Defining Economic Fairness

Inequal does not necessarily mean unfair. Can fairness be objectively measured?

We are commonly aware of only one metric for economics, which is unfortunate. The one that probably comes to mind for most people is the sum of transactions over a year, aka ‘GDP’. A group of people - most commonly a country using a particular currency - is measured by adding up all the transactions they make, both with themselves as well as with people in other countries. By computing only this sum we can know a few things: If the sum is going up over time, we call that ‘growth’, and generally believe it to be a good thing. If we divide over the total number of people participating we get an average that we typically call something like “per-capita GDP”. If this second number is also going up over time, we get even more excited because it suggests that we are (collectively) creating more value. But neither of these metrics measures fairness. For example, we can easily imagine a brutal authoritarian regime in possession of some valuable resource (say silicon wafer fabrication plants, or oil or diamonds) where almost all national wealth is concentrated in very few people who are forcing labor on all the rest, but which nevertheless an has increasing per-capita GDP.

Inequality in wealth or income is frequently used as a rough proxy for fairness, with the general idea being that more inequality means less fairness. A common mathematical measure of inequality is the ‘Gini coefficient’, and you easily find websites that, for example, rank the world’s countries according to it.

While there is certainly some correlation, inequality of course does not equate perfectly to fairness. Putting it another way: most people in many countries would agree that it seems ‘fair’ that some people have more money than others. A person who works incredibly hard to become a doctor and then helps thousands of people stay healthy would be judged by most as deserving of more wealth than a person who sits around on the beach drinking margaritas and spending the trust fund they inherited from their parents. But sometimes the trust fund kid has more wealth than the doctor, and most of us would likely judge that as being ‘unfair’.

A way that we could objectively define fairness, therefore, would be to show a group of people with good knowledge of each other’s backgrounds a list of how much money each of them have, and then ask them all to vote on to what degree (say on a scale of 1 to 10) they though the distribution was ‘fair’. If this vote was anonymous, the average rating was published, and the voting repeated periodically (probably annually), we might get a better statistic than the Gini index for measuring the fairness of a given economy.

An alternative and more radical way to do this test might be to give all participants a ‘reset’ button that they get once chance a year to push. If you push the reset button, it means that you are so frustrated with the fairness of the economy that you would like to see all wealth (including your own) taken back and evenly redistributed to everyone. What percentage of Americans would press that button today? Imagine living in an experimental society where the button was real, and once a certain percentage of people (say 50%) pressed the button, you really do instantly redistribute all the wealth. How would knowing the results of last year’s button pressing exercise influence policy making? Imagine how wealthy people and corporate interests might react this year, if last year’s vote was 45%, for example.

I write about this because I think a fairness metric of this type is doable, and in my opinion should be as or more important than a statistic like GDP. Further, I suspect that perceived economic fairness has steadily decreased over time in the same way that the world’s Gini index has gradually increased. I also suspect that in many countries perceived fairness is so low that before long we will see violent revolutions or other disruptive and damaging resets happening. If we were aware of our collective sense of unfairness, we would be more likely to take action before it is too late.