Internal Externalities

I think one interesting point in considering Friedman's analysis of money allocation and spending is that it is in strong contrast with a Rawlsian view of justice as fairness. The idea that anyone can rationally determine a responsible spending schedule that will allow them to live freely in the manner of their choosing for the rest of their lives has won support from those who identify with that supposition. However, we can see many examples of this ideal of rationality failing to materialize: people go bankrupt all the time in this country; people trained in a particular field lose their entire profession to machines; and as Rob ought to have pointed out, children are subjected to parental abuse and mismanagement all the time. These people do not choose their fates freely, they have probably failed to gather adequate education or information to make a rational choice. Let's face it: does anyone on this planet have any legitimate reason for being born into the family they were, or having the traits and capacities they have? Does anyone have an entitlement to their natural strength, intellect, or charisma? Even something as basic as one's will or determination may not be traits that are consciously chosen. The idea of personal responsibility absolves those who benefit from the system itself of blame, cost or responsibility, and punishes those who end up as victims of the system. Indeed, the economic assumption of rational action and choice is taken to avoid this serious internal externality.

On this point, what would happen if we decided to remove all systems of wealth redistribution and left people to make their own economic mistakes? Would we see great growth and a rise in conditions overall? No, probably not. We'd see rampant poverty, starvation, and almost certainly an increase in crime, if not outright communist revolution. We'd probably see a great rise in the number of children born to poor mothers (in an attempt to pay for their old age?), and greater pressure on the middle class by the poor for private handouts, which probably wouldn't be provided by the morally indifferent elite. I should think this sort of denigration of a nation would be enough detriment to the welfare of a nation that it would eliminate any benefits accrued by punishing mistakes and poor conditions. Therefore, I will revert to my earlier assertion that income redistribution seems to me a way of correcting for the externality of inequality that capitalism overproduces.

All this is not to say that I agree with Rob that the estate tax is the greatest thing in economic justice since the invention of the market. The idea that it is unfair for parents to consume their income by developing their child is absurd; for one thing, it would probably remove the primary motivation for most people's work in the first place. For another, it is absolutely illegitimate to mandate what people spend their own money on. Even though this income inequality creates disproportionately high opportunities for those with wealth, this itself does not create injustice. Injustice is only created when opportunities are actively denied to those without wealth. One might argue that a smaller amount of available slots at a school like Harvard or CMC might be a form of penalizing those without money, though in this day and age, colleges clamor to give every benefit possible to those who may have had a disadvantage. Given the choice between a student who went to Andover with a SAT of 2000 (is that a good score these days?) and a student from Compton who got an SAT of 1800, I'd certainly take the kid from Compton; he or she has to be more brilliant.

Anyways...plenty more to say, but maybe another time.