, No. If we've gotten to that point, I want to get on a plane with a couple of my suitcases and my talent, and I want to go someplace where I'm treated with more respect. And if you are going to stop me, then we've stopped being a liberal society. If we are still a liberal society, then you realize this package of talents is mine. No matter where it came from, no matter how many friends I had or teachers I had, this is my package of goods. Russ: No matter how many public schools you attended. Guest: Yeah.
50:34Russ: I'm fighting off the urge to end the podcast here because that was so eloquent. But I want to continue. Let me take a different approach to the question. We could make a different set of arguments against progressive taxation. There was a wonderful book--I'm also looking at my shelf; these comments about my bookshelf are a testament to my eyesight, the clutter of my room, and the height of my bookshelves--but, Blum and Kalven, two law professors, wrote a wonderful little book a long time ago called The Uneasy Case for Progressive Taxation, where they tried to lay out an argument in favor of progressive taxation. They made a bunch of different ones and they shot them all down, most of them; and I think the book concludes that the case remains uneasy. They are sort of pro-progressive taxation, but with qualms, is how I might describe it. So, let me make three arguments, if I can remember them--not from their book but from me sitting here talking to you--against progressive taxation. One would be: It's unjust. It's immoral. That's a Nozickian argument akin to what you just made: that you own yourself, you own your property, and taxation, especially for the purpose of redistribution is theft. The second argument would be: it's inefficient. It makes the pie smaller. And this would be a Rawlsian argument. So, Rawls, while in favor of progressive taxation, would say eventually: Well, I'm in favor of progressive taxation, but not to the point where it makes the pie so much smaller that people get smaller shares. The third argument against progressive taxation I would call practical--different kind of practical. And I guess deep down, it's the third argument that I find most compelling, both intellectually and in terms of persuasiveness, as I think about an impartial spectator thinking about our arguments, conversations here. The third argument would be: Well, if I give the state the power to tax people, that power will be abused, because John Rawls is not going to be the commissioner of taxation in this society. And if he is, he's going to end up being somebody different than a Harvard philosopher. He's going to be a commissioner of taxation, and he will be subject to the imperfections of humanity and the special interests that will try to sway him. So when I think about, to speak more generally, about limiting the power of the state, these three arguments work for so many issues. Think about minimum wages, can argue it's immoral--the state has no right to talk about what I can earn or pay. Can argue it's ineffective--it doesn't do a good job in helping the people it's intended to help. Or you could argue, well, when you give the state the power to set wages it's going to do more than that; we're going to be on the road to tyranny. So, when I think about those three arguments, going back to redistribution; I find myself strongestly drawn to the fear of tyranny. Maybe because I'm not behind a veil of ignorance. I'm sitting here earning well above the median; I live a good life; I live in the United States which puts me way ahead to start with; many gifts and blessings, many of them I've worked for, but many of them, as we said earlier, came to me. When I think about it--I have kind of a conflict of interest; in thinking about this, put myself behind the veil of ignorance, my biggest argument against taxation for purely redistributive purposes is that I think that puts you on a road to a very destructive political system. What's your reaction to that? Guest: It's a rich question. Gave me a chance to think for a minute. Well, first of all, your last thing: bias is a real issue. We are scholars and academics, so we both have a moral obligation to be as impartial as we can be, and to be lovers of truth. And it's really hard. We're only human. There are lots of ways that our minds work and gather information. They are inescapable and we wouldn't be better off if we could escape from them--we process bits of information one at a time, and the first bits of information we acquire are going to become the defaults, and it's going to take more energy and so on, and evidence to overturn those defaults. And that results in bias. We can't do anything about that. So, yeah, it's an issue. Two-thirds of my salary comes from the state, so there's a built-in dynamic leading me in the direction of being a statist. Russ: And instead you bite the hand that feeds you. As do I, so oft. Guest: Well, yeah, I guess. Russ: That hand that's doing the feeding doesn't realize it's being bitten. That's part of the problem. But that's another issue. Guest: Yeah, Freud would have an explanation--he'd say, yeah, I'm getting back at my parents or something like that. So, I'm sympathetic to all of these arguments. Certainly there becomes a point where either the amount of taxation or the form and rationale for taxation becomes so egregiously insulting--and threatening--that you are pretty much willing to go to war, to start a revolution, create a new country if that's what it takes in order to make a stand to correct that injustice. I'm sympathetic to that. I'm an immigrant; I'm a naturalized American citizen now and I believe in the principles of the Revolution. But at the end of the day, there's still an issue for me that as a philosopher, that's more like a premise than it is like a conclusion. I can say: Here's where I make my stand, and my colleagues can say: Me, not so much. I don't blame you; there's no particular reason why you have to agree with me on this. We can all be brothers--until you come around to collect your share of my paycheck. But I can see why reasonable people would disagree with this. So, these table-thumping, deeply compelling emotional beliefs about justice and injustice--they don't make great premises for arguments. They are better as conclusions. If you can get them to come out of your arguments, that's interesting. But if you just insist on them, not so interesting. The efficiency thing, I think we're on your turf when we talk about that; I believe that's a really important issue as well. Rawls, as you say, that is a Rawlsian argument; there are people in the world, not to name names, but who would say it would be worth making the 99% worse off if we could just nail the 1% to the wall and finally get our revenge on all those hoarders and greedy, the people who hog most of the nation's wealth. It's not that they produce anything; the way they acquired their wealth was by hogging it, not by creating it. Russ: That's Nietzsche and Ressentiment, which I don't get to say very often at EconTalk, so I thought I'd just throw that in; my college philosophy class pays off finally. Guest: I've read about that; I don't think I've ever attempted to pronounce that word before, certainly not on the radio. Russ: It's about a six and a half, maybe a seven. Guest: Yeah, you get points for Nietsche.
59:23Guest: Now, the practical thing, your third alternative--actually I think that is the main concern that I have, too. In a way, maybe we are all children now of James Buchanan to some extent. I look back and I see it in Hayek; you can see it in Adam Smith; you can even see glimpses of it in Aristotle. But I think that concern and that awareness that power corrupts and absolute power corrupts absolutely--that has been with us, we've been aware of that concern for many, many centuries. And the idea that absolute power corrupts absolutely--that isn't just a kind of cute way of taking a point to its logical extreme. It actually is, I think a relevant dynamic of real world corruption, that the more power there is available, the more that that power is worth; the more it's worth to acquire that power; and so the more people will invest and the more unscrupulous they will be in doing whatever it takes to acquire that power--the more they will be spend as well as to lie in order to acquire that power. So, I think there really is a powerful reason to take, as Hayek would have said, to take the reasons every step of the way. There's always a reason, even a good reason, to create more power. There's always a problem coming up that hasn't been solved where we think we need a Czar or a committee or an agency--somebody--we need a Cabinet, to solve that problem. Like the reasons for doing it will probably never be without weight, without merit; and yet the result of creating more power in order to solve that problem is you create more power that gets bought and sold and auctioned off to the highest bidder, in effect, and used for whatever purposes that high bidder has in acquiring that power. So, you end up, the Bills come out with nice-sounding names on them, and then you actually read the bill and it will be 4000 pages that have nothing to do with the thing that forms the title of the bill; and nobody--literally nobody--has ever read the whole thing. Even the people who wrote it. There's 435 members of Congress; each threw in a few pages. So even the authors of the bill don't know what's in the bill. They just know: well, I've got something I can take back to my primary donors and my constituents. I can say: see, I've done what will warrant you in re-electing me, or in putting me on your Board of Directors so I can get $100 million payoff after I retire from the Congress or the Senate. So, you've got that kind of dynamic going. And so even good purposes give rise to corruption, well-meaning purposes give rise to an increasing level of corruption; and as a country gets older, as its bureaucracy gets bigger, I'm sorry, but it escalates. It starts growing, if not exactly exponentially, but at least episodically there will be periods of exponential growth, growth and emergence of new forms of power that wouldn't have been imaginable a generation ago will be accepted as just the next little step--if we didn't object to the previous step it doesn't make sense to pick this as the place. Russ: Boiling the frog. Guest: I guess that's the metaphor. That is my main concern as well, just that power is not going to be used for the purpose for which it was ostensibly created. It's going to be used for the purposes that the person holding that power currently has. Russ: I think back to a podcast a few years back with Bruce Bueno de Mesquita where he talked about King Leopold of Belgium, who was pretty popular among the Belgian people at the time for some of his social policies and legislation, where he was constrained by a Parliament. In the Congo, he was unrestrained; and he murdered millions of people--I think millions, certainly hundreds of thousands--and took booty and plunder. And I think Bruce very eloquently asked the question: Which was the real King Leopold? And we know the answer: the one who was unconstrained. Not a pretty picture. So, I think it's a real issue. What it brings to mind, though, which fascinates me--I haven't thought about it enough--is that interaction between the political system and the economic system. And Rawls kind of abstracts from it. Nozick--cynical is not the right word--he's not romantic about democracy. He has that extraordinary passage of the parable of the slave, which I recommend to everybody. I don't know if I can legally put a link up to it, but I'll try to; and you can certainly google tale of the slave Nozick. The foundation for libertarian ideas and policies.
1:05:30Russ: But Nozick himself changed his mind to some extent at the end of his life, correct? Guest: That is correct. I actually can explain that. I only met Nozick once, so I was not really familiar with him as a person. But in December of 1999, Boston University invited me out to give an end-of-millennium talk. And I talked about the meaning of life, because it seemed like, what else are you going to talk about at the end of a millennium? Russ: That talk is in print, correct? Guest: Yeah, it is. Russ: It's a beautiful essay. Guest: Thank you. It's on my website. So, I was coming out to give that talk, and Nozick sent me a note and said: That's interesting. Would you be interested in having dinner afterwards? And I said: Well, absolutely. What else would I rather do? This would be a dream of a lifetime for me. I knew that he had had a recurrence of his stomach cancer. I did say my wife will be with me, who is a biochemist. There weren't search engines back then. Russ: Or they weren't very good. Guest: But he had somebody track down her articles on insect biochemistry. And he said: Well, please bring her along, too. So, we showed up for dinner and he had all kinds of questions about insect biochemistry. And they were smart, cutting edge questions. So, people talk about Nozick and they say, well, he was the smartest person I ever met. And me, I'm not sure I know enough about him to say that, but he was really stunningly impressive, I have to say, and it wasn't because he was trying to make an impression. He was just interested in everything. And he had good questions about everything. But then he turned to me, and well, I wish he had had all kinds of questions about my work, but he didn't. He said: I want you to know that my departure from libertarianism has been greatly exaggerated. And I said: You know, you don't have to prove anything to me; that isn't on my mind; I'm not worried about that; so whatever you were or whatever you are, I don't care; I'm just enjoying dinner. And he said: No, I want to explain. And I said: No, if you want to explain, please explain. And he said: Okay; so I published this book, Anarchy, State, and Utopia, and then I started thinking about symbolic value and I started thinking about what countries stand for, what they symbolize. And I started thinking that this thing that I had said in Anarchy, State, and Utopia, like if someone wants to sell himself into slavery and it really is his rational, best option, like he can save his daughter's life by selling a kidney, well then why not let him sell a kidney? And maybe it takes more than that. He has to sell himself, his person, into slavery and he says: If that's what it takes to save my daughter-- Russ: I'm in-- Guest: There's no questions on my part, no even sense of self-sacrifice on my part. It's just there's nothing I'd rather do in my life than save my daughter with it; so, I want to sell myself into slavery. Nozick said: If somebody is in that position and wants to do it, who are we to interfere with that person? So, Nozick said: I said that in Anarchy, State, and Utopia. Now fast forward, and I'm thinking about symbolic value. And I'm thinking: countries don't just do things, like defend freedom or not, or secure freedom or not, secure freedom of contract or not. They also stand for things. And at some point, America's supposed to be the country that doesn't just defend freedom. It stands for freedom. And I thought, if this is going to be the country that stands for freedom, allowing the emergence of a class of slaves, that's not a really impressive way of standing for freedom. In fact, it's not a really successful way of standing for freedom. And so he thought, he said: I came to the conclusion that it matters what a country stands for. And so, even though this is, in a truncation of freedom of contract and the sacrosanct status, individual status, of contractors--he said--I came to think there's an importance of standing for freedom; and in view of that I gave up on the idea that people should be allowed to sell themselves into slavery, even voluntary slavery. Just isn't a way of standing for freedom. So, it's out, even when it's the only way for a father to save his daughter's life. Period. It's an unconscionable contract, cannot be enforced. Of course people can say: Well, I'll do whatever you want to, to save my daughter. Of course, they can say that. But that guy can't go to court and sue and say he said he'd do whatever he wants. I want him to be my serf, do these degrading things, whatever. So, that's what Nozick said. That was my conclusion. But then he said: Then this other thing happened: My landlord was Erich Segal, author of Love Story, so I found out that my apartment was rent-controlled. And he'd been raising my rent every year--reasonable, but significant, but my rent had gone up. And then I found out that those rate hikes were illegal. So, I went to them--I said--I realized that I am rent-controlled, so it actually wasn't legitimate. And he said, Erich Segal actually waived a copy of Anarchy, State, and Utopia in my face, and said: You've abdicated the right to complain. And Nozick said: No, I haven't! Segal said: Yes, you have. And Nozick said: You know, I can prove that I haven't abdicated that right. I'll see you in court. He sued him and won. And Erich Segal had to repay the back rent from the rate hike. Russ: And then he got publicity about this. Guest: Yeah. And my colleagues were slapping me on the back and saying: Way to go. And then your stuff came out saying serious reservations about libertarianism. People were saying: You are so smart; I knew you'd come around, grow up; it was just a phase you were going through. And Nozick said: You know, it was a moment of weakness on my part, but it was so nice for people to be slapping me on the back and telling me that they had faith in me and they believed in me. Because they hadn't been saying that for years. And they started welcoming me back into the fold. And you know, God help me, but I just liked to not be vilified for a change. I liked to not be not a pariah in my own department. And so I went along with it. I could have done the snarky thing and said, No, your approval of me is based on a misunderstanding. I could have said that, but I just didn't. I was tired and I just let it go. But he said in fact it was just about slavery. That was my genuine, serious departure from my youthful libertarianism; but, he said, that's about it. Other than that, I haven't changed much. That was my conversation with Bob Nozick. He was delightful, I have to say. We talked about other things as well. I mean, that guy, he could talk. But he was also very interested in everything. He was a great listener as well. He was a delightfully gracious human being. Russ: Well, we were going to talk about Rawls about for about 20 minutes in my mind, and then Nozick for 20, and then the last 20 starting to explore some other ideas related to justice; but I see we've managed to go over an hour; and there's still plenty more we could talk about with regard to Rawls and Nozick. I think we'll stop here. Hope we can come back and address some other issues related to justice and inequality another time.

