But how much more? In other words, at the risk of sounding oxymoronic, what is the fairest inequality of income? This critical question is at the heart of the inequality debate. The debate is not so much about inequality per se as it is about fairness. A simple example illustrates this point. John is hired as a temporary worker for one hour and makes $100. Lilly is hired for two hours in the same job and makes $200. Is there inequality in their incomes? Of course, there is. But is the inequality fair? Yes, of course. Lilly earned more because she contributed more. Their incomes are not equal, but equitable. Their economic rewards, after accounting for their contributions, are the same.
In this simple case, it was easy to ensure equity. But how do we accomplish this, in general, in a free market society consisting of millions of workers of varying degrees of talent, skill, and capacity for work? Is there a measure of fairness that can guide us to accomplish this? Is there an income distribution that ensures equity? Given the complexity of the problem, one might anticipate the answer to be no. But, surprisingly, the answer is yes.
This central question about fair inequality has remained unanswered in economics and in political philosophy for over two centuries. Mainstream economics has offered little guidance on fairness and the ideal distribution of income in a free-market society. Political philosophy, meanwhile, has much to say about fairness yet relies on qualitative theories, such as the ones by Rawls and by Nozick, which cannot be verified by empirical data. As we take steps to address extreme inequality, we need to know what the desired target inequality is -- and for this we need a quantitative, testable theory of fairness for free-market capitalism. In a recent book, I have proposed such a normative theory, an unorthodox transdisciplinary theory that integrates foundational principles from disparate disciplines into a unified conceptual and mathematical framework that includes the key perspectives on this question -- the perspectives of political philosophy, economics, game theory, statistical mechanics, information theory, and systems engineering.