Tuesday, December 3, 2013

Fairness and regulation

Dean Baker has some good points:

For the last three decades the government has pursued a wide range of policies that have had the effect of redistributing income upward. For example our trade policy, by deliberately placing manufacturing workers in direct competition with low paid workers in the developing world, has lowered the wages of large segments of the work force. By contrast, we have left in place the restrictions that protect doctors and other highly paid professionals from foreign competition, ensuring that their pay stays high.

The question at issue is not the amount of redistribution, the question is the direction of the redistribution. The Post seems to want readers to imagine that the upward redistribution of the last three decades was just a fact of nature, as opposed to being an outcome of government policy. That is a major distortion of reality.

This really is the heart of the argument about inequality today.  The notion that the wages earned by high status professions (medicine, finance) is a result of pure market forces and nothing to do with the regulatory environment is weak.  In the same sense, the huge returns to intellectual property have a lot to do how the laws protecting this property are implemented.  And it is not an accident that 401(k) style retirement plans are popular among companies that get to collect management fees.  This isn't to say all IP law is bad (it isn't) or all wages earned by finance gurus is unearned (also untrue). 

But it is a worthwhile starting point to realize that the web of laws and customs that we do have does benefit some groups at the expense of others.  So it is a very weak claim to argue fairness of economic outcomes in the face of differential regulatory treatment. 

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