Against the Economic Pie: How “Redistribution” Limits Political Economic Analysis

Martha T. McCluskey –

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What gets lost when we describe social or environmental justice as redistribution?   This retrenches a fundamental binary—maximization versus distribution—in which maximizing logically comes first. By initially producing a bigger “economic pie,” law will be able to provide more generous slices to those who currently receive too little.

The term “re-distribution” makes explicit the hierarchical, temporal ordering of this binary. As part of a framing dualism, the term leads us to imagine that law sets up an essential baseline distribution, which afterward may be modified to advance contingent and secondary concerns about fairness, equality, or a healthy and stable environment. This presumed secondary and supplemental position leads to the common conclusion that these justice-oriented goals are best addressed not by substantive legal change disrupting the baseline order, but instead through a second-order, ancillary process of government taxation and spending.

In fact, the baseline legal rules and processes will tend to limit the political and economic possibilities for subsequent “redistribution.” Under a legal system geared for maximizing self-interest, it is not clear when and how the biggest winners will stop gaining and start sharing. To the contrary, plenty of evidence shows that winners tend to invest their gains in controlling the taxing and spending systems that purportedly best enable redistributive justice. The range of familiar strategies for achieving this goal include reducing restrictions on electoral spending and corruption; redistricting and voting suppression, restricting Congressional deficit spending; imposing Constitutional limits on federal spending powers; opposing tax increases on the wealthy; and investing in law and economics scholarship rationalizing austerity and inequality. For example, organizations supported by the Koch family’s oil industry winnings plan to spend $400 million in the 2018 U.S. elections to promote political candidates favoring tax cuts for the wealthy and opposing government spending on Medicaid and other “redistributive” programs for the non-wealthy.

Moreover, baseline legal rules themselves are pervasively and continually re-shaped to advance the political economic power of self-interested market winners. Consider how groups like the U.S. Chamber of Commerce and the American Legislative Exchange Council coordinate the biggest global economic “winners” to invest resources in transforming established legal rights: weakening unions, antitrust law, eroding white collar crime protections; limiting state tort damages; expanding intellectual property rights; or using mandatory arbitration clauses to restrict access to judicial enforcement of basic rights for consumers and workers.

The sequential narrative of maximization first and redistribution second does ideological work by normalizing human and environmental harms. Inequality, unfairness, and instability primarily appear not as problems of injustice, but rather as side effects of a generally benign and necessary system. The binary constructs social justice as a change to an antecedent resource allocation presumed to be driven by productivity, not unequal power and privilege. For example, in their law and economics textbook, Robert Cooter and Tom Ulen explain, “Some people think that government should redistribute wealth from rich to poor for the sake of social justice, whereas other people think that government should avoid redistributing wealth, allowing individuals to receive all the rewards of their hard work, inventiveness, risk-taking, and astute choice of parents.” By depicting social justice as “redistribution,” we reinforce the idea that resources naturally flow upward toward the rich.

The frame inherently casts redistribution negatively, as a process that requires taking away legitimate gains from an initial distribution. In this narrative sequence, equality will therefore appear to require uncertain, controversial tradeoffs between competing interests. Those tough tradeoffs are likely to leave out many who could use help, while also punishing those who appear most successful in the initial, and presumptively benign and impartial, maximizing process. Among other flaws, this zero-sum picture reflects a distorted understanding of government taxing and spending. Unlike households, governments with sovereign currency routinely enhance economic capacity by generating and regulating the supply of money, so that spending does not depend primarily on tax revenue. The idea that increasing resources for some depends on taking revenue from others is contested politics, not sound economics.

Finally, by describing equality or fairness as secondary redistribution, we limit the possibilities for individual and societal power, freedom and prosperity. Take, for example, the constrained vision of equality and justice that results from legal scholar Daniel Markovits’ careful effort to defend and develop a theory of redistribution..

Markovits attributes inequality largely to differences in luck: tastes and talents substantially beyond individual control. Some people may be endowed with taste and talents that generate incomes of millions of dollars a year (e.g. partners in leading law or financial firms), while the endowments of others generate poverty level wages (e.g. adjunct professors teaching philosophy).

To determine the optimal amount of compensatory “redistribution” to mitigate such inequalities, Markovits imagines a Rawlsian abstract consumer veiled from any particular body or society. Faced with an unknown place in an imagined competition for scarce resources, that rational consumer would calculate how much personal insurance to buy against the risk of ending up with costlier than average talents or tastes. To fully insure against a below-average position, the hypothetical individual consumer would incur insurance premium costs exceeding the benefits, assuming premium prices sufficient to cover insurance payouts. Therefore, a rational individual consumer would choose to buy only partial protection against the risk of ending up with a below-average slice of the societal “pie.” The moral of this story is that redistribution is reasonably and fairly limited to those toward the bottom of the income scale. That limited protection will require many others toward the middle to bear significant risk of loss, but that risk presumably will be balanced by the opportunity for individuals to keep more of the potential gains to themselves, free from redistributive demands.

But that model precludes a more robust vision of political economic agency. A hypothetical individual claiming power as a citizen in a democracy, rather than as an individualized consumer, might decide not to accept such a high price for greater equality and fairness. That citizen could reasonably look beyond the example of a microeconomic transaction (the purchasing of insurance) to question the baseline design of the political economic system. A truly empowered and reasonable citizen might, for example, refuse to accept the risk of ending up as a low-waged child care worker with an expensive taste for raising children or health care, rather than as a highly paid hedge fund executive with a taste and talent for paying politicians and experts to advance policies increasing inequality, corruption, and poverty. Instead, that hypothetical individual might imagine the possibilities for organizing law and society so that it is not so costly and difficult to raise children, to obtain good health care, to earn a living wage, or to advance democracy and fairness.

In short, the maximizing-dividing binary erodes liberal ideals of democracy and the rule of law, replacing these with a neoliberal vision that models justice on private market transactions—transactions operating with a backdrop of inequality and scarcity that is taken as a given and mystified as facts beyond human control. This binary implicitly revives Lochner, presenting democratic economic governance as a distortion of a more legitimate and fundamental social economic order.

Instead of asking whether to maximize or divide scarce resources, legal analysis should ask how law defines the “pie” of societal well-being. Legal rules continually constitute and re-constitute the economy by distributing the institutional power to collectively select and set particular ideals and interests. Substantive social conditions like good jobs, healthy and stable environments, good education, safe housing, trustworthy businesses, and well-functioning democratic governments should be essential measures of overall socioeconomic prosperity, not peripheral and secondary adjustments. 

Martha T. McCluskey (@MarthaMcCluskey) is Professor of Law and William J. Magavern Scholar at the University at Buffalo School of Law.

A modified version of this post was published as part of the article, Defining the Economic Pie, Not Dividing or Maximizing It, 5 Critical Analysis of Law 77 (2018) (special issue on New Economic Analysis of Law, Frank Pasquale, ed.).