Equality and Efficiency: The Big Tradeoff

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Brookings Institution Press, Dec 1, 2010 - Business & Economics - 124 pages

Contemporary American society has the look of a split-level structure. Its political and social institutions distribute rights and privileges universally and proclaim the equality of all citizens. Yet economic institutions, with efficiency as their guiding principle, create disparities among citizens in living standards and material welfare. This mixture of equal rights and unequal economic status breeds tensions between the political principles of democracy and the economic principles of capitalism. Whenever the wealthy try for extra helpings of supposedly equal rights, and whenever the workings of the market deny anyone a minimum standard of living, "dollars transgress on rights"—in the author's phrase.

In this revised and expanded version of the Godkin Lectures presented at the John F. Kennedy School at Harvard University in April 1974, Arthur M. Okun explores the conflicts that arise when society's desire to reduce inequality would impair economic efficiency, confronting policymakers with "the big tradeoff."

Other economic systems have attempted to solve this problem; but the best of socialist experiments have achieved a greater degree of equality than our mixed capitalist democracy only at heavy costs in efficiency, and dictatorial governments have reached heights of efficiency only by rigidly repressing their citizenry.

In contrast, our basic system emerges as a viable, if uneasy, compromise in which the market has its place and democratic institutions keep it in check. But within the existing system there are ways to gain more of one good thing at a lower cost in terms of the other. In Okun's view, society's concern for human dignity can be directed at reducing the economic deprivation that stains the record of American democracy—through progressive taxation, transfer payments, job programs, broadening equality of opportunity, eliminating racial and sexual discrimination, and lowering barriers to access to capital.

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Page v - The Brookings Institution is an independent organization devoted to nonpartisan research, education, and publication in economics, government, foreign policy, and the social sciences generally.
Page 48 - In pursuing such a goal, society would forgo any opportunity to use material rewards as incentives to production. And that would lead to inefficiencies that would be harmful to the welfare of the majority. Any insistence on carving the pie into equal slices would shrink the size of the pie.
Page 47 - Abstracting from the costs and the consequences, I would prefer more equality of income to less and would like complete equality best of all.
Page 39 - In a country where the sole employer is the State, opposition means death by slow starvation. The old principle, who does not work shall not eat, has been replaced by a new one: who does not obey shall not eat.
Page 44 - Thus the principle holds that in order to treat all persons equally, to provide genuine equality of opportunity, society must give more attention to those with fewer native assets and to those born into the less favorable social positions.
Page 13 - Society refuses to turn itself into a giant vending machine that delivers anything and everything in return for the proper number of coins. When members of my profession sometimes lose sight of this principle, they invite the nastiest definition of an economist: the person who knows the price of everything and the value of nothing.
Page 119 - Smith, 1 776 [The] market needs a place, and the market needs to be kept in its place.
Page 92 - All social values . . . are to be distributed equally unless an unequal distribution of any, or all, of these values is to everyone's advantage
Page viii - the market needs a place and the market needs to be kept in its place