COMMENTS (36 to date)
Scott Packard writes:

You've jumped a month.

Intro. [Recording date: May 25, 2012.] Highlights to be provided later this week.

Also, the podcast "release date" came in as 6/7/2012.

[Thanks, and sorry about that. I've fixed it in the Highlights above and also in the iTunes xml files. The iTunes fix could take a while to propagate. If you've already downloaded your mp3 file, the date probably won't change unless you delete and re-download it.--Econlb Ed.]

Robert writes:

I am leary of anyone who throws out statements like Rawls was the leading philospher, especially in the academy was he really a greater influence than say Ludwig Wittgenstein, THomas Kuhn, Betrand Russell, Foucalt, Quine, Heidgger, Karl Popper, or a whole bunch of others. Also A key point of the veil of ignorance was not allowing knowledge of percentages or gambling for instance knowing that 90% would be better off, a rational person might prefer that to Rawls preferred conclusion, so he denied that information BUt not other bits, in the end it was less a thought experiment and more a rationalization.

philemonloy writes:

Thanks Russ for a wonderful discussion, so far (still working my way through this).

16:50++ The choice from behind the veil of ignorance makes somewhat more sense when it is kept in mind that what is chosen are principles regulating the basic structure of a society, not the compensation for specific vocations, or size of the share for specific people. There is a list of the main options in Section 21 of TOJ. (Keep also in mind that the parties in the original position have access to general knowledge about the world.)

Rawls thinks that parties in the original position, i.e., behind the veil of ignorance, would choose his Two Principles of Justice. But this is a substantive point separate from the proposal that the justification of principles (of justice) can modelled by having people chose principles from behind the veil of ignorance. One could, in principle, agree or disagree with Rawls on either count--e.g., that the model of justification is sound, but that some other principles would be chosen,* or that the entire model of justification is unsound. (Incidentally, this seems to be the route taken by some BHL-types.)

