Every once in a while this country goes through a spasm of “fairness” mania, shining a bright light on inequality of income and of wealth, and demanding that elected officials (who are typically wealthy, at least at the federal level) “do something” about it. The first great spasm – born out of the Progressive movement – led to the “graduated income tax” with a top bracket that has fluctuated wildly over the years, but which usually amounts to confiscation – the idea being that no one should be allowed to earn more than a certain amount, no matter the merits of how they earned it. This, of course, is neutralized by deductions, exemptions, and credits, which succeed in shielding the high-bracket types and putting more of the burden on the middle class. (If you think “welfare queens” are good at gaming the system, you need to study up on tax shelters.)
So overall, the favored remedy for this disgraceful situation (i.e., some people having more money than others) is some form of wealth redistribution, primarily on income but also on interest, dividends, and capital gains... as well as “luxury taxes” and “sin taxes” (the latter typically hitting the lower classes the hardest – not because they are more sinful but because they spend more of their money on sinful pursuits – you know, things like smoking and drinking).
The odd thing about all this, after 100+ years, is that it has failed. There are still rich people; there is still a “1%”. (There will always be a 1%, unless everyone's income and wealth is completely equalized. The people who use this term don't seem to realize that.) (I suspect they're the same people who think all public-school children can become “above average”.) Not only that, but everyone has a different idea of what constitutes “fairness” -- that lofty goal of, well, pretty much any social program... and make no mistake, the income tax is a social program, as well as a fund raiser for the government. (That latter function was discovered, let's say, quite a while after the income tax amendment was added to the Constitution. The original idea of the income tax was essentially to punish the rich and placate the masses, not to add mountains of cash to the government's stockpile. But we're now at the point where the threshold for “taxable income” isn't much higher than the threshold for receiving welfare. I expect that, any day now, welfare recipients will have to pay taxes on their benefits.)
So what is “fairness” and what is “fair”? It's said that you can avoid most arguments by simply defining terms ahead of time – that way, people can agree to disagree, but at least they'll know what they're talking about. But in the case of “fairness”, everyone has a different definition. One – a libertarian, say – will say that fairness is allowing people to keep what they earn (and the anarchist will add: “Every last cent!”). A radical collectivist, i.e. a communist of any stripe, will say that fairness requires that individuals have no personal income and no accumulated wealth (either money or goods) – i.e. that everything must come from, and revert to, the collective. (I'm not just talking about communist countries here; much the same approach has been taken by any number of Utopian settlements, including the hippie “communes” -- the difference being that they were voluntary, whereas national-level communism is not.) Then you get the middle-of-the-road types who make familiar arguments like the one that the CEO of a company should not make more than a certain multiple of the average of the workers in that company. This seems reasonable, but it's lacking in any solid rationale, and it's wimpy because it avoids the real issue.
(I should mention at this point that two recent populist movements have come up with completely different concepts of fairness and equality – namely the “Occupy” crowd and the “Tea Party”. The Tea Partiers lean ever-so-slightly libertarian, whereas the “Occupiers” hark back to the Progressives of old. And yet, each group contends that their ideas are the correct ones, and that they know what fairness and equality mean, and the other guys don't.)
Another aspect of this debate has to do with the concept of ill-gotten gains. On the one extreme, it will be argued that anything constituting “profit” is ill-gotten by definition. Less extreme (but still very populist) is the notion that the portion of profit that necessitated “exploitation” of the worker, or deceiving or cheating the consumer, is ill-gotten. I don't have any problem with that idea, but the thing is that the people who fancy themselves judges of how, and how much, income should be redistributed hardly ever make that distinction, because it's too complicated to sort out, and besides, they're lazy. They'd rather sit around complaining about profits, and “predatory” or “cut-throat capitalism” than take the trouble to define terms, pass the appropriate laws, and especially enforce them. And I had better add that, on the other extreme, according to the alleged “robber baron” model, all profits are just because (1) they result from a contract (real or implied) between capital and labor (i.e., there is never any coercion or exploitation – if you can accept that) and (2) the capitalist deserves to be rewarded for his intelligence, manipulation, and wheeling-and-dealing abilities (Can you say “CEO bonuses”, class?).
So what is the real issue? What are the (mostly) unspoken premises behind these arguments? On one level, it has to do with the value of work – of labor. If we agree that all labor is of equal value (never mind what the market and the law of supply and demand say), then of course everyone should be paid equally. This is what an acquaintance of mine years ago called “the aristocracy of labor” -- the notion that the “working man” deserved as much compensation as the president or board of directors of the company... maybe more, in fact, because his work was typically more dangerous.
If some of this rings a faint bell, it's because what's called “the labor theory of value” is a pillar of communist theory – the premise being that the entire value of goods or services is contained in the labor needed to produce them, and no more. One consequence of this idea is that goods and services should cost no more than the sum of the labor component, i.e. that there should be nothing held back as “profit”, because “profit” is nothing more than theft – stealing from the worker (and the consumer as well, presumably). Another consequence is the total devaluation of much that normally goes into the final product – things like invention, innovation, technological advances, efficiency, management skills, investment, marketing... in other words “capital” and all of its appurtenances. Another way of putting this is that once a given technology or process is established, no further compensation need be granted to the originator, inventor, innovator, or “capitalist”... that their work is done, and from that point on it's all owned by the workers – or if not “owned” exactly, then held in custody by the government in the workers' interest.
(Of course, none of our present-day leaders or politicians would adhere to such a ridiculous notion, would they? Oh wait -- “You didn't build that!” Sigh... )
But why stop with the radical notion that all labor should be compensated equally? Doesn't that discriminate in favor of those who work? What about those who can't, or won't, work, for whatever reason? After all, they are human beings too, and since we're all created equal, shouldn't they be compensated for simply existing – for walking the earth and breathing the air? This is, of course, in modified form, the premise behind social welfare and entitlement programs.
