Thursday, July 9, 2015

Unfair Egalitarianism

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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