By the way, there is a bit in Hayek that suggests a very similar thought. In the Mirage of Social Justice, he says: "we should regard as the most desirable order of society one which we would choose if we knew that our initial position in it would be determined purely by chance (such as the fact of our being born into a particular family." Both the veil of ignorance and "chance" are devices for modelling impartiality.

MH writes:

Hi Russ,

Still learning lots from the podcasts, despite (or perhaps because of) the troubling regularity with which I find the arguments of your guests, and the discussions that ensue, to be egregiously selective. Your latest chat with Schmidtz perfectly illustrates this tendency. Following your brief effort (starting @51:00) to present "devil's advocate" arguments in favor of progressive taxation, both you and Schmidtz clearly demonstrate your understanding and appreciation for the potentially disequilibrating second-order effects of progressive taxation (or "taxation for redistribution"). Maybe -- just maybe -- if if all tax authorities were eternally, unfailingly "Rawlsian" in their thoughts, deeds, and personal character, you speculate that progressive taxation might be sustainable without inexorably leading to corruption, ambition creep, and ultimately wholesale tyranny. That this insight is a central recurring theme across many/most of your shows only makes the resolute disinterest in (or in certain instances, outright denial and/or outright celebration of) the equivalent problem(s) when they arise from the disequilibrating second-order effects of extreme and growing inequalities in income and wealth -- i.e., in "economic power" -- all the more puzzling/troubling. Competition always breeds winners and losers, in some circumstances winning repeatedly can foster conditions that lead to subsequent superlinear returns, and economic power is absolutely fungible -- or at least nothing outside of "command and control mechanisms" exists to prevent economic power from being leveraged to change the rules of the game to permanently favor whomever happens to have the upper hand at the first moment that anyone ever achieves (what might, or might not, be) a momentary but substantial advantage in the marketplace.

Previous discussions make it abundantly clear that you neither expect not advocate "Rawlsian" character or behavior among private economic agents. That said, it seems equally clear that you believe that there is some possible alternate reality/future where, all else (technology, individual diversity, human nature, etc.) remaining equal, the existence of an "unchecked" market produces something like the usual mix of winners and losers, and also (presumably) something like the usual frequency of episodes of increasing returns, and inevitably, the usual (that is to say, extreme but at least possibly/theoretically dynamic) distribution of accumulated fungible economic power among individual and institutions -- albeit one where the resulting market winners never try (or at least never succeed in) leveraging their "transient" advantages in market-unfriendly ways to perpatuate their own status.

My questions are: What, apart from an unacknowledged faith in some kind of "Rawlsian" character (perhaps one that is unique to market participants?), would prevent "unchecked" powerful market agents from attempting to do such things? What, short of repealing the laws of physics (e.g., Moore's) and large numbers (e.g., Zipf's) would prevent an "unchecked" market from producing the same sort of extreme power asymmetries among economic agents that give rise to the corruption, ambition creep, and hypothetical future capacity for wholesale tyranny that make you so apprehensive of government authority? How can a hypothetical, second-order threat to future liberty be the source of so much trepidation if the presumed agent of change is public/"government" entity, when the *exact same* hypothetical, second-order threat is dismissed as implausible (or in some cases embraced as "natural" or even "beneficial") when the presumed agent of change is a private "market" actor?

Or, to rephrase in possibly more idiomatic Austrian terms (or at least to minimize the likelihood of "dormitive principles" style responses from other listeners): given the inexorability/universality (and/or the ultimate objective and perceived merits) of extreme divergence in competitive market outcomes over time, what would prevent powerful "free market" agents from pursuing (and, when successuful imposing) liberty-denying "command and control" style (anti)competitive strategies when they believe that it might be privately advantageous to do so? Why does the former hypothetical, second-order threat to future liberty merit more consideration and concern than the latter?

Thanks again for all of the stimulating food for thought!

MH

Mike G writes:

I always get hungry when we talk about dividing up the pie.

This was an honest discussion. Although David and Russ seem to have similar philosophical positions with respect to redistribution, I appreciate their trying to get at what the "average" American probably thinks.

I wonder if the practicality argument is overlooking the possibility of rules instead of discretion. If we could agree on simple rules for redistribution, that might overcome a tendency toward corruption.

Sebastian writes:

There is a wonderful stylized debate/interview between a mildly centrist guy and himself-as-Hoppe(a radical anti-statist libertarian) that I think does more to counter some of the arguments in this podcast than we commenters can hope to.

First part is there:
http://www.nakedcapitalism.com/2011/11/journey-into-a-libertarian-future-part-i-%E2%80%93the-vision.html

It even has the Hoppe-mouthpiece defending selling oneself into slavery. With quotes from Hoppe's anti-democracy book.

To me the issue comes down to two sides: do you believe in the right of a community of people to govern itself in whatever way they please(which might include strong constitutionalism, but not absolute rules(after all the Constitution has been amended plenty of times)), or do you think society should be governed by abstract rules. Not merely guiding principles, but actual rules.

It's simply put a question of being for or against popular democracy. If the state is allowed to only enforce property rights, then you might as well live in a Hoppeian world with no state at all. A state that is not allowed to fulfill the democratic demands of its population has no legitimacy or authority. In my view democracy needs to be balanced with capitalism. It is bad to have extraordinary inequalities of both political or economic power. The people who monopolize either are always tempted, and able to monopolize the other. Tyranny can just as easily start from unscrupulous oligarchs as it can from unscrupulous demagogues.

MH writes:

I like Dittmer/Cain's approach -- have even tried it myself on occasion (c.f., comment by Max @ http://defensetech.org/2010/11/08/private-sector-cyber-ops-getting-hotter/). Unfortunately, present-day reality is or is fast becoming so absurd in some places/on some issues that there's very little left room left for being ironic.

Sebastian writes:

@MH: I am not yet bitter enough to not applaud that amusing literary exercise, but I am just bitter enough to allow a sliver of doubt in my mind that you might have been serious. These are insane times we live in.

Then again the British East India Company was pretty much a private government(but you see they were a monopoly hurf durf blurf). Yeah they were a monopoly 'cos they killed every government in India that resisted them and then denied any rights to the citizens of those governments.

As much as I disagree with Burke on a lot of issues, his Speeches on the Impeachment of Warren Hastings are both great reading and frighteningly still as relevant as ever(and applicable to everything from US corporate behavior in the banana republics to modern day land seizures in East Asia).

Manuel Menezes de Sequeira writes:

Just a brief note. Throughout the conversation, you seem to imply that there is a person to whom talents are somehow endowed. But the truth is we are our talents, among other things. It makes no sense to say that we somehow do not deserve them. It amounts to saying we don't deserve ourselves. The same thing goes for our genes. We don't have them. We are (also) these genes. We are also the result of the history of our life. None of that is separable from us. To talk about our being possessors of talents, genetics, and a life history is just a metaphor. A bad one, I'd say.

Alex G writes:

Just wanted to quickly comment on the whole "pack my bags and my talents and hop on a plane" argument. Let's say you are a baseball player or an actor, where are you going to go? If you had a wild success in the US in most athletics (Football, Baseball, Basketball) or music, or Hollywood, or business for that matter - there is very little chance you will be able to pack that success and talent up, take it with you to a different country and be the same wild success. Note, you can still do well, but you cannot be a wild success. Would Michael Jordan be the icon the is if he didn't play in the US and instead played overseas? Also, it is important to note, that in some countries wealthy people and their relatives get kidnapped quite often and have to have a small army of bodyguards to watch over them at all times. In this instance, in a stable and lawful society like the US, wealthy individuals do not really need to worry about their safety. The safe environment is maintained largely due to certain governmental institution, which are financed by taxes.

Finally, there is a strong argument that the relationship between talent and rewards is not linear, people who are extremely successful do not necessarily have abilities that are much higher than those of moderately successful people. As Taleb puts it, someone who is marginally better, or more accurately, someone who is perceived to be marginally better takes almost the whole pie. Now is that fair?

Hypothetically, if there was even the smallest change in the initial conditions, the likes of Microsoft and Apple, Brad Pitt and Angelina Jolie, might have never seen their current level of success. Some other companies and actors would have taken their place, those who faded into obscurity in our universe. I would argue that wild success is probably more a result of luck and circumstances, rather than ability. So, in essence, progressive taxation does remedy this problem.

