Equality

Tom's thoughts on this are very good. preliminarily I'll say this (someday I hope to understand this issue completely):

I don't know if I would support the implementation of the system you spoke about right now, just to clear things up. I would prefer it to the current system in the U.S., but that is not saying much. I do support 'coupon capitalism'/'market socialism' and the 'egalitarian planner' as advocated by Roemer in his works, particularly the books "A Future for Socialism" and "Equality of Opportunity" as well as compensatory education, also described well by Roemer.

We can also have a socialist 'lite' country like many Scandaniavian countries, where incomes are far more equal than in the U.S. or even Britain but productivity is higher and GDP per head is about the same. Many recent studies have shown that within a largely market society more equality in resources (up to a certain level) actually leads to higher efficency and and productivity as well (e.g. the essay "wealth inequality, wealth constrains, and economic performance" in the "Handbook of Income Distribution" ed. by A. Atkinson). Why this occurs is still largely speculative, but I think it shows productivity would increase, for example, in the U.S. if income was distributed as equally as it is in Sweden, for example. I myself plan on doing some research into the importance of economic incentives after/while getting my PHD in poli sci/political economy.

However, I should mention a few things about why it might occur, and which might finally answer your question:

1. When this debate was more salient, I used to have a list of nine other motivations towards production other than for economic gain created by Richard Arneson in the 80s, I'll try to find it. There are other reasons people work, and work hard, than to make cash: reciprocity/reciprocal altruism, joy of certain work, the intrinsic desire to do something productive or good for their society, wage solidarity (like in Sweden),to follow social norms, to earn high social status etc. (we all post about politics and ethics on this forum; thinking and arguing about the well-being of others when we could be studying and debating about poker on the same site, which would increase the ammount of money we have in our own pockets)

2. There is much debate about how much of the failure of centrally planned socialism is due to the various factors: A) the lack of democracy B) Lack of Coordination C) Lack of incentives.
A well-ordered democracy could have lead to better results. It is logically possible that democratic accountabillity could keep state-owned firms running efficently.

However, I think the main problem with those econmic systems is reason B); this is something that technology and social science could eventually fix but regardless, we could have the system you describe instead as well as any number of egalitarian alternatives.

This is because the literature shows that not only did Soviet workers worked hard despite poor incentives and poor coordination , but they were constantly coming up with ingenious ways to deal with the poor inputs given to them by the central planners (see especially the works of Michael Burawoy, e.g. "Mythologies of Work: A comparsion of firms in State Socialism and Advanced Capitalism" in American Sociological Review 50, 723-737, 1985.)

Think Hayek here: The planners and managers simply did not know what to do in these economies; they didn't have the technology or the ability to figure out the correct production functions and therefore could not compute marginal costs. They didn't know how much they could produce with given inputs, and they couldn't deal as well as many (people in) markets can with innovation and new commodities. Hayek here did not say that the managers would be self-serving or opportunistic, he in fact assumed they would be 'loyal and capable'. Rather, he just didn't think they would be able to cut costs and produce efficiently in this environment even trying their best.

So in my view the reason these countries failed to some degree economically is mostly due to a lack of coordination as opposed to incentives; a capitalist market provides both, a completely egalitarian market like you briefly describe(described and theorized in depth by Joseph Carens in the 1980s and 90s) provides the coordination function of markets without the monetary incentives.


The next three assume some inequality/importance of incentives, but deny that a wide degree of inequality is needed to get people to work hard; in short, they are explanations for why increasing equality, to a considerable degree, can increase efficency.
3. Diminishing marginal utility/satisficing vs. Maximizing: Most people do not endlessly try to make as much money as possible/accumulate endlessly but set a certain level; a goal that they want to reach and try to reach it; then they don't care as much in a market society after they reach it. If people really wanted to maximize income they would work as much as they physically could, yet we know almost nobody ever does this.

This is why this is important: John works as a high level computer programmer getting $80,000/year after tax. In his view, he would be able to buy everything he really wants and have more $ than his neighbor if he could make $100,000, and there is a job that pays $100,000 (where he would be more productive) which he could get if he trained for six months after work he could get this job. There is also a job that would pay 125,000 where he would be even more productive, but he would have to work harder, work an extra hour a week, and get 12 months of training after work to get it, and he doesn't think the 25k a year is worth it; he doesn't care that much about the extra 25k. He decides to start training for the 100,000 job.

However, a bill passes three months later which increases the tax rate on the UMC by 10%. Now he would only take home (slighly less than) 90,000 with that job, not enough for him to gurantee he could have that sweet new home entertainment system with the 900' TV screen. However, instead of staying at the (initially) 80,000 a year job, what actually happens is he trains and takes the 125,000 job, because he really wants that TV. So the higher tax rate increases his productivity because he needs to work more and harder and get more talents to reach the goal he has set for himself.

Relatedly, DMU: when someone already has 2 million dollars, making an additional $250,000 for this person is not nearly as important as making $250,000 for someon with only 10k in the bank. But it is also not nearly as important for the millionaire as it is for someone with 400,000 in the bank. Hence, while in a system with a highly progressive tax rate the able-bodied skilled people get less $ in absolute terms than they would in another system for exercising their talents, they derive so much more utility from each dollar that they make. This tends to lead them to work as hard under both system.

Without a progressive tax on inheritance and income, someone can become rich and be 'set for life', as the cliche goes, much more easily (their kids to). Someone who is rich has less incentive to work hard, innovate etc. then somebody who is not.

4) The untalented workers get more money per hour worked in an egalitarian society then they do in an inegalitarian society, but not enough to be satisficed, hence they have more incentive to work.

Egalitarian societies tend to allow for more upward social mobility, so a person who is born in lower part of the income brackets in a relatively more egal society is more likely to be willing (and of course more likely to be able) to try and become talented in the first place (through education, training etc.)than in a highly unequal society. More talented, disciplined people in a society likely leads to higher productivity. The people born to

and 5) As I mentioned to you in the 'equality and efficency' thread, the highest paying jobs tend to be the ones that are the most intrinsically enjoyable. Given the choice, the talented person would much rather be a lawyer or an NBA guard than a factory worker or a cashier if all were paid the same. So even if we equalize the pay, people will still tend to choose the jobs which are more productive if they have the talents to work at that job(based on the capitalistic view of what is prodcutive, at least).