C H A P T E R 2 0
I N C O M E I N E Q U A L I T Y A N D P O V E R T Y
4 4 9
I
NVESTOR
W
ARREN
B
UFFETT
’
S
$36
BILLION
make him one of the world’s richest
men. Here
is how Buffett explained
his personal philosophy to an audi-
ence of college students at the Univer-
sity of Washington. He is responding
to a question about the importance
of “giving back to your community.”
Notice the echoes of Rawls’s veil of
ignorance.
B u f f e t t ’s A n s w e r
I know in my own case that 99%-plus [of
my wealth] will go back to society, just
because we’ve
been treated extraordi-
narily well by society.
I’m lucky. I don’t run fast, but I’m
wired in a particular way that I thrive in a
big capitalist economy with a lot of ac-
tion. . . . If I had been born some time
ago I would’ve been some animal’s
lunch. . . .
Let me suggest another way to
think about this. Let’s say that it was 24
hours before you were born, and a genie
appeared and said, “You look like a win-
ner. I have enormous confidence in you,
and what I’m going to do is let you set
the rules for society into which you will
be born. You can set the economic rules
and the social rules, and whatever rules
you set will apply during your lifetime and
your children’s lifetime.”
And you’ll say, “Well, that’s nice,
but what’s the catch?”
And
the genie says, “Here’s the
catch. You don’t know if you’re going to
be born rich or poor, black or white, male
or female, able-bodied or infirm, intelli-
gent or retarded.” So all you know is
that you’re going to get one ball out of a
barrel with, say, 5.8 billion balls in it [each
ball representing one of the 5.8 billion
people on earth]. You’re going to partici-
pate in what I call the ovarian lottery. It’s
the most important thing that will happen
to you in your life, but you have no con-
trol over it. It’s
going to determine far
more than your grades at school or any-
thing else that happens to you.
Now, what rules do you want to
have? I’m not going to tell you the rules,
and nobody will tell you; you have to
make them up for yourself. But they will
affect how you think about what you do
in your will and things of that sort.
You’re going to want to have a sys-
tem that turns out more and more goods
and services. You’ve got a great quantity
of people out there, and you want them
to live pretty well, and you want your
kids to live better than you did, and you
want your
grandchildren to live better
than your kids. You’re going to want a
system that keeps Bill Gates and Andy
Grove and Jack Welch [heads of Mi-
crosoft, Intel, and General Electric] work-
ing long, long after they don’t need to
work. You’re going to want the most able
people working more than 12 hours a
day. So you’ve got to have a system that
gives them an incentive to turn out the
goods and services.
But you’re also going to want a
system that takes care of the bad balls,
the ones that aren’t lucky. If you have a
system that is turning out enough goods
and services, you can take care of them.
You don’t want people worrying about be-
ing sick in their old age, or fearful about
going home at night. You want a system
where people
are free of fear to some
extent.
So you’ll try to design something,
assuming you have the goods and ser-
vices to solve that sort of thing. You’ll
want equality of opportunity—namely a
good public school system—to make
you feel that every piece of talent out
there will get the same shot at contribut-
ing. And your tax system will follow from
your reasoning on that. And what you do
with the money you make is another
thing to think about.
As you work
through that, everybody comes up with
something a little different. I just suggest
that you play that little game.
S
OURCE
:
Fortune,
July 20, 1998, pp. 62–64.
I N T H E N E W S
A Rawlsian Billionaire
W
ARREN
B
UFFETT
4 5 0
PA R T S I X
T H E E C O N O M I C S O F L A B O R M A R K E T S
because Rawls’s philosophy puts weight on only the least fortunate members of
society, it calls for more income redistribution than does utilitarianism.
Rawls’s views are controversial, but the thought experiment he proposes has
much appeal. In particular, this thought experiment allows us to consider the re-
distribution of income as a form of
social insurance.
That is, from the perspective of
the original position behind the veil of ignorance, income redistribution is like an
insurance policy. Homeowners buy fire insurance to protect themselves from the
risk of their housing burning down. Similarly, when we as a society choose policies
that tax the rich to supplement the incomes of the poor, we are all insuring our-
selves against the possibility that we might have been a member of a poor family.
Because people dislike risk, we should be happy to have been born into a society
that provides us this insurance.
It is not at all clear, however, that rational people behind the veil of ignorance
would truly be so averse to risk as to follow the maximin criterion. Indeed, be-
cause a person in the original position might end up anywhere in the distribution
of outcomes, he or she might treat all possible outcomes equally when designing
public policies. In this case, the best policy behind the veil of ignorance would be
to maximize the average utility of members of society, and the resulting notion of
justice would be more utilitarian than Rawlsian.
L I B E R TA R I A N I S M
A third view of inequality is called
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