What is Economic Justice?

Presented by Dr. Norman R Cloutier, Director, University of Wisconsin-Parkside Center for Economic Education, at WCSS, March 16, 2009. Adapted from Teaching the

Ethical Foundations of Economics, National Council on Economic Education, 2007.

Economic Goals

Low UnemploymentEconomic Growth

Low InflationEfficiency

Equity

Adam Smith

“However selfish a man may be, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. We feel pity or compassion when we see the misery of others, or are made to conceive of it in a lively manner.”

- Adam Smith

Paraphrased from the opening paragraph of Theory of Moral Sentiments (1759)

Lesson Objectives

Students will:1. Explain why people disagree about what is just.2. Contrast a just process with a just outcome.3. Explain how individuals may seek their own

interests through public policy.4. Contrast self-interested economic behavior with

behavior behind the “Veil of Ignorance.”

National Economic Content Standards

1. Productive resources are limited. People must choose some things and give up others.

3. Different methods can be used to allocate goods and services. People, acting individually or collectively through government, must choose which methods to use.

4. People respond predictably to positive and negative incentives.

14. Income for most people is determined by the market value of their productive resources.

16. There is an economic role for government in a market economy whenever the benefits of government policy outweigh the costs.

What is Economic Justice?• All economic systems must address the fundamental

problem of scarcity, because not all wants can be satisfied.

• All approaches to the problem of scarcity have efficiency and equity implications.

• Economics has tended to focus on questions of efficiency, or generating maximum economic welfare.

• Questions of equity, or fairness in economic transactions, have received less attention.

Economic Justice

• Economic justice is difficult to define, but involves two – possibly contradictory –questions:

• Is the outcome just?• Is the process just?

• A fair process may generate a highly unequal, perhaps unfair, outcome.

Economic Justice

• People who emphasize outcomes tend to believe current economic inequality is unjust.

• People who emphasize process tend to approve of outcomes, even if they are highly unequal, as long as individuals have equal opportunity.

Is it fair?

• Is competition in a golf tournament, auto race, or TV reality show fair?

• Is the process fair? • Outcomes are very unequal. Winners generally win

very large prizes, while everyone else gets little or nothing.

Is it fair?• Do you think it is fair that some students are

admitted to higher-quality colleges and universities and other students are rejected?

• The outcome is unequal. Is the process fair?• Student performance matters.• Wealthy families can hire tutors and academic coaches.

Is that fair? • Some students may be admitted because their parents

are alumni, others may be admitted through affirmative action. Is that fair?

The Veil of Ignorance Game

• Round 1• Distribute Role Cards defining position in society.• Determine policies that benefit them and vote.• Present group’s vote and justification for its position.

• Round 2• Repeat procedure with new Role Cards under the veil

of ignorance.

Raising Government RevenueOption A: Progressive Income TaxAnnual Income Tax Rate$ 0 - $ 10,000 0%$ 10,000 - $ 50,000 10%$ 50,001 - $100,000 20%$100,001 - $300,000 30% > $300,000 50%

Example: Jody earns $80,000 0% on first $10,000 $10,000 x .00 = $ 010% on next $40,000 $40,000 x .10 = $ 4,00030% on next $30,000 $30,000 x .20 = $ 6,000

Jody’s total taxes= $ 10,000

Option B: Flat Income TaxEveryone pays the same rate (15%) on all income. Jody would pay $80,000 x .15= $12,000

Actual Marginal Rates for an individual: 2008Taxable Income Tax Rate$ 0 - $ 8,025 10%$ 8,026 - $ 32,550 15%$ 32,551 - $ 78,850 25%$ 78,851 - $164,550 28%$164,551 - $357,700 33% > $357,700 35%

Vote 1Role and Income Known

Vote 2Behind a Veil of Ignorance

Issue 1: Raising Government Revenue

Progressive Flat Progressive Flat

Group 1 Group 1

Group 2 Group 2

Group 3 Group 3

Group 4 Group 4

Group 5 Group 5

Group Role FamilyIncome

Progressive Tax

Flat Tax

1 Unemployed laborer $8,000 $0 $1,200

2 Teacher $100,000 $14,000 $15,000

3 Student $0 $0 $0

4 Executive $450,000 $149,000 $67,500

5 Retiree $50,000 $4,000 $7,500

Questions

• In the second round, you didn’t know your role or position in life. How did this affect your views about these economic policy issues?

• Students are likely to say that in round 1 they first made decisions based on narrow self-interest, but in round 2 that took a wider perspective.

• Review policy options and how self-interest can frame points of view.

Questions• After playing this game, do you think fairness in

economic policy should be based on achieving equal outcomes or providing a process for equal opportunity? Why is it not always possible to have both?

• A balance between a just process and a just outcome may be possible.

• Social “safety nets” address unacceptably large disparities in outcomes, but at the same time can make a process more fair. For example, education can be viewed as an outcome and as a part of a process.

Questions

• Since it is not actually possible to live behind a veil of ignorance, what lessons did you learn about resolving economic policy issues?

• The game helps us to consider a wider perspective than our own.

• Considering the perspective of another person stretches our moral imagination.

• Policy making is enriched and cooperation is more likely.

Further Reading

Argument for outcomes based justice: John Rawls, Justice and Fairness: A Restatement

(Cambridge: Harvard University Press, 2001)

Argument for process based justice: Thomas Sowell, The Quest for Cosmic Justice (New

York: The Free Press, 1999)