LAWRENCE W. REED, THE FREEMAN
This article is reprinted from the December 1995 issue of The Freeman
“Free people are not equal, and equal people are not free.”
I wish I could remember who first said that. It ought to rank as one of the great truths of all time, and one that is fraught with profound meaning.
Equality before the law—that is, being judged innocent or guilty based on whether or not you committed the crime, not on what color, sex, or creed you represent—is a noble ideal and not at issue here. The “equalness” to which the statement above refers pertains to economic income or material wealth.
Put another way, then, the statement might read, “Free people will earn different incomes. Where people have the same income, they cannot be free.”
Economic equality in a free society is a mirage that redistributionists envision—and too often are willing to shed both blood and treasure to accomplish. But free people are different people, so it should not come as a surprise that they earn different incomes. Our talents and abilities are not identical. We don’t all work as hard. And even if we all were magically made equal in wealth tonight, we’d be unequal in the morning because some of us would spend it and some of us would save it.
To produce even a rough measure of economic equality, governments must issue the following orders and back them up with firing squads and prisons: “Don’t excel or work harder than the next guy, don’t come up with any new ideas, don’t take any risks, and don’t do anything differently from what you did yesterday.” In other words, don’t be human.
The fact that free people are not equal in economic terms is not to be lamented. It is, rather, a cause for rejoicing. Economic inequality, when it derives from the voluntary interaction of creative individuals and not from political power, testifies to the fact that people are being themselves, each putting his uniqueness to work in ways that are fulfilling to himself and of value to others. As the French would say in a different context, Vive la difference!
People obsessed with economic equality—egalitarianism, to employ the more clinical term—do strange things. They become envious of others. They covet. They divide society into two piles: villains and victims. They spend far more time dragging someone else down than they do pulling themselves up. They’re not fun to be around.
And if they make it to a legislature, they can do real harm. Then they not only call the cops, they are the cops.
Examples of injurious laws motivated by egalitarian sentiments are, of course, legion. They form the blueprint of the modern welfare state’s redistributive apparatus. A particularly classic case was the 1990 hike in excise taxes on boats, aircraft, and jewelry. The sponsors of the bill in Congress presumed that only rich people buy boats, aircraft, and jewelry. Taxing those objects would teach the rich a lesson, help narrow the gap between the proverbial “haves” and “have-nots,” and raise a projected $31 million in new revenues for the federal Treasury in 1991.
What really occurred was much different. A subsequent study by economists for the Joint Economic Committee of Congress showed that the rich did not line up by the flock to be sheared: Total revenue from the new taxes in 1991 was only $16.6 million. Especially hard-hit was the boating industry, where a total of 7,600 jobs were wiped out. In the aircraft industry, 1,470 people were pink-slipped. And in jewelry manufacturing, 330 joined the jobless ranks just so congressmen could salve their egalitarian consciences.
Those lost jobs, the study revealed, prompted a $24.2 million outlay for unemployment benefits. That’s right—$16.6 million came in, $24.2 million went out, for a net loss to the deficit-ridden Treasury of $7.6 million. To advance the cause of economic equality by a punitive measure, Congress succeeded in nothing more than making almost all of us a little bit poorer.
Indifference to Consequences
To the rabid egalitarian, however, intentions count for everything and consequences mean little. It’s more important to pontificate and assail than it is to produce results that are constructive or that even live up to the stated objective. Getting Congress to undo the damage it does with bad ideas like this is always a daunting challenge.
In July 1995 economic inequality made the headlines again with the publication of a study by New York University economist Edward Wolff. The latest in a long line of screeds that purport to show that free markets are making the rich richer and the poor poorer, Wolff’s work was celebrated in the mainstream media. “The most telling finding,” the author wrote, “is that the share of marketable net worth held by the top 1 percent, which had fallen by 10 percentage points between 1945 and 1976, rose to 39 percent in 1989, compared with 34 percent in 1983.” Those at the bottom end of the income scale, meanwhile, saw their wealth erode over the period—if the Wolff study is to be believed.
On close and dispassionate inspection, however, it turns out that the study didn’t tell the whole story, if indeed it told any of it. Not only did Wolff employ a very narrow measure that inherently exaggerates wealth disparity, he also ignored the mobility of individuals up and down the income scale. An editorial in the August 28, 1995, Investor’s Business Daily laid it out straight: “Different people make up ‘the wealthy’ from year to year. The latest data from income-tax returns . . . show that most of 1979’s top-earning 20 percent had fallen to a lower income bracket by 1988.”
Of those who made up the bottom 20 percent in 1979, just 14.2 percent were still there in 1988. Some 20.7 percent had moved up one bracket, while 35 percent had moved up two, 25.3 percent had moved up three, and 14.7 percent had joined the top-earning 20 percent.
If economic inequality is an ailment, punishing effort and success is no cure in any event. Coercive measures that aim to redistribute wealth prompt the smart or politically well-connected “haves” to seek refuge in havens here or abroad, while the hapless “have-nots” bear the full brunt of economic decline. A more productive expenditure of time would be to work to erase the mass of intrusive government that assures that the “have-nots” are also the “can-nots.”
This economic equality thing is not compassion. When it’s just an idea, it’s bunk. When it’s public policy, it’s illogic writ large.
Lawrence Reed is the president of the Foundation for Economic Education.
Copyright © 2012 Foundation for Economic Education. All rights reserved. Used with the permission