The Online Library of Liberty

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• Foreword
• Preface
• The Reason of Rules
• 1.: The Constitutional Imperative
• I.: Introduction
• II.: Reasons For Rules
• III.: Rules of Games
• IV.: Rules of the Road
• V.: Rules of the Market Order
• VI.: Rules of Political Order
• VII.: The Importance of Rules
• 2.: The Contractarian Vision
• I.: Introduction
• II.: Noncontractarian Constitutionalism
• III.: Individuals As Sources of Value
• IV.: Contract and Exchange
• V.: Politics In the Exchange Perspective
• VI.: Unanimity As the Contractual Ideal
• VII.: Agreement On Rules and the Veils of Ignorance and Uncertainty
• VIII.: Conclusions
• 3.: The Myth of Benevolence *
• I.: Introduction
• II.: Private Good and Public Good
• III.: Science, Truth, and Politics
• IV.: The Authoritarian Imperative
• V.: Majoritarian Democracy In the Noncontractarian Paradigm
• VI.: The Aim of Politics
• 4.: Modeling the Individual For Constitutional Analysis
• I.: Introduction
• II.: Homo Economicus In Politics: the Argument For Symmetry
• III.: Science and the Empiricist Defense
• IV.: A Methodological Defense of the Differential Interest Model of Behavior
• V.: Social Evaluation and Quasi-risk Aversion
• VI.: Gresham’s Law In Politics
• VII.: Summary
• 5.: Time, Temptation, and the Constrained Future *
• Preface
• Part 1.: Individual Private Choice
• I.: Introduction
• II.: The Ultimate Z ’s
• III.: Preferences For Preferences
• IV.: Past, Present, and Future
• Part 2.: Individual Public Choice
• I.: Introduction
• II.: Society With a History
• III.: Temporal Interdependence
• IV.: An Illustration
• V.: Moral Rules And/or Constitutional Commitment
• 6.: Politics Without Rules, I: Time and Nonconstrained Collective Action
• I.: Introduction
• II.: The Social Discount Rate
• III.: The High-tax Trap
• IV.: The Inflation Trap
• V.: The Public-debt Trap
• VI.: Other Examples
• VII.: Conclusions
• 7.: Rules and Justice
• I.: Introduction
• II.: Just Conduct and the Notion of Desert
• III.: Justice and Promise Keeping
• IV.: Justice Among Rules
• V.: Just Rules, Agreed-on Rules, and Just Conduct
• VI.: Conclusions
• 8.: Politics Without Rules, II: Distributive Justice and Distributive Politics
• I.: Introduction
• II.: Distributive Justice: the Conventional View
• III.: The Constitutional Perspective and Institutional Incidence
• IV.: The Incidence of Unrestricted Majoritarianism
• V.: Tax Rules and Distribution Under Majority Rule
• VI.: Direct Constitutionalism and Distributive Justice
• VII.: Summary
• 9.: Is Constitutional Revolution Possible In Democracy?
• I.: Introduction
• II.: Pareto-superior Change and Wicksellian Unanimity
• III.: Distributional Limits and Prospective Rules
• IV.: Status Quo Entitlements and Distributional Envy
• V.: Constitutional Change and Free Riders
• VI.: The Role of Norms
• VII.: Toward a Civic Religion

III.

The Constitutional Perspective and Institutional Incidence

There are several things wrong with this typical characterization of distributive justice. Consider first the conceptual philosophical issues. As a way of reflecting abstractly on one’s distributive objectives—as a way of giving content to the notion of distributive justice—the conjectural model is perhaps innocent enough. It seems natural to pose the question, “If I were assigned the task of dividing the pie, what should I do?” But this question presupposes that questions of distributive justice do, in fact, present themselves this way. It suggests that distributions are chosen by some single agent, or by some decision rule.

But distributions are not chosen. Social outcomes, with their distributional characteristics “built in,” emerge from a complex interaction of individual agents, each pursuing his own ends and each connected to others under a set of prevailing rules. Of course, it is conceivable that the prevailing rules could be such that outcomes (or specific distributions) would be chosen by a single agent. Totally despotic orders are not unknown. Is this the implicit model of politics that moral and social philosophers presume in dealing with questions of distributive justice? This model of politics does, indeed, seem to be what economists have in mind when they carry abstract philosophizing to the “relevant” policy level. But if the distribution is chosen by a despot, the model of Figure 8.1 is entirely inadequate. The relevant social setting will now involve three persons, not two. In addition to J and K, who are claimants on the aggregate pie, there is H, who is to do the cutting and allocating. If we model H as we do J and K, treating all as having conflicting demands for pie, then H will appropriate the entire pie for himself. If, on the other hand, we presume H to have altruistic concern for J and K, then, on the assumption of behavioral symmetry, we must model J and K likewise. The set of feasible distributions in Figure 8.1 is reduced from JK to LL’, since distributions outside those limits will involve voluntary transfer between the parties to secure L and L’. In the same way H can be presumed to transfer to J and K up to the limits of his charitable impulses, just as if all the output had accrued to H in the first place. In other words, any conceptualization of the distributive-justice problem in terms of the unilateral choice of a distributive outcome effectively presupposes that the status quo distribution is one in which the chooser owns everything. This manner of setting up the problem virtually guarantees that distributive justice will be infeasible. Moreover, any minimal-state, free-market distribution such as Q in Figure 8.2 seems certain to be more equitable than that required to make redistribution possible. Considerations of distributive justice would, therefore, seem to argue persuasively in favor of rules that would deny the power to transfer to political institutions altogether.

