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Principles of Economics- Mankiw (5th) 438

Principles of Economics- Mankiw (5th) 438 - 450 PA R T S I...

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450 PART SIX THE ECONOMICS OF LABOR MARKETS 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
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