Equality vs. efficiency: Okun’s answer is …

This isn’t a surprise. It comes around page 90 of Equality and Efficiency: The Big Tradeoff, by Arthur Okun.

On what terms is the nation willing to trade equality for efficiency? Anyone who has passed a course in elementary economics can spout the right formal rule: promote equality up to the point where the added benefits of more equality are just matched by the added costs of greater inefficiency. As is often the case with the rules that are taught in basic courses, this one provides insight but is hard to apply to the real world. The consequences of most redistributive measures on both equality and efficiency are uncertain and debatable. Confronted with a proposed tax or welfare equalization, no legislator or votor can assess how much the program would add to equality or subtract from efficiency. Thus decisionmakers do not get opportunities in the real world to test neatly their priorities between the two competing objectives.

Tests there are, that’s for sure, just not neat tests. Okun does offer a neat hypothetical however, which I’ll post soon. He concludes his book,

A democratic capitalist society will keep searching for better ways of drawing boundary lines between the domain of rights and the domain of dollars. And it can make progress. To be sure, it will never solve the problem, for the conflict between equality and economic efficiency is inescapable. In that sense, capitalism and democracy are really a most improbable mixture. Maybe that is why they need each other — to put some rationality into equity and some humanity into efficiency.

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