One argument in favor of this doctrine stems from the economic concept of diminishing marginal utility. The first apple, or glass of beer, is welcome and refreshing. But as we imbibe more and more of these items, their additional value to us decreases. The tenth apple or beer may even be a negative for us (we assume these items cannot be sold, given away or saved for a rainy day), but will certainly add less utility than the first.
If this is true for such specific items, it is also the case for all of them put together. And what can purchase any good or service in the economy? Why, money, of course. Thus, there is also a diminishing marginal utility of cash. The first hundred dollars in a millionaire’s bank account spells the difference between life and death; his last one may be used to light up his (very expensive) cigar.
So, if we take away that amount of money from the rich man, we reduce his utility by very little. When we give it to an impoverished person, we enhance his welfare to a great degree. Thus, the economic case for egalitarianism.
There are problems here. For one thing, if you take wherewithal from rich Peter to give to poor Paul, you reduce the incentive of both to be productive. The former will hire lawyers and tax accountants to protect his hard-earned wealth, or move to another state, or country. The latter is receiving OPM because he is in poverty; and will thus be incentivized to remain in that state. For another, this analysis commits the economic sin of cardinal utility: counting happiness units. It is stuff and nonsense to think that this paper clip is worth two utils, that pencil 10 utils, and that shoe over there 100 such units of happiness; this would imply that the shoe makes someone ten times as happy as the pencil, which in turn offers quintuple satisfaction compared to the paper clip. There is no such thing as cardinal utility. There is only ordinal utility: we can only say that the person prefers the shoe to the pencil and the latter to the paper clip, but not by how much.
Even more egregious, if that is possible, is that this economic defense of egalitarianism makes interpersonal comparisons of utility. It is plausible in the extreme to suppose that the wealthy man takes great pleasure in lighting his cigar with a $100 dollar bill, while the poor man will use it to get drunk and beat his wife. It by no means logically follows then, that the coerced transfer of wealth from rich to poor will engender any improvement in happiness. The case for egalitarianism on this economic ground is thus an exceedingly weak one.
There is nothing valid in the dismal science that can support this conclusion.
Thomas Piketty is the poster boy for the case that inequality has gotten out of hand. One possible response is to demonstrate that inequality has not recently surged. A famous economist was once asked to prognosticate the future course of stock prices. Came the very proper answer: “They will fluctuate.” A similar situation applies here. In the future, the level of inequality of wealth or income will also “fluctuate.” Sometimes the Gini coefficient will rise, and at other times it will fall. Surely, a more radical response to this attack on the market is that the level of equality matters not one whit, provided, of course, it emanates from the free operation of laissez-faire capitalism, not the crony variety thereof.
A rather weak argument against the egalitarians is to insist that once progressive taxes and regressive welfare programs are taken into account, the divergence between rich and poor decreases.
But this will not do. It constitutes mere apologetics for the present mixed economy redistributivist system. Inequality is not a “problem” at all, big or small. The very unwelcome implication here is that if social welfare programs and taxes on the rich were increased, this “problem” would be decreased.