These are just some ideas that came into my head as I was listening to the podcast. I would be glad if someone could challenge them and explain to me why I am wrong, as I am kind of struggling with the fact that it turns out that I support progressive taxation.

txslr writes:

Russ,

Thanks for the very interesting podcast. It has become my habit to get up early Mondays and listen to the latest Econtalk before I begin my week. Great stuff!

I read TOJ and AS&U many years ago and had similar responses to yours. I do recall wondering how ignorant one would need to be to pass the entrance exam for the “veil of ignorance”. For instance, would I have to be so ignorant as to suppose that whatever coercive mechanism I put into place to enforce Rawlsian justice would not be used to acheive less noble objectives?

The question is whether we denizens of the land beyond the veil want to construct a system whose overriding theme is the maintenance of obstacles to the application of coercion (clearly the desire of the drafters of the Constitution) or one which leaves a clear field for coercion in the hope that those who exercise it will limit themselves to applications that further “fairness”, even if we can’t hope to agree on what that means.

I would have thought that the last several thousand years of human history would have told us which of these two alternatives is best.

Russ Roberts writes:

MH,

Here is how I understand your question. (Or perhaps frustration is a better word...) You argue that the risk of private tyranny is the same as the risk of public tyranny. In both, power can grow out of control and yet I always worry about the growth of public power and seem to have few worries about the potential growth of private power--wealth and inequality for example.

My main answer is that the rise of private power does not harm people in and of itself. Sergey Brin (Google), Lady Gaga, LeBron James, Will Smith, for example, are all very wealthy. Their power is highly limited however. None of them can compel me to buy their product. They have to please me relative to the competition.

I would put some of the returns to investment bankers in a different category. I have argued that many investment bankers have profited from the ability of their firms to make highly leveraged investments and that this ability has been enhanced by past bailouts of creditors. In this case, my contribution to their wealth is involuntary and would not have been possible without the power of the state, a power that these execs knowingly cultivate.

So I would prefer a world where government doesn't have the power to take my money and give it to the politically powerful. I feel the same way about farm subsidies and other forms of corporate welfare. As the power of the state has grown and as the constitutional constraints on that power have lessened, the state creates inequality that harms me with no positive return. When it comes to the poor--private efforts (unintended) have done as much or more for the poor than public efforts. The public school system has served the poor very badly. The minimum wage has served the poor badly.

Putting it more simply, competition constrains private grasping. It is less effective in constraining public grasping. It's not there's no competition in the public sphere. There is--we have two parties but two is a small number.

If you are willing to constrain public power to limiting private competition--the antitrust function--I'd admit that there's a theoretical argument. In practice, the power of the state to be the watchdog of competition has been quite inadequate. It often serves corporations at the expense of the consumer.

I am not an anarchist. I like government limited to what it does well. That's a short list for me--enforcement of contracts, police, and some national defense. But I recognize that even these functions are terribly flawed--the level of military spending reflects the political power of the contractors. The police serve the rich much more effectively than the poor.

Finally, when I worry about worst-case scenarios, public tyranny dwarfs private tyranny. What rich people can do to harm people is a mere fraction of what an all-powerful government can do (and has done) to harm people.

Nicholas writes:

The veil of ignorance is fraught with fallacies:

1. By their own theory, anyone appealing to the veil of ignorance is too corrupted by worldly biases to conceive of the pure social order that 'ignorants' would design, making it unlikely that they would endorse whatever position is being supported by the appeal to the veil of ignorance.

2. Even if you could somehow prove that the 'ignorants' would endorse your position there is no particular reason to assume that ignorant entities would design a just or useful system.

3. Raising the veil of ignorance argument is conceding the point of empirical evidence.

You can see how it really elevates the nature of debate:

SOCIALIST: Socialism is a good idea.

CAPITALIST: But it doesn't work.

SOCIALIST: ...but it's a good idea.

CAPITALIST: ...but it doesn't work.

SOCIALIST: Veil of ignorance!

CAPITALIST: What's that mean?

SOCIALIST: Pretend you don't know it doesn't work. ...Is it a good idea now?

MH writes:

Hi Russ,

Thanks very much for taking the time to respond so thoroughly. To your first point about the existence of private power not harming third parties "in and of itself," I believe the same could be said of "government power," although it seems to me that both statements are equally hollow. All other things remaining equal, why would one kind of power that is not manifest -- that exists only in some hypothetical/potential form -- be any more/less worrying than another?

To your second point about wealthy celebrities, of course it seems absurd in the present-day context to think of Lady Gaga or LeBron James actively exploiting their private economic power to constrain the choices/liberty of the broad majority of people whose personal net worth is (many) orders of magnitude smaller. But then, must'nt those (and all other/similar present-day) counterexamples be dismissed as irrelevant by virtue of the same logic that the "Lucas Critique" imposes on other kinds of historical comparisons (e.g., in macroeconomic policy)? After all, who knows what sorts of (mis)behavior would be considered typical of the hyper-wealthy in an alternate past/present where the universe of legal/regulatory and disclosure/transparency-related constraints on "private grasping" had never exceeded the tiny list of activities and objectives favored by, among others, certain principled Austrians? [Granted this logic may seem irrelevant if you believe that the existence/nonexistence of laws does not and has never had any significant "structural" effect on individual behavior -- but that would raise many other/larger issues]. And despite the fact that I am, on most days, a big fan of Sergei Brin and Google more generally, very recent cases of other fabulously successful media entrepreneurs who, in the absence of effective countervailing (regulatory) forces, came both to possess and to actively/capriciously exploit their vast private economic power to deprive others of liberty leaves me with few illusions about what Sergei (or others "like" him) *might* become in a truly unconstrained market environment.

More to the point, who actually knows what sorts of behavioral norms would be understood to be "typical" of our current, real-world economic titans if the economic power that many/most of them actively employ to deter and/or divert unwelcome scrutiny by public and private third parties alike was not as effective as it actually seems to be? As someone who, like you, has studied the workings of economic mechanisms and political institutions for many years -- and who, like the vast majority of us, has eyes to see the unhappy trend and sorry current state of our most central and essential public and private institutions, I can understand and even appreciate your exceeding low opinion and goverment actors and actions. However, as someone who has also spent considerable time working in the private sector, specifically in economically critical sector(s) where opacity (and hence very limited/tenuous accountability) is and will likely always remain the norm, I am strongly inclined to assume that anyone who perceives a radical asymmetry between public/government entities and private market actors in term of the incidence and impact of stupidity, venality, and capacity to "take your money without regard to your own personal preferences" -- and who sees that asymmetry as favoring private market agency -- is likely to be either (a) reasoning from a tremendous asymmetry of information and/or first-hand knowledge of how things actually work in one or both of these domains, or (b) a conscientious private beneficiary of those very conditions (i.e., high opacity, low/tenuous accountability, and the largest private rewards of any commercial activity/sector in recorded human history) that make the aforemention asymmetries in "real" knowledge and experience so commonplace, and so durable.

To cut this short, if you are right that "competition constrains private grasping," or at least minimally constrains the kind of grasping that is so systemically disequilibrating and unsustainable as to constitute a clear and direct threat to competitive markets (and everything else), then it would seem that actual, present-day circumstances are inconsistent with a belief that competition actually exists. Then again, by the same measure, that would also imply that competition was equally non-existent, e.g., back in mid-late 19th c. U.S., before the government took any significant interest in regulating commercial affairs, and before the largely unregulated, private currency-issuing banks and "free-banking" institutions that once dominated North American monetary affairs had given way to the U.S. Federal Reserve System.

And if the Austrian narrative requires us to assume that "true" competition also did not exist back then (and/or has never existed anywhere to-date), or alternately to accept that its existence back then (albeit not now, or in the "right" future) was perfectly consistent with its ultimate, abject failure to prevent to sort of "grasping" that tends to cause privately ordered economic arrangements to catastrophically fail, taking down many if not all of the choices/liberties that it allegedly safeguards, then I can only conclude, in the immortal style of Inigo Montoya, that this word, "competition," may not mean what (one of us) thinks that it means.

