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UMass Amherst ECON 103 - Class 18 Utilitarianism and inequality Fall 2014

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Slide 1Slide 2Slide 3Slide 4Since 1980, we have treated life as something you earnSlide 6Slide 7The biggest gains have gone to the very very richThe very rich have prosperedThe rich have benefited with increased life expectancySlide 11Alternative poverty rates?What if this was your grandmother?Slide 14Slide 15Slide 16Many can only go to college with debtSlide 18Slide 19His corpse was preserved and is displayed in LondonSlide 21Slide 22Slide 23Slide 24Slide 25Slide 26Slide 27Slide 28Remember to do Moodle Quiz!Rich and Poor AmericansShould 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 PMShould 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 PMSince 1980, we have treated life as something you earnDoes 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 PMThe rich have done better than the rest of us over the last 30 years1967 \119691971 \219731975 \519771979 \7198119831985 \91987 \1198919911993 \111995 \1319971999 \142001200320052007020,00040,00060,00080,000100,000120,000140,000160,000180,000200,000Lowest 20% Second 20% Third 20% Fourth 20% Top 5 percent+44%+44%+30%+18%+10%+12%Statistical Abstract, 2010: Table 678.The very rich have a lot more money.Everyone else has been stuck in 19701917192019231926192919321935193819411944194719501953195619591962196519681971197419771980198319861989199219951998200120042007201005,00010,00015,00020,00025,00030,00035,00040,00045,00050,0000200,000400,000600,000800,0001,000,0001,200,0001,400,0001,600,000Average Income: 1% and 99%Bottom 99% Top 1% For the 1%, right, income has tripled since 1970For the 99%, left, almost no increase since 1970These 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 PMThe very rich have prosperedThe 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 expectancyAffluent 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 poorGovernment says poverty (for a family of 4) is income under $21,756.Try living on that.12:54:36 PMAlternative poverty rates?New York City: adjusted poverty threshold is 28% higher (over $26,000) raising poverty rate – especially for elderly 12:54:34 PMExtreme (50% of poverty line)Total Relative (150% of poverty line)Elderly0%5%10%15%20%25%30%35%40%45%50%Alternative Measures of Poverty, NYC 2006Official NYC correctedWhat if this was your grandmother? 12:54:34 PMOfficial poverty rate fell with Great Society in the 1960s. Has not since despite rising national income12:54:36 PMPoverty varies by race and age12:54:36 PMThe rich are more likely to send their children to college.Regardless of grades12:54:37 PMMany can only go to college with debtIf you are poor, you have more trouble dealing with health issues. 12:54:34 PMNetherlandsUnited KingdomCanadaGermanyNew ZealandAustraliaUnited States0 10 20 30 40 50 6038718212225691824303252Above average income Below average incomeEspecially in the US!Proportion with unmet health care needs because of cost.Source: OECD12 http://dx.doi.org/10.1787/702176582365Why 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 PMHis corpse was preserved and is displayed in London 12:54:34 PMRedistribution along a downward sloping MU curve will increase total welfareIf MU is downward sloping, then additional money gives less pleasure than early money.12:54:37 PMTaking from the rich to give to the poor raises total welfareThis assumes that we can add utility across people!12:54:37 PMYou may think that this is unfairRedistribution 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 PMInsurance Motive for EqualityInsurance (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.Kind of funny looking12:54:37 PMIf 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.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.12:54:37 PMIf 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 PMIf 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 PMRemember to do Moodle Quiz!Bring your answers to TA section.1/14/19 10:37:19


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