Rich and Poor Americans Should we care 12 54 34 PM Utilitarians allocations should maximize the sum of individual welfare Utilitarians equality because the poor have higher marginal utility than the rich John Rawls equality is insurance for people who don t know how they would fare 12 54 36 PM Should life be something money can buy 1 Yes It is a reward for productive market work 2 No It is a civil right everyone should have an equal right to life regardless of income Do we believe in rights or is everything to be a reward for market work 12 54 37 PM Since 1980 we have treated life as something you earn Does this violate the American creed We hold these truths to be self evident that all men are created equal that they are endowed by their Creator with certain unalienable Rights that among these are Life Liberty and the pursuit of Happiness 12 54 34 PM The rich have done better than the rest of us over the last 30 years 200 000 180 000 44 44 160 000 140 000 120 000 100 000 30 80 000 18 60 000 12 40 000 10 20 000 0 1 7 96 1 19 69 1 1 97 2 19 73 1 5 97 5 19 77 1 9 97 Lowest 20 Statistical Abstract 2010 Table 678 7 19 81 19 Second 20 83 1 5 98 9 1 7 98 1 19 Third 20 89 19 91 19 93 1 1 19 95 3 1 Fourth 20 19 97 19 99 4 1 20 01 Top 5 percent 20 03 20 05 20 07 The very rich have a lot more money Everyone else has been stuck in 1970 Average Income 1 and 99 50 000 45 000 40 000 1 600 000 For the 99 left almost no increase since 1970 1 400 000 1 200 000 35 000 1 000 000 30 000 25 000 800 000 20 000 600 000 15 000 400 000 10 000 5 000 For the 1 right income has tripled since 1970 0 200 000 0 17 20 2 3 26 29 32 35 38 4 1 44 47 50 53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01 04 07 10 19 19 19 1 9 1 9 1 9 19 19 19 1 9 1 9 1 9 19 19 19 19 1 9 1 9 1 9 1 9 19 19 19 19 1 9 1 9 1 9 1 9 2 0 20 20 20 Bottom 99 Top 1 These figures understate gains for the super rich because widespread tax evasion hides a growing share of the income of the top 1 The biggest gains have gone to the very very rich 12 54 34 PM The very rich have prospered The top 0 1 include 300 000 people in about 100 000 households The bottom 20 includes 75 000 000 people in about 30 000 000 households The rich have benefited with increased life expectancy Affluent men have added 5 4 years of life compared with only 1 5 for the poor Should life be something that money can buy Poor women 40 of all women have shorter life expectancy than 20 years ago 15 of Americans are officially poor Government says poverty for a family of 4 is income under 21 756 Try living on that 12 54 36 PM Alternative poverty rates New York City adjusted poverty threshold is 28 higher over 26 000 raising poverty rate especially for elderly Alternative Measures of Poverty NYC 2006 50 45 40 35 30 25 20 15 10 5 0 e m tre x E 0 5 of ty r ve o p e lin al t To Re e v lati Official 12 54 34 PM 0 5 1 of ty r ve o p e l in NYC corrected El ly r de What if this was your grandmother 12 54 34 PM Official poverty rate fell with Great Society in the 1960s Has not since despite rising national income 12 54 36 PM Poverty varies by race and age 12 54 36 PM The rich are more likely to send their children to college Regardless of grades 12 54 37 PM Many can only go to college with debt If you are poor you have more trouble dealing with health issues Especially in the US Above average income Below average income 52 United States 25 32 Australia 22 30 New Zealand 21 20 Source OECD12 http dx doi org 10 1787 70217 6582365 18 Canada 7 9 United Kingdom 8 6 Netherlands 3 0 12 54 34 PM 18 Proportion with unmet health care needs because of cost 24 Germany 10 30 40 50 60 Why might we want an egalitarian distribution of income Utilitarianism If there is diminishing marginal utility then an equal distribution will maximize welfare This is associated with Jeremy Bentham 12 54 37 PM His corpse was preserved and is displayed in London 12 54 34 PM Redistribution along a downward sloping MU curve will increase total welfare If MU is downward sloping then additional money gives less pleasure than early money 12 54 37 PM Taking from the rich to give to the poor raises total welfare This assumes that we can add utility across people 12 54 37 PM You may think that this is unfair Redistribution is unfair if people deserve their income or poverty because of their work The Harvard philosopher Robert Nozick said this So did John Locke sort of Nozick was better looking 12 54 37 PM Insurance Motive for Equality Insurance John Rawls If there is diminishing marginal utility and we don t know where we will be on the distribution then we would prefer an equal distribution 12 54 37 PM Kind of funny looking If you don t know where you will be how much inequality would you want If you have downward sloping MU and are risk averse then you would want equality 12 54 37 PM You would rather have an equal distribution than risk being at the bottom because gains at high end are worth less than losses at poor end If you don t know whether you will be homeless or have a mansion you want everyone to be guaranteed a decent house 12 54 37 PM If you don t know whether you will be blind how do you feel about taxes to provide support for the blind 1 Let the blind starve I ll take my chances that I ll be blind 2 Guarantee the blind a decent standard of life 3 Complete equality except where giving the sighted more may help the blind also 12 54 38 PM Utilitarians favor an egalitarian distribution of income because social utility increases when money is transferred from the rich with low marginal utility to the poor with high marginal utility Utilitarians also favor equality because of insurance motives 12 54 38 PM Remember to do Moodle Quiz Bring your answers to TA section 1 14 …