From the Bench: January 2012
I think my brother makes more money than I do. During the annual Christmas visit to North Carolina to see my family, I told my parents that this absence of economic equality just isn’t fair. My parents’ answer was much more colorful, but the two-part message included a reminder that life isn’t fair and that trying to make it so is folly—and they’re right. Spending anytime at all resenting my brother, or anyone else, for making more money than I do, requires a belief that economic equality is achievable—but it isn’t.
Let’s start with the notion of equality in general. What basis is there at all to assume that my brother and I are equals, let alone that our rewards should be equal? Pondering this question quickly brings me to the first and principle problem with equality. As Austrian economist, Ludwig von Mises argued, humans are not born equal any more than all men are six feet tall. We are equal under the law, as guaranteed by our Constitution, but this is a right to treatment in process not a declaration that we all possess the same talents or starting positions in life. These inequalities come with life and to borrow further from von Mises, “All human power would be insufficient to make men really equal.”
If I haven’t exhausted your patience with the philosophy of this issue, let’s turn quickly to the pragmatic dimensions of economic equality and the self-destructive consequences of pursuing this lofty goal. The source for the following calculation is the U.S. Census Bureau’s Current Population Survey (Table 1. Income Distribution Measures, by Definition of Income: 2009). Accordingly, the average income level is $61,273 per household. Nearly 19% of U.S. households make $100,000 or more per year and roughly 20% make less than $10,000 per year (excluding transfer payments, such as Social Security). The rest of the households surveyed, of course, fall somewhere in the middle. If we were to defy von Mises and wave our magic wands to distribute the total income available across all the households, there would be clear winners and losers. A little better than 64% of all households would receive more money than currently enjoyed as their income increased to the average of $61,273. That means that nearly 36% of households would lose money as their incomes are taken from them and distributed to the others.
I promised to leave alone the philosophical question that must nevertheless ultimately resolve how such a redistribution program maintains any sense of private property upon which our nation of laws is based. Instead let’s address the economic fallacy that assumes the total income available for redistribution still would be available under the new regime. What incentive is there for the top earning 36% of households in the United States to continue creating wealth by working, risking and investing in the absence of the reward associated with such “directed self-interest”—or what others inciting class warfare call “greed”?
The answer: there is none. The larger share of people having received a guarantee of the same outcome, regardless of what risk or effort is made, would choose to receive rather than create. In the absence of those creators of wealth, who risk today for tomorrow’s reward, this new system of economic equality collapses upon itself and we all starve. It’s been tried. The fall of the Soviet Union and the host of socialist systems provide the evidence.
Then how does my cold-hearted brother sleep at night? Although the resolution of guilt is better left to theologians and psychologists, next month those struggling with this moral angst will find some absolution in an exploration of how, despite the lack of economic equality in the world, our free-market system has created more prosperity for more people than any other in human history. Along the way, it’s managed to honor the principles of private property, division of labor and liberty.
