Economic Equality is an Immoral Ideal: Lessons from America
This article is a contribution from Yaron Brook. Yaron Brook is the chairman of the Ayn Rand Institute, a non-profit think tank that advocates for Objectivist thought. He will be coming to Singapore for a dialogue series on income inequality on 30 May and 1 June. The dialogue is organised by The Philosophy of Life, a philosophy interest group based in Singapore.
Capitalism (political and economic freedom) causes economic inequality. Indeed, in most pre-capitalist countries in the world today, there is less inequality than there is in the United States and Singapore, despite both of these countries ranking among the “most free” countries in terms of economic freedom. But all of these pre-capitalist countries are dirt-poor. There was equality—equality of poverty. One of capitalism’s great virtues is the fact that it has created inequality.
What does that mean? It means that capitalism has allowed the creators of wealth to keep it. Capitalism has rewarded individuals based on their level of productivity. The more productive you are, the more you make; the less productive you are, the less you make. This is supply and demand and market forces at work. Capitalism in its pure form, in a free market—setting cronyism aside—is a system of earned inequality.
Who Cares about Inequality?
When we look across the world both historically and geographically, countries that adopt capitalism and free markets are more likely to flourish economically and socially. The rich get fabulously rich, and the poor just get rich—rich relative to where they were before. Just ask any middle-class Chinese person or Indian person or Taiwanese person. They are rich, relative to the previous generation or relative to where they themselves were just a few years earlier. And given the speed at which this economic transformation is happening on a global scale, projections for continued wealth creation and accumulation continue to be positive. So, yes, capitalism creates inequality. But inequality is good. Members of society have different skills, roles, and outcomes, and that’s okay. The fact that there are people who are much smarter than I am, who have the ability to create beautiful things like the iPhone and sell them to billions of people, is wonderful. All of us benefit from that. And if these people make billions of dollars, that’s a good thing, because that’s part of the incentive to make and market the product.
Every time you buy a product like the iPhone, are you better or worse off? Consider J.K. Rowling. She is one of those individuals responsible for inequality in the last 20 years. Everytime you bought one of the Harry Potter books, you added to inequality. Scholastic took twenty-five dollars from you for the book, giving a fifth of your payment to J.K. Rowling. She became a billionaire. You became twenty-five dollars poorer.
But why is there any problem with this scenario? You are better off because you get the spiritual value of reading Harry Potter—at the very least you expect you will—and Rowling got monetary compensation. As a result, she became a billionaire, and that’s a good thing, not a bad thing. After all, you are both better off. That is the beauty of markets. That is the beauty of capitalism. Yes, capitalism creates wealth inequality, but so what? If the transactions are win-win, as voluntary trade is, we are all better off.
The Real Problems
In the United States, there are real problems which, in my view, the whole inequality debate is hiding and trying to disguise. These problems include poverty, cronyism, and low economic growth. None of these problems has anything to do with the inequality gap between rich and poor. We have a justified sense of outrage and injustice when we see the difficulties in economic mobility for the poor. We see the injustice that arises from cronyism. We resent the fact that some rich people are rich because they are cronies; we rightfully feel that it is a problem. And we are legitimately concerned by the lack of economic growth over the last eight years—a cause of real frustration among many in the middle class. But the inequality gap, the number, the Gini coefficient—however you want to call it—is irrelevant to these legitimate issues. The inequality itself is not an issue; it is a bogus issue. There is no problem of inequality.
If we seriously consider the problem of the poor not being able to rise up from poverty, we see that this is often caused by policies in order to reduce inequality. Common examples include restrictions on credit, minimum wages, and licensing laws. If you really look at it, these policies all make poverty worse and more intractable—all in the name of reducing inequality. When you overregulate and overtax the economy, you get low growth. That shouldn’t come as a surprise.
The latest examples are the Senate Democrats’ effort to raise the minimum wage to $10.10, Maryland governor O’Malley’s raising it in his state, and just the other day the city of Seattle’s raising it to $15 — the highest in the country. The economic case against the minimum wage is easy to grasp.
When the government artificially raises the price of something, the demand for it goes down. Raising the minimum wage decreases the demand for unskilled labour (usually the young). It raises the unemployment among this group and accelerates the adoption of technology replacing even more low-skilled workers. (For an excellent, but not exhaustive, economic analysis, see John Cochrane’s writings here.)
Minimum wage advocates know that the minimum wage has no favourable impact, but they don’t care since they can sell it as “good” and “noble” by lying and evading its economic consequences.
The Ideal of Equality
We think of inequality as a problem because we have set up a Platonic ideal that economic equality is a good thing when it is not. There is nothing good about equality. Few actually explicitly advocate for total equality of outcome because they know how unacceptable that view is. We have tried it (multiple variants of communism and socialism), and the outcomes are horrible.
So whenever I debate somebody who wants more economic equality, I ask, “How much is just right? What Gini coefficient and what redistribution is just right?” There are no rational answers to these questions, because there is no right level of inequality. The ideal that we have all implicitly accepted is that equality is good but it’s just not practical. I reject that. Economicequality is more than just impractical; it is an evil ideal. And equality of opportunity is just another form of equality of outcome and just as impossible and bring into reality.
The only legitimate concept of equality is equality of individual rights—the fact that the founders of America recognized (inconsistently, unfortunately) that each individual has an unalienable right to act to achieve the values necessary for his own life, for his own happiness, free of coercion. This entails equality of liberties and equality before the law. Every attempt to create equality of outcome or equality of opportunity violates the idea of equality of rights and equality of liberty. Somebody’s liberties are restricted in order to supposedly increase the opportunities and the outcome of somebody else. This is immoral and wrong.
We must get rid of the moral ideal of equality of outcome. It contradicts our very nature as distinct, unique individuals who, when free, produce unequal results. Inequality is a feature of freedom. The ideal of equality is the negation of human nature and of the value of political freedom. Economic equality, therefore, is a wrong ideal, and it distorts our politicsand our policy thoroughly.