Real freedom for all turtles in Sugarscape? - Presses universitaires ...

292A r g u i n g a b o u t j u s t i c elegitimate, voluntary exchanges: there is much coercion, corruption, andtheft in the history of all societies. But Nozick’s point is that one can imaginea capitalism with a clean history, in which vastly unequal endowments ofwealth are built up entirely from exchanges between highly talented, welleducated people and simple, unskilled ones, and this unequal result isethically acceptable if one accepts the premise that one has a right to benefitby virtue of one’s endowments – biological, familial, and social – or so heclaims.The second major argument for inequality is the instrumental one: thatonly by allowing highly talented persons to keep a large fraction of thewealth that they help in creating will that creativity flourish, whichredounds to the benefit of all, through what is informally called the trickledownprocess. In a word, material incentives are necessary to engender thecreativity in that small fraction of humanity who have the potential for it,and state interventions, primarily through income taxation, which reducethose material rewards, will kill the goose that lays the golden eggs. Evenamong left-liberal political philosophers, the incentive argument forinequality is acknowledged: John Rawls describes as just inequality that isnecessary, for incentive reasons, to render the worst-off class as well off aspossible. 1A third argument for inequality, which is currently most prevalent in theUnited States, is one of futility: even if the degree of inequality that comeswith laissez-faire is not socially necessary in the sense that the incentiveargument claims, attempts by the state to reduce it will come to naught,because the government is grossly incompetent, inefficient, or corrupt. Thus,better to let the rich keep their wealth and invest it profitably, than to hopethat the state can manage it more fruitfully. Incredible as it may seem, it isnow becoming increasingly popular in certain circles of economists in theUnited States to say that the productivity of government investment is zero.How current economic theory justifies inequalityI wish to discuss how economic theory influences our views aboutinequality. I will dismiss macro-economic theory quite curtly. Its two pillars,rational expectations and the efficient markets hypothesis, have both beenquite effectively demolished by the current financial and economic crisis.Rational expectations is simply a premise of mathematical convenience.Suppose that agents are making decisions under uncertainty, which is, of1G.A. Cohen (1997) has argued that Rawls is inconsistent in calling ‘just’ allocations inwhich some are much better off than others, when this differential is caused by personal,selfish decisions.