August 23, 2014

What Equality Should We Seek in Society?

Dogs

Studies suggest that brains may be wired with either a utopian or a tragic view of the world, corresponding roughly to liberals and conservatives. Although we share a common language, we often intend very different things. Until we analyze what we mean by the terms “just,” “fair” or “equal,” we continue to talk past each other in political debates.

When my grandmother Florence was a little girl, she would sometimes be given five pennies for candy. She would spend a penny or two for candy and save the rest for later in the week. Her brother Frank would spend all five pennies the first day and gorge himself on sweets. By the end of the week Florence still had a penny for candy and her brother was out of money.

Their mother did not think this was fair. She would tell Florence to share some of her candy with Frank. Florence did not think it was fair that she had to share just because he had spent all of his money.

This story symbolizes the heart of the debate over equality. Although both children began with equal opportunity, by the end of the week there was a very different result. Florence had pennies left for candy. But Frank had eaten more candy.

Florence’s view corresponds to the tragic or conservative view. Conservatives believe in equal incentives and opportunity, but they realize an equality of results is impossible.

Brother Frank would appeal to his mother’s more liberal view of the world. Utopian liberals think we need to engineer an equality of result. They believe society can only accomplish this if there are strong enough intentions to set and meet goals through centralized planning. In their view, an inequality of results is sufficient to declare something unfair or unjust.

The liberal solution would be for Mother to give each child just one penny a day, forcing a daily equality of outcome. The conservative solution would advocate that Frank stop seeking instant gratification and learn to budget his pennies.

Consider these examples. Suppose you earn $50,000 working in a cubicle processing paperwork. I was offered the same job, but seeking more meaningful work, I decided to become a poet. I am no Wordsworth, so I am lucky to make $10,000 a year. Is that fair? Would you be willing to give me $20,000 a year so we have an equality of results?

Clearly there was an equality of process. We were both offered the cubicle job. But I turned it down to become a bad poet. The liberal mind leans toward the view that procedural fairness is not fair so long as disparate outcomes result. Although it can’t in this contrived example, in any other situation the liberal mind will find some other inequality of circumstances to blame for the inequality of results.

Should I be allowed to follow my dreams and become a poet even if the value that society assigns to it is only $10,000 a year? Alternatively, should I have that choice taken away from me for my own good so my value to society is sufficient to justify a higher lifestyle for myself? Or as a third option, should society take from those earning more in order to supplement my lifestyle and subsidize the production of my bad poems?

A free society allows choices that result in more unequal outcomes. Several measurements of inequality are used in economics. They are all mostly useless. A country can have a very equal distribution of wealth or income where everyone is in poverty. Or a country can have very unequal distributions of wealth where trickle-down capitalism has made even those on welfare incredibly rich by global standards.

Much political hay has been made about the top 1% of income in the United States. But to be in the top 1% of income globally, all you need to earn is $34,000. Would you be willing to suffer a 90% tax just because you earn more than $34,000?

On one end of the spectrum, well-intentioned utopians believe such solutions are possible with enough force of will, goals and planning. This is one reason why liberals in power make the worst authoritarians. Or as Friedrich Hayek titled the tenth chapter of “The Road to Serfdom,” this is “Why the Worst Get on Top.”

They would be the penny police. They would not allow Frank to enjoy his candy feast. They would penalize Florence for saving her pennies for later. They might even object to their mother providing a treat for her children while other less fortunate children have no shoes. The result would be a lack of any incentives other than the immediate incentive to stuff whatever you can into your mouth before the ultimate Big Brother takes it away from you.

The more conservative tragic view works within the understanding that humans generally are selfish. There are no easy solutions to this troublesome fact. There are only systems and incentives that encourage productivity, which in turn benefits society as a whole. Within this view it is generally best to have the person making the decision, paying for the decision and benefiting from the decision be one and the same. Only in that case will there be an incentive to weigh the cost against the benefit and make an informed decision regarding the trade-offs.

The genetic tendency to seek equality of results appears to be a brain bug. Such a mental default may work well as an incentive toward voluntary charity, but it fails when accompanied by the Orwellian force of law. The unintended consequences of enforcement destroy all incentive toward productivity.