Regardless, thanks again for the very stimulating exchange ;-)

MH

Russ Roberts writes:

MH,

We agree on one thing. Private and public actors may end up being equally venal, corrupt, stupid, incompetent, grasping, selfish and so on. Differences between private and public actors have nothing to do with my argument.

Venal, corrupt, stupid, incompetent etc private actors have trouble getting customers. When they have trouble getting customers they have trouble making a profit. If they persistent in failing to make a profit, they go out of business. Those constraints don't work on public sector actors. To the extent they do, they work less effectively.

We really have a different understanding of the word power. Rich people have no power over me unless they join forces with the State to impose their desires on me. Public actors can impose their desires on me against my will. They just don't seem the same to me.

MH writes:

Thanks again Russ.

If the world indeed worked as you suggest above, then wouldn't that (axiomatically) imply that, for example, monetary economy participants who didn't happen to be customers or employees of egregiously malfeasant financial institutions[x,y,z…] were never actually jeopardized at any time, and are not currently suffering from any diminution of opportunity or liberty owing to the malfeasant activities of said instiutions? Or if you'd prefer a different context, take the same question and replace {monetary economic participants,banks} with {Internet users, ISPs}...? If someone or something is capable of inflicting harm upon you (perhaps in the form of a substantial and involutary loss of former liberties/choice opportunities), and could do the same to potentially almost anyone who chooses not to withdraw entirely from the modern economy -- and is capable of doing that from a distance despite the preferences of the affected parties -- that certainly sounds a lot like some form or correlate of "power" to me… how about you? Do you believe that your own capacity to make (legal) use of the Internet and/or various monetary liquidity mechanisms to pursue your own private ends is, in fact, substantially or entirely independent of/immune to partial or absolute disruption as a consequence of certain (equally legal, but "imprudent") private commercial activities undertaken by remote third parties -- parties who will forever remain oblivious and/or sublimely indifferent to your personal preferences, the consequences of which would provide you with little (or more likely no) means of recourse? If so, I'm afraid I have some bad news for you…

Also, if the world works as you suggest, would that not also imply that the (often intentionally) opaque and strategically under-specified financial instruments that egregiously malfeasant financial institutions[x,y,z…] profited so fabulously from swapping amongst themselves throughout the first half of last decade were actually "good" products... at least until shortly before they suddenly became exactly the sort of "bad" or "systemically disequilibrating" products that constitute a clear and direct threat to competitive markets in the abstract, and more concretely to every person and business that depends on a functioning monetary liquidity system in order to pursue their own, otherwise unrelated private objectives?

While it may be true that bad actors eventually lose customers, revenues, and thus the economic power to affect the world in any way, it does not seem like that contraining mechanism operates quickly enough make much practical difference in today's highly specialized and technology-infused economy. Put another way, it seems that in the absence of the sort of effective countervailing mechanisms (e.g., voluntary but truthful as well as informative disclosure) that have never been voluntarily or consistently embraced by private market actors, the silent propagation and accumulation of "poisonous" commercial practices can rise to systemically crippling-to-fatal levels a lot faster than than all but the most knowledgeable unaided* counterparty and/or observer can recognize and correctly diagnose the underlying problem [Note: here "unaided" is meant to cover both the complete absence of extra-market rules, and the presence of only perfunctory, ineffectual, and/or or incompetently administered rules].

Manifestations of the "capacity" that such entities possess to reduce the choices available to remote non-counterparties may not always be a direct and intentional manifestation of "their desires" -- e.g., sometimes it might simply be a part of the collateral damage that is deemed rationally justifable by the acting party given the expected payoff if they manage to achieve their true objective. Either way, I suspect that many/most of the individual private actors who typically find themselves "powerless" to prevent (or in some cases, even to avoid) harm in such circumstances would not share your discomfort with describing those experiences in terms of "power." Neither, I imagine, would the majority regard the *goal* of reducing (through organic or voluntary means wherever possible, but also by external/involuntary means when necessary) the potential for such exercises of (x) to impose risks and/or harm on unwilling and unrelated third parties as inherently illegitimate… but perhaps we part ways on this question (?).

MH

Praxeologue writes:

I probably misunderstood Nozick's argument against libertarianism at the end but it seems like he is confusing negative rights and positive duties/norms/morals etc.

Libertarian respect for property and contract does not preclude the possibility that what people choose to do with their property or voluntarily contract to do is morally acceptable. However, isn't what is established as morally acceptable something that emerges over time, much in the way slavery's abolition means that even if today it was possible to buy a slave legally, it is highly unlikely anyone would choose to do so because of the social opprobium. One could argue that government is needed to prevent such outcomes but one must remember that government were as much a supporter and enabler of slavery as the prevailing culture's acceptance and use of it.

It is also noteworthy that Nozick seems to have softened his stance because he lost the stomach to be against the crowd. One wonders if this is what has happened to Soros, Buffett etc in their old age. I.E. it is an emotional change of heart, not one based on reason.

Russ Roberts writes:

MH,

Ironic that you pick the monetary economy and financial institutions, the areas where government power via the Fed and the Treasury have insulated poorly run financial institutions from the natural feedback loops that would penalize poor performance. My paper on this problem is here. The podcast I did on it is here.

Ghislain writes:

@Alex

Luck is probably needed for most of great achievements. But luck is never enough.

If you are a group of 100 people looking randomly for oil (kind of veil of ignorance). You spend weeks/month digging in the hope that you will be very rich. But you know (and all other know) that you have 1/100 chance of success, in other word, only one will be successful.

Do you think that if the successful person need to share with everyone so that the shares of the pie are equal, anyone will dig? Probably no, and so the pie will be void.

If he needs to share 1/2, he will be vastly more rich than the "loosers", 50 to 50/99 (assuming 100 is the pie). Before digging, people will make a computation: if I do nothing, can I live with 50/99? If so, most people will not bother to dig and will just wait for the work of others... which might never come.

To me, the marginal tax rate is not that important. The most important thing is the size of the smallest redistributed share of the pie, it must not be big enough to discourage using your talent, whatever it is.

Greg writes:

I appreciated this conversation for providing respectful overviews and contexts of the ideas of both Rawls and Nozick. Based on the description of Nozick's idea that the first person to occupy an area has a legitimate claim to ownership, I wondered if Nozick would support returning land to Native Americans in the US. Apparently Nozick was favorable to that in principle. I wonder if and how he dealt with the fact that the currently living individuals representing different historical groups are not the same individuals who had been coerced off their lands, or the ones who had done the coercing.

As for progressive income tax leading to tyranny: in recent decades the US and perhaps all the world's democracies have reduced the degree of progressiveness in taxation by reducing top marginal rates. Of course these governments still have the power to increase those rates, but the fact that rates have been reduced indicates that governments are capable of reducing their influence in some areas. It is wise to be concerned about tyranny, but when governments have reduced control in some area, I think it deserves some recognition.

MH writes:

Hi Russ,

First, thanks again for the unprecedented degree of attention.
Though it would be unreasonable to expect you to keep track of all of the comments on the Econtalk website, I think that a cursory survey of the reactions that I've shared to appx. 30-40 of your podcasts (esp. the ones that have focused on technology issues, monetary history/theory, and core concepts of economics) over the last 5-6 years would blunt any sense of irony regarding my choice to focus attention on problems that are specific and endemic (and I would also argue, intrinsic) to distributed exchange-facilitating technology systems, like present monetary/banking systems as well as the Internet.

I first listened to the referenced podcast and skimmed your paper back around the same time that they were first published, but thanks for the reminders. I'll grant that you do a very thorough job of weaving together a plausible story that incorporates many/most of the familiar themes that are beloved by both principled Austrians as well as the advocates of numerous other, more cynical and opportunistic interest groups whose members collectively outnumber the principled Austrians by large orders of magnitude. Based on our previous exchanges, it seems unlikely that an attempt on my part to react to any of the particulars of that story would actually lead to further clarification of those particulars, so I'll just offer a few final pointed questions and leave it at that:

1. Unlike (all) post-19th c. monetary and banking systems, the technical operations of the present-day Internet are overwhelmingly independent of and orthogonal to the discrete geographic jurisdictions and "top-down," "command and control" control mechanisms of sovereign national authorities. However, just as in (all) post-19th c. monetary and banking systems, the central mechanisms that make the present-day Internet work (and also make it so much more useful and dynamic than its own predecessors/constituent elements) rely heavily on the exact same statistical multiplexing techniques that, in the context of banking and monetary systems, are the core mechanism behind phenomena like "fractional reserve banking," "leverage," "credit," etc. No heavy-handed external power compelled Internet network operators to adopt such practices -- nor would any sane person wish for a return to the status quo ante -- and in fact, no existing authority is in fact capable of imposing and enforcing involuntary compliance with any set of rules/mandates/prohibitions on all the Internet's constituent networks.

