By Alex Raskolnikov. Full Text.
What should the government do about the distribution of resources and outcomes in society? Two arguments have shaped academic debates about this question for several decades. The first argument states that economic regulation should focus on efficiency alone, leaving distributional considerations for the tax-and-transfer system. The second argument objects to government assistance for people unintentionally harmed by legal reforms. Taken together, the two arguments impose major restrictions on the range of possible distributional policies.
This Article contends that a growing body of research in the economics of trade, immigration, industrial organization, labor, and environmental regulation reveals that the core assumptions underlying the two distributional arguments do not hold. Moreover, once these assumptions are changed to reflect reality, the analytical machinery underlying the arguments goes in reverse: the conclusions become not merely indeterminate but opposite of those originally advanced. The revised distributional arguments support enacting a broad-based transitional assistance program for low-skill workers, embracing some distributionally informed legal rules, and replacing our complex, obscure, state-specific social safety net with a simpler, transparent, nationally uniform one. More generally, reversing the normative thrust of the two distributional arguments shifts the focus of the academic inquiry. Instead of debating whether the government should actively shape distributional outcomes in a variety of ways, the question becomes how the government should do so given institutional, informational, and political constraints. Finding and refining answers to this question would help policymakers to craft better policy responses to major economic shocks, whether these shocks arise from legal reforms, technological transformations, or a deadly pandemic.