For those willing to examine the evidence objectively, this social experiment has been tried hundreds of time throughout human history. We need only look at the Korean peninsula at night to see the southern half lit with the world’s 15th largest economy and the northern half starving in darkness. The Soviet Union finally collapsed long after its only working economy was the black market. India’s economy finally began to grow only after Rajiv Gandhi’s free-market reforms removed impediments.

Even in China, Deng Xiaoping instituted freer markets suggesting, “Let some people get rich first.” When asked about his move away from socialism he replied, “It doesn’t matter if a cat is black or white, so long as it catches mice.” It makes some of us wonder why all the capitalists are in China and all the socialists are now in Washington, D.C.

Trials have taken place in a multitude of different cultures over diverse time periods. Yet we still argue about the facts. This ought to give us pause that the tragic view is correct and that the impulse toward an equality of result should be a motivator toward private charity, not public policy.

Few enough people currently want to take the entrepreneurial plunge. We should not impede them any further. Only about 1 in 20 is willing to employ the other 19. If we remove their incentives, they will probably be just fine. But the other 19 will experience trickle-down misery firsthand. Unemployment will be high and the economy will be sluggish.

According to behavioral finance studies, about half of subjects would rather that everyone get $500 than some get $1,000 and others get $3,000. This preference to impoverish everyone is harmful and dangerous. We can’t afford it.

Today’s poor in America live better than the kings of just a hundred years ago. It is hard to argue their lower income is an ethical outrage that justifies whatever means necessary to redress this inequality of result. If we don’t learn to embrace the inequality that results from freedom of choice, we will soon all be equally impoverished.

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About David John Marotta

David John Marotta+ is the Founder and President of Marotta Wealth Management, Inc. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)

Comments

  1. Interesting discussion about these cultural (and sub-cultural) issues. The different theories of fairness- legal, equity and culture bias- impact our financial lives more than most people realize.

    In fact, I have an episode of my video show coming up (next week) describing each of these theories. Perhaps I’ll get an opportunity to have you on as a guest sometime.

  2. Dave Kretzmann says:

    Thanks for sharing your views. The penny story at the beginning is certainly representative of some people, but misses an important reality. In the real world, a few children get ten pennies and many others get one or none at all. Liberals seek, not equal outcomes, but relatively similar opportunities. Some children will always start with an economic advantage, and that’s fine, but every child deserves basic nutrition, shelter, safety, health care, and educational opportunity. These are primarily parental responsibilities. But what are the obligations of the larger community toward children whose parents cannot or will not provide these basic necessities?

    • Liberals nearly always say, as you suggest, what we want is an equal starting place. But every starting place is just another stories ending place. At the end of Frank and Florence’s story Florence has pennies and Frank does not even when they started out the same. Now at the end of the story they are starting out unequal. So even if we grant that Mother had ten pennies to give her children, that unequal beginning is just the end of another story. We don’t know what Mother sacrificed to give her children a treat of ten pennies of candy. Perhaps she walked instead of taking the trolley. Perhaps she had more money because she choose not to smoke?

      We can either create systemic systems that encourage all parents to work hard and sacrifice for their children or we can work against those incentives and try to take from those that strive to do that and are successful. Liberalism is a great individual motivator toward charity. But is makes terrible coerced public policy heavily handed in its implementation through the force of law.

      Private charity works better than public programs. First, because public programs confiscate wealth. And while people will work tirelessly in order to have more to give to the charities they support and are passionate about, they will not work the same way to fund government waste and largess. When the money is taken by the force of taxation it is NOT charity and loses all of its virtue. There is no virtue in giving away other people’s money. And there is little virtue in having your money taxed and given to others.

      Secondly, private charities do more good because they can discriminate. When a charity reaches out to help someone, they can refuse to give help unless the recipient takes whatever steps the charity beleives will help them get back on their feet. Charities can require people to respect their own empowerment and take responsibility as the moral agents that they are. Government programs can’t discriminate in this way. If the recipient qualifies by the legal code they are entitled to the government support regardless of their ability or worthiness to receive it.

      Finally, it is difficult in this country to argue that there is some moral outrage for the conditions of the poor as they exist today. The poor in America live lives of better nutrition, shelter, safety, healthcare and educational opportunity than the richest royalty of just 100 years ago. There is not a moral imperative that trumps all other considerations.

