Economic fairness has been a rallying cry of revolutionaries and politicians alike for hundreds of years. It has the ability to arouse the apathetic, and agitate the angry. It is no wonder that politicians of all stripes claim to be a champion of equity.
We have an innate human yearning for fairness. Even a toddler could protest the slightest perceived injustice with «It’s not fair!»
Despite this longing, individuals, groups, and politicians often call for actions which are effectively unjust. Actions which they still perversely defend in the name of fairness!
Defining economic fairness
«What is it? Where is it? Why is it? You could even say, is it?» — Kevin Turvey
The fundamental thread running through all debate on economic fairness pertains to «who pays and who receives».
To me, it is fair when one pays a proportionate amount to what one receives. It seems the most obvious maxim, but so often has it fallen by the wayside of our discourse.
A minority of the population choose to attend university and across their lifetime earn £100,000 more than a non-graduate. Who should pay for this privilege? Clearly the one who chooses and benefits from it. It is a common belief however that it is «fair and right» that the academic elite should benefit from university studies paid for through general taxation, including by those who for whatever reason do not go to university.
Now like many others, I believe that ability to pay should not prevent someone from going to university. So we should have (and to some extent do have) a system where loans are available and which are paid off over a period of time. But crucially, it must be the graduate who consumes that education who ultimately pays for it.
Explaining the contradiction
There are several explanations for why individuals may support fairness in principle, but are so often misguided by what they think is fair.
Psychologically, we tend to believe that what is good for us is also good for society. A farmer asking for government subsidies genuinely believes that society benefits too. It is indeed good for society if its members are better off, but not when this is a result of the lobbying of government to benefit one at the expense of the other. Government support for agriculture necessarily comes at the expense of other sectors of the economy. Subsidies have to be paid for through taxes, whilst trade barriers result in higher prices for all.
The second explanation (Director’s Law) is much more cynical. It argues that the relationship between voters and governments is such as to benefit the middle income classes at the expense of the poor and the rich. Politically, that’s where the votes are and where elections are won or lost. This is a group that is politically engaged; that organise and attend protests; that write in to newspapers; that fight local campaigns; and that turn out to vote. Yes! The very same group that calls for subsidies on the education they attend, the arts they enjoy, and the trains they ride. ‘Fairness’ here is merely the sheep’s clothing to the wolf of self-interest.
Finally, it may be that we are just ignorant and short-sighted. It is complex to engineer and promote fairness when by their nature, government policies tend to benefit one at the expense of another. And so we give up at the first hurdle. It is easy to support «free university for all» by focusing on the benefits but ignoring the costs which are diverse, spread out, and difficult to grasp. A single-payer system is also conceptually simpler compared to thinking about university funding through the lens of graduate loans/tax.
Economic fairness and prosperity
If there is economic fairness (as defined by the maxim that one pays a proportionate amount to what one receives), then we have an environment that is best placed to create prosperity for all.
Economists call this ‘allocative efficiency’. One is never more careful about spending money than if it were one’s own.
Making public transport (or any good or service) ‘free’ at the point use leads to over-consumption. It may cost society £5 to provide me a free ride, and I would choose to enjoy that ride even if it’s only worth £2 to me. There is a net loss owing to the wasteful use of scarce resources. But as soon as I have to pay £5 for the cost of my ride, I would only take it if it were worth more than £5 to me. Every ounce of resource is only used if it generated a benefit worth more than its cost. Multiply that across the entire economy and you get an unparalleled opportunity for prosperity.