The case for making some people worse off
Today, I’d like to indulge in what’s generally called 'political ethics' – and more specifically, focus on one of the blights of public policy-making these days, namely the inability to put forward a policy that makes at least one section of the community worse off.
At face value, the “no-disadvantage test” seems imminently fair: if a section of the community is to be made worse off by a policy, they should at least be compensated in some way. It’s this apparent inability to properly compensate everyone affected by a policy change that has hampered a broadening in the ramshackle goods and services tax, not to mention the recent outcry over penalty rate changes.
Yet, from an economist’s perspective, many policies that make certain members of the community worse off could still be justified (even arguably ethically), provided the benefits to the many more than offset the costs to the few. This is what’s known as utilitarianism – whereby the aim of most public policies is to maximise overall social welfare or “utility” based on a careful cost-benefit analysis across the winners and losers. If a lower corporate tax rate and/or lower penalty rates boosted overall economic growth by enough, wouldn’t this make up for the fact it made some people worse off?
Even before we consider the ethics of this - there is of course, the political hurdles. By their nature, policies that benefit many at the cost of a few are very hard to implement, because the benefits are spread so thinly that the support offered to politicians by the winners won’t be anywhere near as intense as the opposition mounted by the concentrated group of losers. Cue intensive lobbying campaigns and expensive television propaganda!
But, even assuming politicians had the courage to implement such policies, it still begs the question: is it fair or ethical?
I’d argue that in most cases – in which largely financial considerations rather than fundamental human rights like life and liberty are at stake – then such cost-benefit calculations are inherently fair. The reason being is that Governments are charged with deciding on a whole raft of policies that benefit the overall community – and the costs and benefits of each individual policy will benefit each of us in different ways. In some cases, we’ll be among the minority of losers from a certain change, and in other cases, we’ll be among the majority that achieve small (and often hardly perceptible) benefits. In our representative democracy, we effectively consent to the luck of the draw in each case – provided these decision are made purely on non-discriminatory cost-benefit grounds. On average, we should all end up better than if nothing ever changed.
Of course, I can hear the complaints already. What about policies that benefit the rich over the poor? Again, some policies – such as cutting corporate tax while raising the GST – might, in the first instance, do exactly that. But again, some others – such as progressive income taxation - will do the opposite. It’s a case of checks and balances – and we can’t allow us to get into a position whereby any policy which specifically hurts the poor is automatically ruled out. To do otherwise risks making the economy – and the overall plight of the poor – even worse.
Indeed, to the extent the net balance of policies – and the distribution of income and wealth more generally – still leaves less for the poor than we would like, that’s exactly where broader redistributive policies kick in. Conceptions of justice should apply at the broader level – making sure everyone has basic equality of opportunity and liberty and some share in partly lucky spoils of those better off in society. It’s not necessary – and ultimately harmful to the least well off - to grind reform to a halt by insisting each and every policy make no-one worse off, especially the poor.
Published: Wednesday, March 15, 2017
New on Switzer
- Can stocks ignore war threats? 26 Apr •
- 5 things you need to know today 26 Apr •
- Mad About Money - Episode 98 26 Apr •
- Stock in the spotlight: Going for Platinum 26 Apr •
- Theresa May: The first great British PM of the 21st century? 26 Apr •
- Graeme Colley 26 Apr •
- CommSec Executive Series: The Switzer Dividend Growth Fund 26 Apr •
- Margaret Lomas 26 Apr •