Tuesday, December 15, 2015

The Threefold Disaster that Comes from Imposing Economic Equality

I made the following comments on Amazon.com, in the back and forth of readers' discussions of Piketty's Capital in the Twenty-First Century.
People are unequal in their genetic inheritances, their upbringings and environments, and, above all, in the important choices they make over the course of their lifetimes. An inevitable result is economic inequality.

Imposing economic equality nonetheless has at least three enormously destructive effects:

1. It is tantamount to the destruction of the law of cause and effect in the realm of production. For example, under economic freedom, an individual who produces twice as much, while everyone else continues to produce the same, will be able to enjoy twice as much. But if his doubled production must be shared equally by the the 7 billion-plus inhabitants of the globe, this individual instead of receiving twice as much as the result of his doubled production will receive only one 7-billionth of twice as much, which is to say, for all practical purposes, nothing whatever. Under the freedom of economic inequality, an individual is capable of improving his own and his family’s economic well being dramatically. But when the requirement is that in order to improve his own well-being, he must improve the well being of the whole population of the world to the same extent, then he can accomplish nothing. It is like seeing that an individual’s legs are strong enough to enable him to walk, and then demanding that to walk, his legs must be sufficiently strong as to be able to carry the weight of the whole world’s population.

2. Economic inequality is essential to enable less capable people to outcompete more capable people and thus to be gainfully employed in the economic system. For example, here are two workers, one of whom is twice as productive as the other. What is required to induce an employer to prefer the employment of the less capable worker? The less capable worker must be willing, and legally free, to work for less than half as much as the more capable worker. In that case, he becomes the less expensive worker per unit of output. Imposing economic equality, or any measure in the direction of economic equality, such as minimum wage laws or increases in the minimum wage, prevents less capable workers from competing, and forces them into unemployment and a life of permanent poverty.

3. Imposing economic equality wipes out the enormous gains that the average person derives from the greater wealth of others. In a market economy, the wealth of the rich is not in piles of personal consumers’ goods, but in means of production, in which capacity it produces the goods and services that everyone buys and is the foundation of the demand for the labor that the wage earning masses sell. The greater the wealth of businessmen and capitalists, the greater is the production and supply of goods and services and the greater is the demand for labor, and on this foundation the lower are prices and the higher are wages, and thus the higher is the general standard of living.

For further discussion, see my Kindle essay "How the 1 Percent Provides the Standard of Living of the 99 Percent" and my magnum opus Capitalism: A Treatise on Economics also available in the Kindle store . A complete list of my 16 Kindle publications on free enterprise appears at http://www.amazon.com/-/e/B001KCWY0Q