Suppose you have a race, a straight 500 meters, let’s say.
No curve on the track. No differences from one lane to another. Everything
equal. Until some says, “On your marks, get set, go!” Some short time later someone
finishes—before all the others. Someone else finishes second, another finishes
third, and so on until you get to the slowest runner. Is that fair?
Would we even run races if the outcome was skewed so that
all runners crossed the finish line at the same moment? What would be the
point?
Some runners are innately faster. Some are faster on certain
days, but maybe not every day. Some will get faster with more practice and
training. It’s that possibility that inspires us to try again, try harder,
prepare harder. Because winning a race feels good. Doing better than you did
before feels good, even if you don’t win.
There was a short time early in parenting when I bought the
line about avoiding competition. Our tee-ball league did not count runs. It had
everyone on the team bat, and then the inning was over. But our little Economic
Sphere knew better how to make it meaningful.
First of all, if you’re batting
last, you might as well run all the bases, because they were going to take you
off the field anyway—and the likelihood of anyone that age doing what it takes
to get you out was small. And then, you could count outs made when you’re in
the field, and you could count runs when your team is up to bat. It became a
complicated mathematical process for a six-year-old, but it worked. He also
learned that you probably couldn’t count on your teammates to catch a throw, so
you might want to run and make the out yourself.
One historic day he caught a fly, ran to a base to tag a
runner, and then ran to another base to catch another runner—triple play,
single-handed. Not all the parents were amused (“He’s not a team player”). But
our little economist knew that not all players were alike, and he wasn’t going
to pretend that they were. Why even play if the outcome is determined and it’s
unrelated to performance? Instead, just make up your own game, and play to win.
I was thinking about disparity again, as I listened to the most recent
Uncommon Knowledge interview. Host Peter Robinson interviewed Richard Epstein,
who is a constitutional law professor, and a libertarian thinker, with a
recent book out, called The Classical Liberal Constitution. The discussion
covered a number of topics, but the first six minutes of so answers questions
about disparity of income. While there are things I can’t agree with
libertarians on, usually on economics we’re in agreement. They want a
free-market, which is how you get prosperity in the Spherical Model.
Richard A. Epstein on Uncommon Knowledge July 1, 2015 |
So I’ve included below the transcript of some of their
discussion:
Peter Robinson: I
want to turn to the Supreme Court in a moment. But first, the meta-issue of the
day: inequality. Wage stagnation for the middle class for some decades, but an
increase in household income for the wealthiest 1% of American households over
the last 35 years—I looked this up—of 275%. And I found this quotation from my
friend Richard Epstein: “Inequality can be a wonderful force for innovation.” Explain
yourself.
Richard Epstein:
Well, I have to explain two things. First, the disparities, and then the second
point. There are two ways in which you can solve the inequality question. One
of them is you can take from the rich and hope to give to the poor. The first
half of the program always work. The second half always goes astray.
The other thing that you could do is, you could try to
eliminate the various barriers which prevent the middle class and lower income
people from moving up. And those are not macro policies having to do with
financial situations in the Federal Reserve. It essentially means unlocking the
employment relationship, by getting rid of all things that the proponents of
equality have put into place.
PR: Such as?
RE: Minimum wage
laws make it harder for unskilled workers to get their first job, which makes
it impossible for them to get their second job. Anti-discrimination laws make
it harder to hire minority people, because it’s more difficult to fire them.
Strong unionization gives various kinds of wage increases to a select group of
individuals, but it shuts out large numbers of other workers.
What you have to do in these things is completely deregulate
the labor markets. What will happen is, in a competitive market, as
productivity increases, wages will start to increase, and that will be
sustainable, because the persons paying the money are getting something that’s
worth it.
Are there going to be excessive returns to capital? The
answer is no, because of the competitive process. What’s happened here is all
the last six years we’ve been running the progressive program, and that program
has essentially resulted in real decline in income at the median level of about
4% or 5%, depending on how you count these sorts of things. It is a direct
consequence of the way in which we have been doing this.
Now that’s the practical answer. Now, the theoretical
question is really very different. It’s, do we mind about inequality as an
abstract matter? And the answer is, suppose the two of us started at 10, and I
find a way to go to 20 and you only go to 11. We’ve increased the inequality,
and we’ve increased the wealth of both people. Technically amongst the
economists, that’s a social improvement. But according to the egalitarians, and
there’s (it’s) really a terrible situation, because the gap has gone from zero
to 9. You don’t want to get yourself
into that frame of mind.
Now why is it that it turns out that the gaps in a market
system run that way? This has to do with the problem of incentives. What
happens is if somebody comes along and creates something that gives enormous
value to everybody else, they may move up one or two units, and that person may
move up a billion dollars. But you think we’re going to be better off in a
world without a Steve Jobs or an early Bill Gates, on the grounds that their
money is going to go to waste now that they have it? Whereas everybody else is
going to be denied the many apparatuses that they’ve been able to produce?
PR: Let me be sure
I understand the Richard Epstein position. Two points, both of which are pretty
arresting in … Let’s put it this way, they’d be arresting if you saw them in the
New York Times.
RE: Yes.
Astonishing.
PR: Position
number 1 is, you don’t care about inequality per se. You don’t care how big
this gap is, as long as the person down here is moving up. The gap could… You
really don’t care about the pattern of distribution as long as those least
privileged are making progress.
RE: And they are
only going to make progress in an open market.
If we were to get back on the
right track, to have a free market, change for the better can happen quickly.
But the political and social impediments that keep us going ever southward
toward national poverty need to change to make that possible.
As we look for new leadership,
make sure whoever gets your vote stays out of the frame of mind that worries
about disparity rather than the freedom to allow innovation and growth to
happen.
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