Questions:
Would you expect that such a system would be (or should be) immune to the sort of unhappy phenomena -- e.g., profligate but undetected "grasping behavior" among a relatively small subset of system participants ultimately resulting in the imposition of significant "unearned" harm, a.k.a. contraction of liberty/choice, upon tens of millions of otherwise disinterested third parties) that you seek to explain in your "Gambling" paper?

2. Unlike (all) post-19th c. monetary and banking systems, the day-to-day technical operations of numerous pre-20th century monetary and banking systems were, at least for a time, a bit like microcosms of the present-day Internet, i.e., their commercial activities were vastly more independent of and vastly less constrainted by the discrete geographic jurisdictions and "top-down," "command and control" control impositions of regional and/or national national government authorities. Also like their modern-day Internet counterparts, the participants on those "free-banking-like" systems relied primarily on self-help, supplemented in certain limited areas by weak voluntary coordination mechanisms with very narrow and technical operating mandates.

Questions:
Were those (almost) "pure" market-based monetary arrangements vastly more resilient to the sort of disruptions for which, in current circumstances, you attribute 100% (or maybe 99.999%) of the blame to government meddling? Why was that older form of monetary system governance universally and (apparently) permanently abandoned worldwide after the late 19th-early 20th century?

3. We are in complete agreement about the critical importance of corrective feedback loops. However, the ones that you seem to prefer only operate retrospectively, which in this particular context means only after many many millions of "innocent" third parties have already been subjected to (in some cases catastrophic) harm. Given the sheer scale of the economy-wide damage that can result from even a transient disruption of the exchange facilitiating technical systems that virtually every market actor depends on every day, how strong would such a retoactive feedback loop need to be in order to create sufficient stability (or at least "confidence" of "stabiity") for a monetary economy to actually be useful? In cases where the injured (or "unjustly liberty-diminished") number in the tens of millions, and their damages in the tens of billions to trillions, would anything less than the execution of the offending partys' chief executive satisfy the judicial requirement for proportionality -- much less the requirement to reassure the market of future stability… or would all of the employees of all of the offending institutions have to pay with their lives in order to convince "the market" that no system participant will ever again dare to threaten its survival in the pursuit of their own narrow(er) private interests?

Though absurdly hyperbolic, I'm hoping that this suggestion will help to illuminate a more reasonable, and historically plausible alternative, to wit: doesn't it make sense (as I suggested without effect in my previous message, fourth paragraph) to recognize and interpret the timing of (many) individual "goverment initiatves," and the primordial emergence of "government" itself, as examples of a different kind of "feedback loop" -- namely the kind that sometimes emerges "exogenously," in adjacent/closely related systems, in cases where effective organic mechanisms of the kind that we *both* prefer either fail to emerge, or else fail to satisfy the expectations of a large share of (or dominant coalition among) the relevant stakeholders…? Granted, the timing and "substance" of many of the most recent government incursions in this particular sphere are probably better explained in terms of the defensive/preemptive colonization of the adjacent domain by the "constraint-challenged" system (i.e., by financial industry lobbying) -- but what about those broader historical trends, e.g., from perceived disparities in access to capital (credit) in the early 1970s, to today's ever-widening gaps in income, opportunities, etc.? Do you believe that, going into those early days of accelerating technological change, productivity gains, and "winner-take-all" compensation patterns, US monetary, banking, and credit allocation mechanisms were already perfectly attuned not only to pursue their own private objectives, but also to fulfill the critical economy-wide functions that make monetary and banking systems such a central and essential feature in every modern economy? Such a belief would certainly seem to be implied by your identification of 1970s-era changes in USG priorities in housing and credit-related matters as the root cause of the present crisis. Conceivably, such a belief might be based on an assumption that, left to themselves, the banks would have actually done a better job of distributing credit "appropriately," and managing overall monetary flows "efficiently," e.g., by investimg more to accelerate flows and reduce bottlenecks, and/or by redirecting even less of everything that passed by into their own coffers. Or, alternately, it might be predicated on a belief that no adjustment in housing and credit-related priorities was in fact justified, despite the far-reaching technology-driven changes and accelerating productivity gains that were just then getting underway… which in turn might imply that an economy with inequities in housing, credit, income, opportunity etc. that are even greater than the epic levels that we confront today would be both acceptable and preferable/more legitimate than our current state of affairs. As disheartening as our current, crash-prone mix of incompetent politial insititions and absolutely untrustworthy market institutions truly is, such credulity-defying and/or deeply repugnant alternatives makes we wonder whether the status quo might not be so bad after all…

That said, it would certainly be nice for everyone if some organic, self-correcting feedback mechanisms capable of preventing (or at least substantially delaying) the periodic, catastrophic self-destruction of modern monetary and banking systems actually existed. However, given the overwhelmingly transparency-reducing net effects of increasing professional specialization, rapid technological change, and now the ever-increasing plasticity of "captial" definitions calculations that is the signature product/consequence of the intersection of those trends in the banking sector, it would probably take some kind of radical transformation in human nature for that to ever happen now. Who knwows -- perhaps if we're really lucky, such a Rawlsian turn in commercial affairs will occur soon enough to prevent that trend toward increasing capital plasticity from going "metastatic" and infecting the remaining, non-financialized portions of the productive economy. But I wouldn't bet on it.

Either way, the need (or luxury) to debate such matters may not be with us for long.

Jim Feehely writes:

Hi Russ,

The advantage of liberal democracy is that the government is formally accountable to the citizen. It is, of course, the art of the sub-optimal outcome because of necessary compromise. On the other hand, private economic power is not accountable to the citizen other than through regulation imposed by the government on behalf of the citizenry.

However, it is the powerful influence that corporate capitalists have on democratic government that is the most dangerous and insidious characteristic of modern liberal democracy. And this insidious power is buttressed by those who preach that economy is society.

So Russ, your fear of tyrannous government is, in my view, misplaced. We should, in fact, be much more fearful of the unaccountable power of amoral and non-ethical corporate capitalists driven by pure self interest legitimised by neo-classical market economics.

As for taxation, those that extract the most from society should be made to pay more. Success in liberal democracies can be shown to have much more to do with luck and obedience than it does with mythical hard work. Otherwise, there would be no top 1%. It is, therefore, just that the lucky be taxed higher than the unlucky, especially now that the nonsense of 'trickle down' wealth has been exposed as completely wrong. But economics can never seem to bring itself to admit error and it has blighted society with many errors. I have never seen an apology from any school of economics.

For those who say the luck is not the dominant engine of success, consult Taleb and Mandelbrot. It is simply that it is alarming to human thought that luck actually plays the dominant role.

Of course, where we differ is at the very starting point. I do not believe that self interest drives society on. I believe that community and fellowship is, in fact the engine of society. But you can't make money off that belief. We live in a society, in a natural environment and in a built environment. We do not live in an 'economy'. And so called free market economics demonstrably does not deliver justice. And contrary to those of your correspondents that have responded to me in that past that freedom of economic choice is the source of freedom, freedom is in essence the right to make personal choices that do not harm others. To reduce the concept of 'freedom' to having a choice of laundry detergents or cars or houses seriously degrades freedom itself. If consumerism is the hallmark of freedom, try choosing to not to consume and see how equitable your life becomes.

Regards,
Jim Feehely.

Russ Roberts writes:

MH,

On your point number 3, perhaps you misunderstood the argument in my essay and podcast. Past bailouts created the opportunity and incentives for recent financial malfeasance.

See "Has the Fed Been a Failure" for a discussion of whether the post-Fed era is more stable than the pre-Fed era.

As for the question as to why centralization of government power has occurred, grown, and persisted since the early part of the 20th century, there are two extreme answers. The first is that it has been so productive and beneficial that people don't want to go back. The second is that the people who have benefited from that power like it that way and have the incentive to keep it that way. I tend the latter of course but my point is that the persistence and growth of government power says nothing about its desirability.

