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Fairness Matters by ProQuest

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According to the Pareto principle in economics, we can consider welfare to improve only if some are made better off, while no-one is made worse off. [...] if economic growth is accompanied with widening inequality, it's still beneficial, just so long as no one goes backward.

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									                                                Fairness Matters
                                                Ian McAuley | University of Canberra and Fellow, Centre for Policy Development




Extract from the presentation given to          Bentham (1768 – 1832) was a liberal political
ACOSS National Conference, April 2009           philosopher, a child of the Enlightenment,
                                                with radical ideas for his time, such as
Introduction – fairness matters                 equal rights for women, abolition of slavery,
                                                and abolition of the death penalty. His
I want to concentrate on economic aspects       political philosophy has been claimed both
of fairness, emphasizing one aspect             by the right, because of its emphasis on
particularily relevant to our time, namely      individualism, and by the left, because of its
the way we allocate risk across our society.    emphasis on maximizing “utility” for all, or,
                                                in more commonplace terms, maximizing
In relation to risk there are two basic         the community’s “welfare” or “happiness”.
inequities. One arises from the legacy
of outdated categories of “labor” and           In the Benthamite world, redistribution is
                                                                                                 Such a notion of welfare lies behind
“capital”, to which is attached the idea that   justified on the basis of the notion of what
                                                                                                 economic policies such as progressive
because financiers contribute capital to        economists call “diminishing marginal
                                                                                                 taxation and means-tested benefits.
productive enterprises, because they take       utility”.
                                                                                                 Australia, for example, pioneered age
the risks, they should be compensated with
                                                                                                 pensions and used to have steeply rising
appropriate rewards. The other inequity         To illustrate, consider two hypothetical
                                                                                                 marginal tax rates, as high as 66 cents in
arises from the way we have increasingly left   people. I’ll call one Sol, who has been an
                                                                                                 the dollar for high income earners, and our
people, including the least advantaged, to      executive in a large company and has
                                                                                                 old sales tax system imposed high taxes
rely on flawed and high risk private markets    had a generous termination payment.
                                                                                                 on luxuries.
to provide those buffers which would be         And there’s Lydia, who is similarly out of
more fairly and efficiently be provided by      work, but she was a machine operator at
                                                                                                 The economic philosopher whose ideas
governments, while privileging some of          a clothing company which has recently
                                                                                                 have tended to dominate in the last thirty
the most reckless and irresponsible people      shifted offshore. Both are eligible for the
                                                                                                 years, however, is Pareto (1848 – 1923),
in private corporations with government         Government’s $900 stimulus payment.
                                                                                                 who essentially said that it is impossible
largesse for their risk-taking.                 Sol has a good accountant who has got
                                                                                                 to compare and add or subtract different
                                                his taxable income down to poverty line
                                                                                                 people’s welfare. According to the Pareto
First, a look at how economics handles          levels, while Lydia needs no accounting
                                                                                                 principle in economics, we can consider
fairness.                                       contrivances to show a low income.
                                                                                                 welfare to improve only if some are made
                                                                                                 better off, while no-one is made worse off.
Pareto’s boats and public policy                Think of the benefit of the $900 to these two
                                                                                                 Thus, if economic growth is accompanied
                                                people. By any stretch of the imagination
                                                                                                 with widening inequality, it’s still beneficial,
“A rising tide lifts all boats” is the often    the benefit to Lydia must surely be more
                                                                                                 just so long as no one goes backward. If
heard metaphor to describe a society            than the benefit to Sol (assuming Sol even
                                                                                                 Sol gets $900 while Lydia gets $9 or even
in which everyone becomes better off,           notices an unrequited $900 deposit in his
                                                                                                 nothing, that’s a Pareto improvement, but
even if disparities widen. It has become a      bank accou
								
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