THE MOTIVATION FOR the Swiss proposal is expressed by David Roth, president of the Swiss Socialist Party, as “Switzerland’s wealth is very unfairly distributed.” Despite the fact that what is deemed fair is in the eye of the beholder, the word’s role in political discussion can bear another re-examination. Indeed, if income tax rates are proposed to be increased to further reduce income inequalities, and the proposal cannot be justified on analytical grounds, advocates reach for their trusted ace in the hole, the coup de grâce – it’s only “fair” to provide the clinching argument.
But how does the notion of fairness arise? In the discussion that follows, we express one explanation.
Is it possible that the rampant use of the word “fair” stems from its original use in settling family disputes among children? The child’s earliest exposure to it is when the parents must allocate the distribution of some scarce item – say, ice cream, pie or TV time. The sibling conflict often is resolved by treating the eligible children, which may include neighborhood children and friends as well, equally. This tends to minimize parent time, effort, grief and angst in the problem’s resolution.
In this environment the child, especially the younger ones, cannot help but be heavily influenced by the notion that equal distribution is somehow “fair,” or optimal. In fact, this concept may become generally accepted as a form of juvenile justice (JV), or equity. But observe that in this context the valued item is shared or gifted as a parental obligation, not contractually earned.
Among young adults, the JV notion often cannot avoid being naively transferred, to some degree, to adulthood, where it can play an influential role in developing mature, adult values related to appropriate income distributions. Therefore, when the adult receives contractual earnings, it is understandable that his concept of fairness may embrace the extreme of equal income distribution, as well as the appropriateness of flatter, less unequal, distributions.
ADULTS INFLUENCED by JV must understand that they are making a wrong comparison: Attempting to transfer a conclusion based on parental love to a context of contractual earnings – in which the earnings are based on individual incentives, private property, productive efficiencies and sacrifices – are entirely different settings and conditions. The context of parental benevolence is irrelevant to one of contractual earnings!
Reinforcing the ice-cream sharing illustration is another example. Many families provide, at their death, for equal sharing of their estates among their children. After due consideration, this decision may be deemed optimal and fair. But the family-level decision does not imply that it is optimal for the voter to employ it to limit wealth accumulation or the earnings from freely negotiated contractual income by members of society. The rule of fairness at the family level does not automatically apply to individual earnings in the form of income redistribution policies.
The extent to which this attempt to apply family-derived decision rules to social policies is undertaken, whether wholly or in part, is unknown. In many the thought may never occur, others initially sheltering it shed it, and some retain it as an ideal. Society would be more informed if the extent of its retention were known, if only for educational purposes. Such an investigation likely would yield unforeseen new insights as well. Sponsorship of such a study, however, would likely have to be provided by a foundation.
The JV hypothesis also helps explain why equal distribution of income is so popular among our youth and less so among middle-agers. If, for example, equal distribution is too extreme, the citizen can compromise by supporting a public policy of redistributing earned income. While this involves a mere skip-and-jump from equal distribution, he must make the logical leap from a condition where parental love drives the distribution to a case where competitive incentives, innovations and productive efficiencies fuel the generation and distribution of earned incomes, not parental affection.
IF THE JUSTICE MANTRA is carried into adulthood, this has the potential to explain some adult attitudes toward the redistribution of earned incomes. In this case, the carryover is consistent with the adult supporting redistribution of wealth and earned incomes. Because once the mantra of JV is accepted by the young adult, it is an easy step to slide into supporting the redistribution of earned incomes. If the young adult accepts equal distribution of earned incomes, he must accept – i.e., feel comfortable with – redistribution of earned incomes as well.
Acceptance of JV as an adult is the “skip,” and acceptance of its extension to also embrace earned incomes is the “jump.” But this again is an invalid logical step – an attempt to put square pegs into a round hole. It is improper, inappropriate, and wrong.
(The writer is a professor emeritus of financial economics at the University of Georgia. He lives in Aiken, S.C.)