Russ Roberts writes:

Jim Feehely,

Here is the opening of your comment:

The advantage of liberal democracy is that the government is formally accountable to the citizen. It is, of course, the art of the sub-optimal outcome because of necessary compromise. On the other hand, private economic power is not accountable to the citizen other than through regulation imposed by the government on behalf of the citizenry.

I don't understand your words. In what sense is the government "accountable" to the citizen? When the government took my money and yours and gave it to GM and AIG and other recently, how were the decisionmakers accountable? Or when Ben Bernanke invested my money and yours in Bear Stearns assets in March 2008, how is he "accountable?"

In what sense does private economic power harm me unless it is buttressed by the power of the State? If Lands End makes bad shirts, or Apple makes a lousy iPhone or my dry cleaner doesn't get my shirts clean, I am free to stop buying their products and services. Why do so many companies improve their products and lower their prices without regulation? It isn't kindness or good will on their part. It is because they have to please me if they want to retain my business.

But you and I agree when you write that it is:

...the powerful influence that corporate capitalists have on democratic government that is the most dangerous and insidious characteristic of modern liberal democracy. And this insidious power is buttressed by those who preach that economy is society.

That "insidious characteristic" is caused by the ability of the State to intervene and regulate private exchange. It is your desire to empower the State that creates the problem. You want a powerful State that doesn't listen to corporate interests. I don't think that's possibile. BTW, who says economy is society? I don't know what that means. It sounds horrible. So maybe we agree on that, too.

Sebastian writes:

Russ,

I agree with all your observations about the abuses of government and rent-seeking private actors, and yet still disagree that a massive reduction in the role of government would make life overall better.

In trying to understand why I disagree I end up with this: I am of the opinion that a government whose role was to only enforce contracts and provide security would be largely irrelevant and unnoticed by most people. Given this fact, the people that paid most attention to government would be those who are most economically influential(this is already the case in areas such as fiscal policy and various forms of regulation). This attention would then turn into political power and control.


Eliminating the major social programs, and reducing as much as possible the role of the government in people's lives, MIGHT mean that everyone now focuses all of their prior political energies on how government enforces contracts. All it might mean that people pay just as much absolute attention to contract enforcement(for most people 0, for corporations a lot) and the government becomes something that only corporations care about, and as such something that only corporations influence.

I am worried, in short, about the potential for economic power to be transformed into political power. There is no reason to assume that corporate actors would WANT fair enforcement of contracts(ie. they wouldn't want to encourage the government to cheat the small guy). There is no reason why corporations would WANT to respect other people's property rights. While obviously the aggregate effect of such behavior would be bad for the economy as a whole, that doesn't address the interest of the individual corporate actor.


To conclude, if the thing that the government does WORST is to properly regulate market behavior(and again, current "private" arbitration methods through the justice system still exist in a world with the state's Sword of Damocles hanging above the heads of the participants; they can always go to a government court to resolve the issue, presumably to both of their disadvantage.) and limit rent-seeking, why would we want that to be the SOLE role of government? Hoppe argues exactly this(and likes it), that a limited government would naturally devolve into no government, with corporations taking over the full role of political and economic authority in society.


The principle of equality created phenomenally unequal societies(ie. it was violated due to personal incentives), why would the principle of property not create vastly thieving societies if powerful actors want that outcome?

MH writes:

Thanks again Russ.

For the record, please note that, of all of the "pointed questions" that I actually offered for discussion in my last message, none of them quite matches the one question that you chose to address, i.e., "…the question as to why centralization of government power has occurred, grown, and persisted since the early part of the 20th century." I'll grant that there is a near miss (that is, if "same grammatical form, different subject" qualifies as "near") just above "point number 3," and given the frequency and quality of your podcasts on free banking, I'll also confess that that was, in fact, the question that I was really hoping that you would take on "seriously." Forgive me for saying so, but given your broad knowledge, unmistakable smarts, and (perhaps rarest of all) facility with speaking and writing clearly, you do yourself and everyone else a disservice when you conflate a very specific question about a very historically specific private coordination mechanism and its apparent demise at a specific point in time with the what amounts to "bad people like to use a different, bad kind of coordination mechanism called Government to do whatever they want." While you may truly feel that that simple, blanket assertion is so self-evidently true that it settles my specific question (and perhaps all other conceivable questions about why any private sector institution ever fares badly at any point in space-time) so decisively that actually enumerating all of the unmentioned links in the chain of inference between "(x) became extinct" and "(y) currently dominates the landscape" is unnecessary, but IMO that feeling makes a very poor proxy for an actual argument. Nothwithstanding those missing links -- or the significant coarsening effect that such reasoning has on both "political" (i.e., the pursuit of goals through coordinated action) life and scholarship-as-knowledge-seeking -- accepting that blanket assertion as the answer to my specific question would only be possible if all of the puzzling counterexamples that this view immediately raises could be explained away [1].

However, rather than chasing those puzzles further down the path of evidence-proof abstraction, polemics, and irrelevance, let me ask the concrete question that really interests me once more in a slightly different way…

For the sake of argument, let's say that your blanket asertion is right, and Government takes over whatever the bad people who control Government want, whenever they want it. Clearly, most of the time most of the other, not-bad people don't object to Government's predations enough to actually fight back (or at least, to fight back successfully), but from time to time they do -- which is perhaps why, among others, principled Austrians continue to try to shed light on possible alternatives to Government action. Let's also stipulate that I am an open-minded, rational, self-interested but pragmatic economic agent, i.e., someone who recognizes and values the negative liberties that, we imagine, a pure and uncontrained Market would provide, but who also likes my markets to embody other virtues, like "existence" and "relative convenience" (i.e., compared to autarky or primitive barter) and "relative stability" (i.e., compared to autarky or primitive barter). As an active, rational, and self-interested participant in modern economic life, I understand that the workings of the monetary/banking system directly or indirectly affect almost everything that I do. In truth, I am not exactly in love with the current monetary/banking system, but it's the only thing that has existed in my lifetime. Recently, however, I've learned that at certain times and places in the past, Government did not play as great a role in monetary and banking matters as it has during my life. True, the last arrangement of this kind disappeared over a century ago -- but as we all know, bad people who benefit from Government power like to use it to take whatever they want whenever they want it -- so perhaps we can simply assume that they had something to do with the old system's demise.

No matter. Today, I'm being asked to support an effort to resore that old arrangement, and since I have a strong sense that things definitely could work better than they do now, I'm sincerely interested. But to actually commit, I'd want to know whether there's any reason to believe that things would, in fact, likely be improved if the people who advocate such a change get their way. Some things I might like to know include: Does the historical record suggest that the problems in the current system that bother me most were actually less common/frequent/bothersome under that old arrangement? Does history reveal that the old system provided even more or greater virtues of both kinds -- "principled" and pragmatic -- than the current system, or did it require its beneficiaries/subjects to accept less of one kind of virtue in return of more of the other? How diferent was that tradeoff relative to conditions faced by the beneficiaries/subjects of the current system? Would the old system even be likely to work in today's radically different economy, and is there any reason to believe that whatever mix of virtues that it actually embodied in the past would be predictive of the benefits that it would provide if it were resurrected today?

In short, can you make a *positive* case for the merits of a monetary and banking system that is completely free of all Government involvement -- and one that does not rely entirely on the appeal of its superiority as an embodiment of one very specific set of abstract principles that is is not universally shared, much less universally regarded as more important than all other competing human concerns? For those who are unlikely to support such a wholesale revolutionary change in the basic fabric of the economy based solely on deductive reasoning from a specific, narrow set of first principles plus faith that whatever results would be (ipso facto) the best of all possible worlds, can you point to any "objective" (or at least "empirical") evidence to suggest how, specifically, the proposed "free" system would be different, and how those differences would net out to the general benefit of most/all of those who would thereafter become the beneficiaries/subjects of the new-old system?

Or, to put this yet another way, why should the historical accounts of Selgin, White, et al. be accorded any greater credence than those of Crozner, Broz, et al.?

