I want to touch on the idea of fairness
in the competitive market first we need
to define what exactly quote unquote
fair is there are two ways of looking at
it we can consider something unfair if
the result isn't fair or we can consider
something unfair if the rules aren't
fair
let's start with the first where we
consider something fair if the result is
fair for example we would say that a
bank manager who earns millions of
dollars while his or her employees
earned a few thousand dollars a year is
unfair there is this idea in the 19th
century called utilitarianism and the
concept is that only equality brings
happiness this idea argues that we
should try to achieve the greatest
happiness for the greatest number in
essence it says that we should
redistribute income from the rich to the
poor to the point of complete equality
the reasoning was that everyone has the
same wants and needs
but each additional dollar spent by the
rich brings them a lower marginal
benefit thus if we transfer their income
to the poor then each additional dollar
spent by the poor yields a higher
marginal benefit making the overall
marginal benefit greater in a perfect
world the idea of utilitarianism might
work but there is a trade-off between
efficiency and fairness as defined by
result in the real world there are a lot
of costs associated with redistributing
income especially administrative costs
the Canada Revenue Agency which is the
equivalent of the IRS in the United
States deals with income redistribution
and is a massive agency with extremely
high administrative costs if we want to
redistribute income we would have to
impose taxes and as I mentioned earlier
taxes are a source of deadweight loss
this is because taxing income results in
people wanting to work less and the
quantity of labour being less than the
efficient quantity the 19th century idea
was thus revised to state the following
we want to make the poorest as well-off
as possible after taking into account
all of the associated costs the problem
with this is that there are different
levels of poverty and so if we wanted to
raise everyone to the same level the
poorest of the poor would gain a lot
more from redistribution than the
richest of the poor is this fair it's up
for debate the second way that we could
look at this is calling something fair
if the rules are fair the symmetry
principle states that people in similar
situations be treated similarly this is
how we would define the rules as being
fair in the sense that the same rules
apply to everyone it is argued that in
order for the rules to be fair for
everyone the following two things must
hold the state must enforce laws that
establish and protect property rights
and that private property must be
transferred from one person to another
only by voluntary exchange this just
means that people shouldn't be allowed
to steal property and gain an advantage
in that way in addition it is theorized
that if property rights are enforced and
if voluntary exchange takes place in a
competitive market resources will be
allocated efficiently the view supports
that no matter how unequal the resulting
income distribution is it will be fair
and that concludes the lecture on
efficiency and equity