But then the question will arise, well, why bother with money at all? Doesn't a “medium of exchange” open up possibilities of inequality (“unfairness”) and hoarding (savings)? Doesn't it tempt people to keep some of what they earn instead of sharing? Or, on the other side of the coin, doesn't it tempt people to borrow and go into debt? Why not just see to it that everyone is equally fed, clothed, and housed, and that anything left over once that is accomplished is distributed equally among the citizenry in the form of extra benefits? This is communism in a nutshell – except that there is seldom anything left over. In fact, suitable nutrition, clothing, and shelter may be hard to come by as well, as it notoriously is in hard-core communist countries. But I'm not going to get into the effects a system of this sort has on motivation; that's another argument, and besides, it's already been made and I have nothing to add to it.
But an advanced society cannot possibly function without a medium of exchange – right? OK... but who said anything about “advanced”? Remember how the Khmer Rouge – radical collectivists if there ever were any – blew up the sewer system in Phnom Penh because it was considered to be a “Western”, i.e. “imperialist”, contrivance, and thus a threat to the purity of their new order? (But not to their old ordure, I hasten to add.) Who knows how much of what we call “modern civilization” and “technology” has been built on the backs of the poor? The claim is made every day in the history and economics departments of American universities. We may have to make some real sacrifices in order to achieve equality and fairness. (Isn't what we are being constantly told by politicians in so many words?)
OK – you see where this is going (I hope). One way to approach an issue is, instead of quibbling at the margins the way they constantly do in Congress, define the limits. What would be the ultimate in fairness and equality? Can there be too much fairness? Too much equality? (To hear Obama & Co. talk about it, you'd think not.) The populists – to give a small bit of credit – tend to be a bit more moderate than this; it's just that any line they draw is going to be arbitrary. They're willing to tolerate some people having a little higher income than others, or a bit more in the way of savings (if not actual “wealth”)... maybe even a slightly bigger house. But don't forget the bumper sticker that reads “No One Gets Two Houses Until Everyone Has One”. That's the “progressive” mind at work. Frankly, I'd like to see Congress try and pass that law; it ought to be great fun.
So let's review. Assuming that it's the job of the government to redistribute income, which model should they use? The one that says that all working people are equally worthy of compensation? Or the one that says that all people are equally worthy of compensation? And what do we do about children and other dependents? Are they to be granted full economic “personhood” under this system? (Now there's an incentive to have large families! Ironic, since everything the government does currently is aimed at minimizing family size or eliminating families altogether.) And what about primates, since they are about to be legally declared people? How about elephants, and dolphins, and talking dogs? How about lobsters, since they're alleged to be conscious, even though pre-born humans are not?
Now, if you don't think that's a big enough cocked hat all by itself, you can stop reading. But let's say that we shrink, and cringe, from such wild-eyed radicalism, and decide that the bureaucratic burden of such a system would be too much to bear – that it would result in the demise of the system, in fact. (Because this is, basically, what happened in the Soviet Union and in communist China – although Cuba and North Korea seem to be muddling through – even though there are rumors that North Korea has a “growing middle class” -- but color me skeptical. I suspect that all it means is that some people get two small bowls of thin gruel per day rather than just one.) (On the other hand, they have solved the obesity problem, which is more than you can say for us.)
Let's say that we retain the money system, allow people to earn income and to save – but only under close and constant scrutiny by enlightened officials of the government, who will have tools such as the minimum wage, taxation, etc. to work with. But then, you see, you've already given in – you've said that fairness, and equality, are not absolutes... that they have to be “nuanced”... that we have to be (at times) “realistic” about what is politically viable... et cetera. What you're saying is that it's all about politics, and therefore all about political power – which is pretty much the premise that most people operate on already, especially the ones known as liberals. But on the plus side, if it's all about politics and power, and there are no absolutes, than no one can complain. If politics trumps my idea of “fairness” or equality, well, that's too bad, because politics rules. Since fairness and equality cannot be absolutes, they have no more significance as principles than politics; they are, in fact, the same thing, for all intents and purposes. So go to the polls every four years (or every two, if you've got nothing better to do), cast your vote, and shut up, because “the people have spoken”.
What to do! Is there no way out? Oh, right... there is that ancient, moldering document called the Constitution... and there is also classical economics, the market system, and supply and demand. These are called “imperfect” by nearly everyone, but the next step in the reasoning is where the great divide occurs. One side says that these imperfections prove that said document or process should be discarded because it is no longer suited to “our time” -- or that we hold onto it for the sake of sentimentality, but add so many qualifiers, nuances, interpretations, and “penumbras” that it might as well be declared null and void. The other side says that these imperfections only reflect the imperfectability of man, and that since no work of man can ever be perfect, the thing to do is to live with the imperfections because it's still the best thing we've got. It should be noted that the latter position implies that most government workers should be fired and their offices closed down – which is the primary reason that its advocates aren't listened to, and accused of being in favor of “cut-throat capitalism”, exploitation of labor, “hate”, and so on.
Bottom line (if there even is one) – the next time you, or anyone else, starts talking about “fairness” or “equality” please take a moment to consider what you, or they, are really talking about – and consider whether your answer is to hire the government to make your vision a reality. Because if it is, it's much more likely that your vision will turn into a nightmare. And this is not just a “doom and gloom” prediction; it's already happening, the horror stories are out there, and no one is made one bit happier no matter how much the government exerts itself in their favor and in disfavor of others. If the government were playing even a zero-sum game, it would be one thing – but the game it's playing is negative-sum (unless you include the government functionaries themselves and their elite cronies, in which case things might be coming out about even).