Fair Is Fair
Fairness Is a Powerful Argument
OCTOBER 01, 2001 by ANDREW P. MORRISS
Several years ago, just after Congress had finally killed the federal mohair subsidy, I interviewed a lobbyist for the Texas Sheep and Goat Raisers Association. He told me he was confident Congress would restore the program in the next session. Why?
Because it wasn’t fair that other agricultural interests had subsidies and the goat ranchers didn’t. Never mind that subsidizing the production of mohair (originally, it is alleged, to ensure an adequate supply of warm uniforms for American soldiers in a war with the Soviet Union) is about as dumb a subsidy as one can imagine, so dumb that the Republican Congress and Clinton administration had joined together to kill it—it just wasn’t fair!
Last January the Wall Street Journal ran a story about Amtrak’s endless failed attempts to break even. The story recounted how George Warrington, the head of Amtrak, “bristles” when asked about the huge federal subsidies for train service. Warrington asked the reporter: “I have to be embarrassed about $23 billion for Amtrak after all the money spent on highways and air [travel]? Give me a break.”
Well, yes—you should be embarrassed, Mr. Warrington. It doesn’t matter how much airports or highways are subsidized, the illegitimacy of their financing doesn’t make it acceptable for Amtrak to engage in the same behavior. As parents around the world ask their children daily: “If Johnny jumped off a cliff, would you?” Our representatives in Washington and state capitals ought to be asking Amtrak, airlines, and goat ranchers the same thing.
The Texas goat ranchers and Amtrak both make a claim for “their share” of the federal budget because it isn’t “fair” for others to get subsidies unless they get one too. This same attitude can be seen in the charts newspapers regularly publish showing whether a state gets “back” more money from the federal government than the state “sends” in federal tax payments. These charts imply that congressmen who bring home the bacon are doing a good job, while the representatives from the states that are “net exporters” of tax revenues had better do something about their failure before the next election. They ignore the fact that those paying the taxes and those receiving the handouts are different people.
Underlying these complaints is a kernel of truth—it isn’t fair when one group uses the power of the state to extort money from another. But concentrating on the distribution ignores the fairness principle’s application to the revenue part of the equation. After all, fairness isn’t about how much we get from others, it is about how we treat others. Looked at that way, it is easy to see that taking money from people at the point of a gun to pay ranchers to raise goats or Amtrak to run trains isn’t fair no matter how many other people have done it first.
Many economists who are skeptical about the “he stole some, so I should get some too” fairness argument like to make a different case for equalizing public spending across sectors. Sure, they’ll say, it is wrong to subsidize airports and highways (or cattle and pigs), but since we have to live in the real world where such distortionary spending occurs, we need to counterbalance it with subsidies for Amtrak (or goats).
This “get the prices right” argument rests on the same central-planning fallacy that allows many economists to suggest with a straight face that prices for some good (health care, oil, cigarettes) are “too high” or “too low.” They remember that prices are signals but forget what prices are supposed to signal—real people’s individual subjective valuations of goods and services. Thus they think that if the price of air travel is “too low” because of a government subsidy for airports, we can make the price be “correct” relative to the price of train travel by either removing the subsidy for planes or adding an equal subsidy for trains. The relative price of train travel compared to air travel is then “correct” either way.
Making Things Better—or Worse
Ignoring the enormous computational problems in calculating just how big to make such “optimal” subsidies and the political problems in getting the government to allocate the “optimal” amount, this plan still misses several essential points. First, from this point of view, there are many distortions in prices. Air travel is too cheap because of subsidies for airports, too expensive because it doesn’t account for the pollution it causes by burning jet fuel, and so on. Since we don’t know what all those distortions are, we can’t be sure whether fixing just one of them actually makes things better or not. (This was proven mathematically in the 1950s. Most of the economics profession has ignored this result ever since.)
Second, even if we could get the relative prices of train and air travel “right” somehow, we don’t know if that is the relevant comparison. For example, I might be considering traveling to Arizona to visit my parents and debating between a train and a plane, but I might also be considering whether or not to buy a new computer or new car instead of taking the trip. The price of a plane ticket helps me decide that, but so does the price of a new computer. Without a great deal of knowledge about the tradeoffs individuals make—knowledge that no bureaucrat is likely ever to have—“fixing” prices to be “optimal” isn’t going to work because we don’t know which set of relative prices to “fix.” As F. A. Hayek pointed out in his essay “The Use of Knowledge in Society,” one of the great things about markets is that they manage such tradeoffs without anyone having to know all that impossible-to-accumulate information.
Fairness is a powerful argument—which is why the opponents of freedom have attempted to co-opt it at every turn. Protectionism is now “fair trade,” the minimum-wage laws are “Fair Labor Standards Act,” and every special-interest group lining up at the trough has a fairness argument for why it should get “its” share of tax revenues.
It’s time for us to take back the word “fair.” Far from being a weakness, fairness is one of the strongest arguments for liberty: Is it fair for someone else to come into your house with a gun and drag you off to prison for private behavior that harms no one? Is it fair for the government to demand that you turn over half or more of your income? Is it fair for the police to be able to listen in on your private telephone conversations? Of course not.
It also isn’t fair for Amtrak to labor at a disadvantage with subsidized airlines or for goat ranchers to have to compete with subsidized hog farmers. But the solution to these problems has to be fair as well.