The immediate response to this criticism is, of course, that the despot model is not presupposed. Assigning political agents the power to make transfers is not the same as assigning them an unqualified right to the use of the revenue from which transfers are to be made. Political agents cannot simply make transfers to themselves. But if this is so, we must ask why. We must, in other words, trace how political agents are constrained in the distribution of the pie. And the relevant constraints here are not the familiar “economic” ones having to do with how the size of the pie changes when the level of public transfer activity increases. The relevant constraints are those embodied in the rules of the political game that shape the magnitude and pattern of transfers. To put the point more generally, different institutional arrangements, ranging from those embodied in some Nozickean “minimal state” to those characterized by the modern welfare state, where explicit restrictions on the power to transfer are absent, will generate different patterns of distributive outcomes. The problem of practical politics is to choose a feasible institutional arrangement that will generate a distributional pattern most congruent with the requirements of distributive justice.

The central point here is a familiar one in the context of efficiency analysis. So-called market-failure problems (attributable to public goods, generalized externalities, and monopoly elements in private-goods supply), although sufficient to indicate the presence of unrealized gains from exchange, are now widely recognized as constituting an inadequate normative case for government intervention in market processes. There is no necessary presumption that simply because markets are imperfect, political processes will work better. On the contrary, as public-choice theory reminds us, there are very good reasons for doubting the capacity of political processes to achieve Pareto optimality. The normatively relevant comparison is between two imperfect institutions. The mere observation that one institution or the other is imperfect—that markets “fail”—is simply not sufficient to establish a case for government “intervention.” So much is accepted, at least in principle, although the point seems to require continual reiteration.

In the realization of distributive justice, however, there is a precisely analogous point, though it seems hardly to have been noted. The point is this: It is not enough to lament the distribution that emerges from—or is presumed to emerge from1 —a freely operating market. One must show that the effect of the political process on the distribution is in the direction of equality. Or, to put the question most starkly, is movement toward equality institutionally feasible? It is ironic that despite the extensive literature on distributional policy, this basic question is almost never posed, let alone answered.2 The virtue of the constitutional perspective is that it places this question firmly at center stage. It does so by shifting the domain of normative inquiry from the set of imaginable income distributions to the set of feasible institutional arrangements from which income distributions will emerge.

What seems to us necessary here is a set of “institutional incidence exercises.” Consider, for example, a familiar tax incidence exercise in orthodox public finance. Suppose that the “policy maker” is conceived to have access to several taxes: an excise on beer, a land tax, and a corporate profits tax. In the conventional setting, we might, for example, ask, What are the distributional consequences of imposing the beer tax rather than an equirevenue land tax? We trace the distributional implications of this tax substitution in terms of the “burdens borne” by various groups (consumers of beer, specific factors in the beer industry, etc.) and burdens reduced for others. Only then is it possible to apply the normative criteria of distributive justice to decide whether the tax substitution is desirable and what mixture of tax instruments is “best.” With the tax instruments available, only certain distributions are feasible and none of them may correspond to the ideal. As we have emphasized, this approach is inadequate because it ignores the fact that any such tax choice emerges out of a political process in which “distributive justice” will be secured only if it serves the interests of those who are decisive in the political game. The approach, however, does recognize that not all distributions are feasible and that the distributional implications of alternative policy instruments must be traced before any normative recommendations can be offered. There is, at least, the recognition that alternative taxes rather than alternative distributions are the objects of normative evaluation. Here, we extend that recognition to a more appropriate level of discourse. Rather than focusing on the distributional implications of alternative taxes, we focus instead on the distributional implications of alternative sets of rules. In that sense, our concern is with the “incidence” of alternative institutions.

[1. ]Presumption is all that is possible in economies where the public sector absorbs one-third to one-half of total product and where unmeasured effects of collective activity via regulation ripple throughout the economy and influence the income distribution in untold ways.

[2. ]For a notable exception, see Dan Usher, The Economic Prerequisite to Democracy (Oxford: Basil Blackwell, 1981).