Thanks,

MH


[1] Puzzling implications: Government, money, and even "banking systems" (i.e., "geographically distributed exchange-facilitating industries composed of numerous independent, advantage-seeking entities whose mainline business involves distributing and managing a single common technology and/or mix of interoperable technologies that faciliate transactions between third parties") have all existed for centuries, if not millennia. What explains Government's apparent non-destruction/non-usurpation of all sorts of other private commercial undertakings that have been around for a long time? If Government is assumed to quasi-rationally "cherry pick" functions to take over based on their relative profitability, ease of control, etc., what explains the specific timing of Government's destruction/usurpation of the various instantiations of this particular model of monetary system organization? In fact, why did Government ever permit any "free banking"-like institutions to emerge in the first place?

Jim Feehely writes:

Hi Russ,

Thank you for your response.

When I say liberal democratic government is 'accountable' I concede that accountability is realised only through periodic elections. The problem is that the spectrum of political choice has been so severely narrowed to a cluster around submission to the demands of corporate capitalism. This is particularly stark in the USA. In Australia, the available political spectrum at least includes The Greens. However what we get, and you get, after elections is simply a change in the style of management or stewardship of the demands of corporate capitalism, not any fundamental change in the way individuals are empowered.

To be clear, I am not for bigger government. I am for a much more decentralised and much more accountable form of democratic government. In my view, decentralisation would reduce the effectiveness and power of the corporate lobby

You argue that corporations are accountable to citizen through exchange. But that sort of 'accountability' has nothing to do with authentic freedom. It is simply a freedom of choice between commodities. It is the effective and largely invisible lobbying to which those seller corporations subject central government that is the cancer of democratic freedom. It is the hegemony of doctrines like 'too big to fail' and the induced terror of 'system collapse' that are destroying authentic democracy. I know you agree with that. That is what causes democracy, and its citizens, great harm.

I also agree with you that bigger government is not the answer. But governments have got bigger over the past century for 2 principle reasons: 1. The requirement to impose ethical conduct on essentially amoral business. 2. Citizens demands for more social services which is, in my view, a product of demand, not misconceived largesse by government.

I cannot see how we reduce regulation in the face of massive corporate economic power, corporate power that does not recognise the sovereignty of the individual citizen or national borders. My puny choice between say Apple and HP, changes neither corporations' fundamental corporate strategies principally aimed at reduction of costs; e.g. manufacturing in environments where individual workers can be more easily oppressed.

So it is difficult to see how we rationally back out of the trap of big government that corporate capitalism has driven us down. The propaganda of corporate capitalism has very successfully convinced the majority of the citizenry that what is good for business is good for the individual, a proposition that is not true in most important respects, but which provides the rationale for the clustered political spectrum, particularly, it seems, in the USA.

My view is that, regrettably, the only way out is, in fact, system collapse. And that looks very likely in Europe right now. And the USA will be entangled in that collapse because of the unwise and greedy financialisation of the US economy over the past couple of decades. Unfortunately, that will cause great harm to many individuals but MAY provide the conditions for the reinvention of authentic democracy.

Regards,
Jim Feehely.

MF writes:

Thanks for a great discussion! Am a regular Econ talk listener..

Ok, don’t know too much about this but had a few thoughts/questions:
First off, glad you asked this question: “My children are born in the United States. They are born in the United States of a certain parental endowment of genetics and environment… But it's certainly open to them to be well above the median if they choose to be. Is that fair?” I believe, that in the general discussion that ensued Schmidtz, makes the claim that our ‘talents’ are what make us ‘individuals’ and hence they must be ours and not society’s. I agree with this to some extent but I feel that ‘talents’ is not a good word. Most people would agree that one’s status in society is determined by a combination of genes, environment and personal effort and perhaps a large quantity of one could make up for the lack of another. Moreover, we do not have control over the first two but we could say we ‘own’ the third (and maybe we can replace ‘talents’ with ‘personal effort’) and hence I would disagree with Rawls if he argues that, given that the pie doesn’t shrink as a result, one should divide it up equally. Seems to me, that those who have put in more effort/made better choices/showed determintation/discipline etc deserve more. (Unless one happens to radically believe that our genes determine our efforts). By the same token, I feel that progressive taxation is justified to the extent that it evens out the field with respect to the first 2 factors over which we have no control.

Secondly, I liked your concise summary of arguments against progressive taxation and will look up that book ,“ An Uneasy Case.” However, I think that, even if it may practically lead to the same result, it is important to distinguish the moral/immoral arguments and address them separately. If something is found to be moral then one would move on to the next step of determining whether it was practical or efficient. If something is ‘immoral’ you never have to get to step 2. I think this is important because it is a somewhat weaker argument to say some extent of progressive taxation is moral but unfortunately is impractical. A good design/system of incentives might make it practical, (which of course does not carry over to the morality question).

Finally- and this is a tangent- I admired the way Schmidzt, in responding to your question, would step back lay down the basic structure of the theory and then finally proceed to the question without losing his train of thought! I feel it’s important to have a formalized theory which can be applied to every question so as to ensure consistency in argument and thought. That said, I wondered at a couple of points, whether that came at the price of intuition. Or whether the theory would restrict your train of thought so you might be less likely to intuitively see a solution/something new, which then made me wonder if an analogous sort of thing happens with overly mathematized/formalized economic models..

Anyway, thanks again for a v interesting podcast!
MF

paul writes:

great talk! loved the nozick anecdote.

Greg G writes:

Interviews like this one are why I never skip one of your podcasts Russ. You tackle a difficult and highly controversial issue here and do it in a way that is fair, concise, lucid and highly entertaining.

It is an extraordinary co-incidence if a great original thinker is also a great writer. Rawl's ideas on the veil of ignorance were extremely fruitful but that doesn't make his writing fun to read. And it is not obvious that the conclusions he drew from that thought experiment necessarily follow. As always, different people would make different decisions, even behind the veil.

Thanks to you and David for making this stuff more accessible to the rest of us.

Ralph writes:

If I were a kid I would hang out at Sebastian and MH's house. They have all the cool stuff the corporations force them to buy. All the other people whose income is limited by the government don't have near as many toys.

Thanks for the podcast Russ!

sIR writes:

Dear Professor Roberts,

I wanted to thank you for your constant pursuit of the truth. I differ with you on many things but I really respect your approach. Your use of logic and reason really does speak to the quality of your arguments. It is just so darn refreshing....

Specifically your interviews about regulatory capture and crony capitalism have been enlightening.

I currently teach economics and computer science at the high school level, but my passion is economics. To keep it interesting to my students I regularly touch upon current events etc. Recently presented the issues with SSDI I learned from your show and the linked paper.

Keep up the good work sir your doing the world a service.

Jarrod writes:

I hope one day I will know a fraction of what all of you know. I've been listening for about a year and have learned a lot. This podcast was one of my favorites. I also really enjoy talks with Mike Munger you two seem to complement each other well and it makes for great listening. Keep up the good work.

Don writes:

I have listened to a couple of shows based on the idea of economic equality and while they are probably the most intelligent discussions I have heard on this subject, I still feel something is missing. I think we have an innate feeling about what fair is which is usually clouded by our individual circumstances. Here are a couple of scenarios that may shed some light on fairness and equality.

Your child goes to a birthday party. An economist friend of yours has a child the same age as your child. The economist announces to the children that their cake size will depend on how well behaved and helpful they are. Your child comes home crying because his friend got a bigger piece of cake than he did.

The same economist friend has you and your wife over for cocktails and announces at the beginning of the party that guests will be evaluated on their wittiness and entertainment value and rewarded at the bar accordingly.

My point is that their are feelings built in to our culture about what is fair and if we are judged as only worth small pieces of cake or one martini we feel bad. Maybe these feelings are irrational and should be ignored or maybe some (but not all) economic efficiencies should be traded for a sense of social well being, which is what we do at birthday and cocktail parties.

P. Scott Waterhouse writes:

Russ,

More, please!

Nathan writes:

The philosophical question that I would like to have been answered is whether something which was illegally/immorally taken becomes legal/moral through customary usage. The land taken by US settlers from American Indians was in most cases immoral and in some cases illegal. However, I think few property owners would see it as justified to expropriate their land and return it to the descendant of an American Indian on this basis. To take another instance, Henry VIII dissolved the monasteries and sold their holdings to private families. Many families still hold these properties (that often have the name 'abey' in them). Both the Catholic and Anglican churches have good grounds for contesting the legality of this transfer and certain persons continue to benefit (unfairly in so far as it is merely through inheritance) from this expropriation. What do the philosophers have to say about such instances of ownership? (Similar issues occur in the politically more heated question of Israel and Palestine)

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