  3. Dale Seng says:

    David, Great piece, as usual. If you’re open to summer reading that takes some thought, you might consider a book “Thinking Fast and Slow”. It starts to explain why we talk past each other when it comes to topics like this. If the vocabulary of that book were understood by all, we’d have a better chance for meaningful dialog.

    • An interesting recommendation. From Wikipedia:

      Thinking, Fast and Slow is a 2011 book by Nobel Prize winner in Economics Daniel Kahneman which summarizes research that he conducted over decades, often in collaboration with Amos Tversky. It covers all three phases of his career: his early days working on cognitive bias, his work on prospect theory, and his later work on happiness. The book’s central thesis is a dichotomy between two modes of thought: System 1 is fast, instinctive and emotional; System 2 is slower, more deliberative, and more logical. The book delineates cognitive biases associated with each type of thinking, starting with Kahneman’s own research on loss aversion. From framing choices to substitution, the book highlights several decades of academic research to suggest that we place too much confidence in human judgment.

      It is interesting that the idea that we place too much confidence in human judgment is held by conservatives (those with a tragic view of life). Liberal (those with a more utopian view of life) have much more confidence in the abilities of human judgment.

  4. Richard Steven Gregg says:

    Great analysis David….simple and straight forward. But….even our founding fathers made the the mistake of generalizing too much by saying “All Men are created equal”…giving the impression that “everyone should be equal”. They said that in a man’s world where they were the elite, women had no rights, and many of them owned slaves. In reality there are many, many differences in intelligence, psyche, and physival ability. Some people have it, and some do not. Trying to settle those differences has been the problem since the beginning of time. It seems to come down to numbers and percentages in the end. When the majority is sufffering, you have a revolution, when most are satisfied you have calm. Many, many things (biological, ideological, level of sanity etc.) contribute to the final result. Let’s see what happens to us next !!

    • Greetings Richard,

      Wikipedia has a nice article on All men are created equal including other prior concepts which explained the concept and the charges that it is inconsistent with slavery which were made immediately on its publication.

      • Fred Leamnson says:

        David,
        Thank you for the very thoughtful, well written post. it’s refreshing that we can actual have an intelligent dialogue about the direction of our country and the two different visions for it. Unfortunately, our friends on the right and left have let politics completely dilute their principals. They can’t put forward legislation that is reasonable because they owe allegiance to the money that put them and keeps them in office. When raising money for elections trumps doing what’s right for your country, it puts us all in a bad way. The system is broken because people are broken. Living in the eye of the storm outside Washington, DC, I can tell you that reasonable discussion is missing from the mix. Thanks again for putting this out there.

        • Greetings Fred,

          Thank you for your reply. When you say, “The system is broken because people are broken.” you express one of the core beliefs of the tragic (conservative) view.

          Interestingly enough, the utopian (liberal) view think that enlighten and reasonable objective administrators with enough will to get it done could solve problems such as inequality if only we would give them enough political power and force to overcome the resistance of those who might oppose it on account of their selfish and evil intentions. This belief that well-intentioned rational people just need to be given enough power is why Hayek wrote chapter 10 of “The Road to Serfdom” entitled “Why the worst get on top.”

          This trust in centralized planning and naivete regarding the brokenness of people which those with the tragic (conservative) view think is so dangerous.

          • Fred Leamnson says:

            My view of the brokenness of people isn’t a political one. It’s Biblical. Contrary to what you may think, that doesn’t put me in the “traditional” politically conservative camp. I don’t try to cram my views on a free society. Though I may vehemently disagree with particular social positions, we live in a country where people are free to choose their religious or non religious positions and live their life out as they see fit. It appears your view is that people live in either the conservative or liberal camp. It’s true that’s where all of the noise comes from. But it isn’t necessarily true that’s where most of us live. And I don’t appreciate the condescending nature of your comment about the naivete of people’s brokenness. That reeks of the elitism that conservatives put on liberals. There is plenty of room for debate. But when you stand in judgment of a particular viewpoint, as you’ve done with mine, it undoes much of the credibility of the article.

          • Greeting Fred,

            I was not trying to be condescending. But even with a Biblical view there is a difference of emphasis on the fallen and broken nature of humanity (tragic) verses God remaking of the world in our lifetimes through His people (utopian). My guess is that you would differ with the second set of assumptions and conclusions. Those two views would both claim to be Biblical (even if they would disagree on many theological points) and that is part of the liberal or conservative emphasis.

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