OPEN CLASSROOM BARRY BLUESTONE OCTOBER 12, 2011 Equality vs. Efficiency: The Big Tradeoff

THE GODKIN LECTURES ON THE ESSENTIALS OF FREE GOVERNMENT AND THE DUTIES OF THE CITIZEN HARVARD UNIVERSITY 1975 Arthur Okun

Political Institutions Provide universally distributed rights and privileges that proclaim the equality of all citizens  Acquired at no monetary cost  Violate law of comparative advantage – People with great stake in a certain right have no more right to it than others  Equal without regard to ability or intelligence  Not distributed as incentives  Violates equity and freedom – Everyone must pay for right regardless of who uses it  Cannot be bought and sold

Our rights can be viewed as inefficient, because they: Preclude prices that would promote economizing  Since no price for free speech, too many people use it too freely! Violate the law of comparative advantage  We academics who are so smart have no more right to free speech than those who have flunked out of elementary school! Incentives that would augment socially productive effort  If speech were a market good, people would work harder to obtain it Trades that potentially would benefit buyer and seller alike  Starving person cannot trade his vote for a loaf of bread

Economic Institutions Rely on market-determined incomes that generate substantial disparities among citizens in material welfare Differentials in income are meant to serve as incentives – rewards and penalties – to promote efficiency in the use of resources and generate growth in output

The Big Tradeoff “Equal rights and Unequal Incomes generate tensions between the political principles of democracy and the economic principles of capitalism” “Uneasy compromise rather than a fundamental inconsistency”

Reasons for Rights Liberty  Protect individuals from encroachment by the state  e.g. “Freedom of Speech”  Universal and identifiable criteria used rather than discretionary – Bill of Rights Pluralism  Rights are a protection against intervention of market in all parts of society … “need to keep the market in its place” … so that everything does not become a market commodity with a price, but no social significance – e.g. Olympic Medals Humanism  Stress on human dignity – Mutual respect without a quid pro quo

“Rights” vs. “Marketable Commodity” How far should we go in ensuring rights?  Free speech?  Free public education?  Right to pollute?  Free housing?  Public welfare?  Right to a job?

Bans on Exchange “By prohibiting your sale of rights, society is encroaching on your freedom, but it is also protecting you from others who might to take your rights away”  Child labor laws prohibit some families from making ends meet  Minimum wage laws prohibit workers from offering their labor at any wage they choose

Transgressions of Dollars on Rights Buy better legal services – receive preferential treatment before the law Buy better political platform – campaign financing Lobbying by means of pecuniary offers

Rights/Market Goods Continuum j Incentives Quid pro Quo Inequality No Incentives No Quid pro Quo Equality The “Big Tradeoff”

Rights/Market Goods Continuum Freedom of Speech Freedom of Assembly Freedom of Religion X

Rights/Market Goods Continuum Diamond Pinky Rings X

Rights/Market Goods Continuum Freedom of Speech Freedom of Assembly Freedom of Religion Diamond Pinky Rings X X

Rights/Market Goods Continuum Food X

Rights/Market Goods Continuum Food – 1930 County Welfare Worker – Commodity Distribution X

Rights/Market Goods Continuum X Food – 1960 “Food Stamp Program”

Rights/Market Goods Continuum Housing X

Rights/Market Goods Continuum X Public Housing

Rights/Market Goods Continuum Section 8 Housing X

Rights/Market Goods Continuum Homeownership X

Rights/Market Goods Continuum Homeownership: FHA, VA, Fannie Mae, Freddie Mac Mortgage Interest Deduction X

Rights/Market Goods Continuum Homeownership: Diminish Fannie Mae, Freddie Mac? Eliminate Mortgage Interest Deduction? X X

Rights/Market Goods Continuum X Health Care: 1950

Rights/Market Goods Continuum X Health Care: 1960 Medicare, Medicaid

Rights/Market Goods Continuum X Health Care: 2010 “Obamacare”

Rights/Market Goods Continuum X Health Care: ? ?

Rights/Market Goods Continuum Job X

Rights/Market Goods Continuum Job X ?

Rights/Market Goods Continuum X Freedom of Speech

Rights/Market Goods Continuum X Freedom of Speech Citizens United Supreme Court Ruling

All Political Discourse … Where on the continuum do you place something? Conservatives generally favor keeping as much as possible as “market goods” Liberals generally favor expanding “rights” Today that battle is perhaps more divisive than ever

What’s your favorite candidate for a new right?

What’s your favorite to make a “market good”?