Freeman

CLICHES OF PROGRESSIVISM

#3 – Equality Serves the Common Good

MAY 02, 2014 by LAWRENCE W. REED


 

The Foundation for Economic Education (FEE) is proud to partner with Young America’s Foundation (YAF) to produce “Clichés of Progressivism,” a series of insightful commentaries covering topics of free enterprise, income inequality, and limited government.

Our society is inundated with half-truths and misconceptions about the economy in general and free enterprise in particular. The “Clichés of Progressivism” series is meant to equip students with the arguments necessary to inform debate and correct the record where bias and errors abound.

The antecedents to this collection are two classic FEE publications that YAF helped distribute in the past: Clichés of Politics, published in 1994, and the more influential Clichés of Socialism, which made its first appearance in 1962. Indeed, this new collection will contain a number of essays from those two earlier works, updated for the present day where necessary. Other entries first appeared in some version in FEE’s journal, The Freeman. Still others are brand new, never having appeared in print anywhere. They will be published weekly on the websites of both YAF and FEE: www.yaf.org and www.FEE.org until the series runs its course. A book will then be released in 2015 featuring the best of the essays, and will be widely distributed in schools and on college campuses.

See the index of the published chapters here.


#3 – Equality Serves the Common Good

“Free people are not equal, and equal people are not free.”

I wish I could remember who first said that. It ought to rank as one of the great truths of all time, and one that is fraught with profound meaning.

Equality before the law—for instance, being judged innocent or guilty based on whether you committed the crime, not on what color, sex, or creed you represent—is a noble ideal and not at issue here. The “equalness” to which the statement above refers pertains to economic income or material wealth.

Put another way, then, the statement might read, “Free people will earn different incomes. Where people have the same income, they cannot be free.”

Economic equality in a free society is a mirage that redistributionists envision—and too often are willing to shed both blood and treasure to accomplish. But free people are different people, so it should not come as a surprise that they earn different incomes. Our talents and abilities are not identical. We don’t all work as hard. And even if we all were magically made equal in wealth tonight, we’d be unequal in the morning because some of us would spend it and some of us would save it.

To produce even a rough measure of economic equality, governments must issue the following orders and back them up with firing squads and prisons: “Don’t excel or work harder than the next guy, don’t come up with any new ideas, don’t take any risks, and don’t do anything differently from what you did yesterday.” In other words, don’t be human.

The fact that free people are not equal in economic terms is not to be lamented. It is, rather, a cause for rejoicing. Economic inequality, when it derives from the voluntary interaction of creative individuals and not from political power, testifies to the fact that people are being themselves, each putting his uniqueness to work in ways that are fulfilling to himself and of value to others. As the French would say in a different context, Vive la difference!

People obsessed with economic equality—egalitarianism, to employ the more clinical term—do strange things. They become envious of others. They covet. They divide society into two piles: villains and victims. They spend far more time dragging someone else down than they do pulling themselves up. They’re not fun to be around. And if they make it to a legislature, they can do real harm. Then they not only call the cops, they are the cops.

Examples of injurious laws motivated by egalitarian sentiments are, of course, legion. They form the blueprint of the modern welfare state’s redistributive apparatus. A particularly classic case was the 1990 hike in excise taxes on boats, aircraft, and jewelry. The sponsors of the bill in Congress presumed that only rich people buy boats, aircraft, and jewelry. Taxing those objects would teach the rich a lesson, help narrow the gap between the “haves” and “have-nots,” and raise a projected $31 million in new revenues for the federal Treasury in 1991.

What really occurred was much different. A subsequent study by economists for the Joint Economic Committee of Congress showed that the rich did not line up by the flock to be sheared: Total revenue from the new taxes in 1991 was only $16.6 million. Especially hard-hit was the boating industry, where a total of 7,600 jobs were wiped out. In the aircraft industry, 1,470 people were pink-slipped. And in jewelry manufacturing, 330 joined the jobless ranks just so congressmen could salve their egalitarian consciences.

Those lost jobs, the study revealed, prompted a $24.2 million outlay for unemployment benefits. That’s right—$16.6 million came in, $24.2 million went out, for a net loss to the deficit-ridden Treasury of $7.6 million. To advance the cause of economic equality by a punitive measure, Congress succeeded in nothing more than making almost all of us a little bit poorer.

To the rabid egalitarian, however, intentions count for everything and consequences mean little. It’s more important to pontificate and assail than it is to produce results that are constructive or that even live up to the stated objective. Getting Congress to undo the damage it does with bad ideas like this is always a daunting challenge.

In July 1995 economic inequality made headlines with the publication of a study by New York University economist Edward Wolff. The latest in a long line of screeds that purport to show that free markets are making the rich richer and the poor poorer, Wolff’s work was celebrated in the mainstream media. “The most telling finding,” the author wrote, “is that the share of marketable net worth held by the top 1 percent, which had fallen by 10 percentage points between 1945 and 1976, rose to 39 percent in 1989, compared with 34 percent in 1983.” Those at the bottom end of the income scale, meanwhile, saw their wealth erode over the period—if the Wolff study is to be believed.

On close and dispassionate inspection, however, it turns out that the study didn’t tell the whole story, if indeed it told any of it. Not only did Wolff employ a very narrow measure that inherently exaggerates wealth disparity, he also ignored the mobility of individuals up and down the income scale. An editorial in the August 28, 1995, Investor’s Business Daily laid it out straight: “Different people make up ‘the wealthy’ from year to year. The latest data from income-tax returns . . . show that most of 1979’s top-earning 20 percent had fallen to a lower income bracket by 1988.”

Of those who made up the bottom 20 percent in 1979, just 14.2 percent were still there in 1988. Some 20.7 percent had moved up one bracket, while 35 percent had moved up two, 25.3 percent had moved up three, and 14.7 percent had joined the top-earning 20 percent.

If economic inequality is an ailment, punishing effort and success is no cure in any event. Coercive measures that aim to redistribute wealth prompt the smart or politically well-connected “haves” to seek refuge in havens here or abroad, while the hapless “have-nots” bear the full brunt of economic decline. A more productive expenditure of time would be to work to erase the mass of intrusive government that ensures that the “have-nots” are also the “cannots.”

This economic equality thing is not compassion. When it’s just an idea, it’s bunk. When it’s public policy, it’s illogic writ large.


Lawrence W. Reed
President
Foundation for Economic Education

Summary


  • If people are free, they will be different. That reflects their individuality and their contributions to others in the marketplace. It requires force to make them the same.
  • Talents, industriousness, and savings are three of many reasons why we earn different incomes in a free society.
  • Forcing people to be equal economically may make misguided egalitarians feel better, but it does real harm to real people.
  • For further information, see:

"For Equality; Against Privilege" by Sheldon Richman: http://tinyurl.com/m4rwevw

"Equality and Capitalism" by Donald J. Boudreaux: http://tinyurl.com/k9mpesc

"Equality, Markets, and Morality" by Burton W. Folsom: http://tinyurl.com/lk6avaw

ABOUT

LAWRENCE W. REED

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

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