Suppose there is a society where the rich share food, and the rich have less porridge, and a lot of porridge is wasted; Poor people have more porridge and less food, and they simply don't have enough to eat. Many people have edema. So the government decided to take a bucket of porridge from the pot of the rich and give it to the poor to reduce inequality. Okun believes that the government's wish is good, but unfortunately, there is a hole under the bucket it uses, which is a leaky bucket. In this way, when it sent porridge to the poor, it missed a lot on the way. This means that if the government transfers some income from the rich to the poor through taxes, the poor actually get less than the rich lose. For example, the income of the rich will be reduced by 1000 yuan, and the poor may only get 600 yuan, and the rest of 400 yuan will be gone. Why is this happening? Because the pursuit of equality damages efficiency, thus reducing national income. Okun has a famous saying: "When we took up the knife and tried to divide the cake of national income equally between the poor and the rich, the whole cake suddenly became smaller."
The shrinking of the cake mentioned here is actually a loss of efficiency. There are two main reasons: first, taxes weaken the enthusiasm of the rich to invest. Okun wrote in his masterpiece Equality and Efficiency-A Great Choice: "If taxes have a significant and dominant impact on savings and investment, then the evidence in the total figures will be compelling and obvious. 1929, although the American economy was depressed, due to the low tax rate at that time, investment still accounted for16% of national income; After that, the federal tax rate increased by several percentage points to 1983. Although the economy was in a recovery period at that time, the investment rate still did not exceed 14%. " Second, taxes have affected the enthusiasm of labor. Not only the rich but also the poor. For example, an unemployed worker has lost all government subsidies because he has found a job with a low monthly salary, so he naturally has no enthusiasm for finding a job. In this way, because in the process of income distribution, the total national income available for distribution has decreased, and the result is bound to be the same as that of the government's bucket, which makes the rich lose a lot. The poor get less.
The leaky bucket principle means that equality and efficiency are "you can't have your cake and eat it". So, in this case, which is more important than the other? Economists, ethicists and even philosophers began their protracted debates. Some people think that people argue about the choice between equality and efficiency because the real world is unequal. The rich are afraid of losing their vested interests, so they advocate efficiency and oppose equality; The poor want to get something for nothing, so they support equality and criticize efficiency. People are discussing with colored glasses, and it is difficult to draw a conclusion that conforms to the true nature of human nature. Therefore, the American philosopher Rawls made an imaginary experiment in his book A Theory of Justice: taking a group of people to a desert island far from modern civilization and letting them start a new life in a "primitive state". Everyone knows nothing about his future, whether he is poor or rich, whether he is successful or not. Now, let them negotiate together to build a "just" society in their minds. So what is the result of the negotiation? It must be the pursuit of economic equality, and polarization between the rich and the poor is not allowed. Because everyone doesn't know where his future income will be in the pyramid, if he supports efficiency, he will bear the risk of starvation. Rawls concluded that between equality and efficiency, equality should be given priority.
However, many people doubt whether this hypothetical experiment is meaningful in reality. They think that Rawls' position of extreme equality is not necessarily the inevitable result of this experiment. In real life, if some people are very talented, but they are forced to get the same income as idiots, then this income equality is precisely the performance of inequality. Milton friedman is worried that the pursuit of equality will damage the sacred freedom. He said: "The modern tendency to realize' freedom' with' fairness' reflects how far we have deviated from the original intention of American founders." Because fairness lacks objective standards, it depends entirely on the subjective views of arbitrators. Therefore, "when' fairness' replaces' freedom', all our freedom rights are in danger".
Between Rawls and Friedman, Okun took a more eclectic position. In his view, efficiency is valuable and the price of equality is high. Therefore, neither of them can be neglected. Only by finding a compromise can we promote equality and minimize the damage to efficiency. For example, narrowing the scope of subsidies and lowering the subsidy standards can control the impact of income distribution on the labor enthusiasm of the poor; Reducing the income tax rate and increasing the consumption tax rate can reduce the harm of income transfer to the rich and so on. Okun pointed out that the root of poverty is the lack of education and training, and the most effective way to break this vicious cycle of poverty-poverty education-poverty is to open the door to education for the poor. "On the road to equality, there is no greater progress than providing praise-free public education."