Equality vs. Efficiency:
The Big Tradeoff
OPEN CLASSROOM
BARRY BLUESTONE
OCTOBER 12, 2011
Arthur Okun
THE GODKIN LECTURES ON THE ESSENTIALS
OF FREE GOVERNMENT AND THE DUTIES OF
THE CITIZEN
HARVARD UNIVERSITY
1975
Political Institutions
 Provide universally distributed rights and privileges
that proclaim the equality of all citizens






Acquired at no monetary cost
Violate law of comparative advantage – People with great stake
in a certain right have no more right to it than others
Equal without regard to ability or intelligence
Not distributed as incentives
Violates equity and freedom – Everyone must pay for right
regardless of who uses it
Cannot be bought and sold
Our rights can be viewed as inefficient, because they:
 Preclude prices that would promote economizing

Since no price for free speech, too many people use it too freely!
 Violate the law of comparative advantage

We academics who are so smart have no more right to free speech than
those who have flunked out of elementary school!
 Incentives that would augment socially productive effort

If speech were a market good, people would work harder to obtain it
 Trades that potentially would benefit buyer and seller alike

Starving person cannot trade his vote for a loaf of bread
Economic Institutions
 Rely on market-determined incomes that generate
substantial disparities among citizens in material
welfare
 Differentials in income are meant to serve as
incentives – rewards and penalties – to promote
efficiency in the use of resources and generate
growth in output
The Big Tradeoff
 “Equal rights and Unequal Incomes generate
tensions between the political principles of
democracy and the economic principles of
capitalism”
 “Uneasy compromise rather than a fundamental
inconsistency”
Reasons for Rights
 Liberty



Protect individuals from encroachment by the state
e.g. “Freedom of Speech”
Universal and identifiable criteria used rather than discretionary –
Bill of Rights
 Pluralism

Rights are a protection against intervention of market in all parts of
society … “need to keep the market in its place” … so that everything
does not become a market commodity with a price, but no social
significance – e.g. Olympic Medals
 Humanism

Stress on human dignity – Mutual respect without a quid pro quo
“Rights” vs. “Marketable Commodity”
 How far should we go in ensuring rights?
 Free
speech?
 Free public education?
 Right to pollute?
 Free housing?
 Public welfare?
 Right to a job?
Bans on Exchange
 “By prohibiting your sale of rights, society is
encroaching on your freedom, but it is also
protecting you from others who might to take your
rights away”


Child labor laws prohibit some families from making ends
meet
Minimum wage laws prohibit workers from offering their labor
at any wage they choose
Transgressions of Dollars on Rights
 Buy better legal services – receive
preferential treatment before the law
 Buy better political platform – campaign
financing
 Lobbying by means of pecuniary offers
Rights/Market Goods Continuum
The “Big Tradeoff”
j
No Incentives
No Quid pro Quo
Equality
Incentives
Quid pro Quo
Inequality
Rights/Market Goods Continuum
X
Freedom of Speech
Freedom of Assembly
Freedom of Religion
Rights/Market Goods Continuum
X
Diamond
Pinky Rings
Rights/Market Goods Continuum
X
Freedom of Speech
Freedom of Assembly
Freedom of Religion
X
Diamond
Pinky Rings
Rights/Market Goods Continuum
X
Food - 1920
Rights/Market Goods Continuum
X
Food – 1930
County Welfare
Worker –
Commodity
Distribution
Rights/Market Goods Continuum
X
Food – 1960
“Food Stamp Program”
Rights/Market Goods Continuum
X
Housing
Rights/Market Goods Continuum
X
Public Housing
Rights/Market Goods Continuum
X
Section 8 Housing
Rights/Market Goods Continuum
X
Homeownership
Rights/Market Goods Continuum
X
Homeownership:
FHA, VA, Fannie Mae, Freddie Mac
Mortgage Interest Deduction
Rights/Market Goods Continuum
X
X
Homeownership:
Diminish Fannie Mae, Freddie Mac?
Eliminate Mortgage Interest Deduction?
Rights/Market Goods Continuum
X
Health Care:
1950
Rights/Market Goods Continuum
X
Health Care:
1960
Medicare,
Medicaid
Rights/Market Goods Continuum
X
Health Care:
2010
“Obamacare”
Rights/Market Goods Continuum
X
?
Health Care:
2012-2016
?
Rights/Market Goods Continuum
X
Job
Rights/Market Goods Continuum
X
?
Job
Rights/Market Goods Continuum
X
Freedom of Speech
Rights/Market Goods Continuum
X
Freedom of Speech
Citizens United Supreme Court Ruling
All Political Discourse …
 Where on the continuum do you place
something?
 Conservatives generally favor keeping as
much as possible as “market goods”
 Liberals generally favor expanding “rights”
 Today that battle is perhaps more divisive
than ever
What’s your favorite candidate
for a new right?
What’s your favorite to make a
“market good”?