Equality Destroyed in the Name of Equality

October 19, 2010

by Chidem Kurdas

Law and government should treat people equally. This old principle may seem obvious and firmly in place, but in fact it’s much violated. Instead, the focus is on income distribution. Thus Robert H Frank in the NYT points to the bad effects of income inequality – like people spending too much money to emulate the rich – and suggests we “try to do something about it.”

His column about the costs of income differences shows no awareness of the costs of equity-promoting policies.

Attempts to create income equality erode equality  before the law, as F. A. Hayek made clear. The Road to Serfdom – the historic experience as well as the title of Hayek’s book – is paved with egalitarian good intentions.  If you feel “serfdom” is too extreme a word, the operative term here is “the road”.

Given that individuals are not the same to begin with, “To produce the same result for different people, it is necessary to treat them differently,” Hayek pointed out. Once a legislature gets into the business of redressing particular wrongs or helping specified groups, people are no longer treated equally by law. They’re treated unequally with the purpose of bringing them closer together economically and possibly socially.

To that end, certain groups –whether defined by income, occupation, business, geography, gender, ethnicity or some other criterion – have to be favored at the expense of others. However well intended – Hayek took that as a given – such policies corrode both freedom and overall economic well-being.

A government that takes on the responsibility of addressing the inequities suffered by one set of individuals can’t refuse the responsibility of addressing inequities suffered by other groups. Therefore people concentrate on getting access to and influencing political authority in their favor. The impartial rule of law is cumulatively destroyed as differential treatment – whether it takes the form of programs, tax rules, regulations or other policies – becomes increasingly common.

As it reaches into all nooks and crannies of society to remedy grievances and in doing so creates new grievances that cry for remedy, the government grows at the expense of civil society.  People who mind their business in the market and stay out of the political arena get no protection. So they are in effect discriminated against, bearing the burden of taxes and regulations. Anybody who has the means to organize does so to get the legislature and other powers to address their grievances and give them benefits.

Does that sound familiar?

Since the path to wealth is increasingly through the political authority, there is less incentive to invest, innovate and produce for the free market. If the process continues, economic sclerosis sets in. Hayek, James Buchanan and other pioneers led the way in studying this downward spiral.

Now, I would not have bothered to write about the well-known vicious effects of the re-distributive interventionist state, but the commentary on my previous post persuaded me that it is worthwhile to express the point in plain language. That post is on Thomas Sowell’s insight that two distinct visions of human nature underpin political differences.

One of these, the unconstrained vision of intellectual and moral abilities,  supports targeted policies to make society more egalitarian economically. It aims at equality of results. By contrast, the constrained vision – Hayek was a foremost proponent –aims at equality of process. This means treating people equally, not trying to make them more similar in material conditions or other characteristics—-which in any case can’t really be achieved.

Equality before the law is the achievable goal. It’s the real thing and the only way to prevent government arbitrariness and bloat

Sometimes it looks like the message needs to be repeated no matter how many times it’s been said before. I apologize to readers who are familiar with the above observations. There is a lot of great material about Hayek on ThinkMarkets and its Blogroll, including Cafe Hayek.

39 Responses to “Equality Destroyed in the Name of Equality”


  1. I was thinking of Sowell almost from the start of the post. Start with the basics.

    People make choices that lead to outomes. If choose to major in English instead of economics (or economics instead of engineering), you lifetime pecuniary income will likely be smaller. The sum of your lifetime pecuniary and nonpecuniary income might very well be higher.

    In any case, what is unjust about that? I call it freedom.

  2. pcle Says:

    How much of the historically high level of income inequality in the US is the result of government intervention in the financial sector? The excessive growth of compensation in that sector was surely largely driven by the existence of the Greenspan put and government measures to subsidize home ownership. Rent-seeking is rampant, reducing the long-run growth potential of the economy. The 2008 bailouts have favored the large banks at the expense of the smaller ones, further reducing efficiency.
    The distortion of the capital markets funneled funds away from real capital investments that could have provided jobs and incomes for the American working classes.

  3. Mike Says:

    “Equality before the law is the achievable goal. It’s the real thing and the only way to prevent government arbitrariness and bloat”

    I think its worthwhile to point out that this is your statement of THE goal.

    Putting aside ideas about fairness (because life aint), let me propose alternate possible “the” goals:

    Maximizing the total benefit to everyone.
    Maximizing the minimum benefit that the least receive.
    Maximizing the benefit added by the government.
    Minimizing the harm / friction done by the government.

    So if your central position is that equality before the law is THE goal, I’m not saying its a bad goal, but I wouldn’t accept out of hand that its the only reasonable goal.

  4. chidemkurdas Says:

    Jerry,
    Yes, I have found reading Sowell very rewarding. Helps clarify one’s thoughts.

    Re your point about considering non-pecuniary income as well as pecuniary income– this really should be kept in mind in thinking about income distribution but often is not.

  5. chidemkurdas Says:

    Mike,
    I’m afraid what you’ve listed as alternate possible goals are nebulous notions. How would one maximize the total benefit to everyone? Really!

    When I was at graduate school they would put on the board a so-called social welfare function. Maybe they still do. One could write down the function’s first and second derivatives and thus show the math for maximizing it but none of that had any connection to reality.

  6. Troy Camplin Says:

    The bottom line argument for redistribution and against income disparity is that, somehow, the existence of income disparity is itself unethical. That makes no sense to me. How can mere income inequality be unethical? If a wealthy business owner is wealthier than me, it is because he has engaged in many more economy transactions than I have. Those transactions are all voluntary, and both parties are better off. If I engaged in more such transactions, I would be wealthier. This is basic network theory. The rich become richer, while the poor become poorer relative to the rich, but still richer than they were at some earlier date (this takes each as a group, which also isn’t true, since there is a great deal of travel up and down the income brackets by individuals). The geometry of network theory is a universal of nature — it is neither ethical nor unethical. We see the same distributions of wealth to the top percentages in every economy on earth. The only differences are how that money is made. If you steal it, that is unethical. If you get government to create barriers to entry to ensure that only you can make money doing what you do, that is unethical. If you get government to create tax structures that make it more difficult for competitors to ever get started, that is unethical. If you abolish private property and, as a result, concentrate money and power in government, that is unethical. You will get wealth disparities in each of these cases; but only in one of them is wealth created ethically. There is nothing unethical or immoral about having wealth — it is only in how one gets it. To want the exact thing another has is covetousness; to not want someone to have something because they have more than you is envy. Those are immoral. And all they do is result in different people having all the wealth concentrated with them — and those people are far more likely to be unethical people.

  7. chidemkurdas Says:

    Troy,
    Re “it is neither ethical nor unethical” I agree with your basic argument. But would add that there is a significant element of luck in income distribution. That does not change the conclusion. To some extent it may be a lottery, but we don’t think of a random selection in a lottery as ethical or unethical.

  8. Greg Hill Says:

    Jerry,

    You argue that incomes are based on choices, but, in fact, circumstances – where you were born, to what family, with which genes, belonging to which race, region, etc., etc. have a lot more to do with individual economic outcomes than choices do. As Bill Gates father put it (more or less), Bill likely wouldn’t have done much had he been born to a peasant family in a poor African country.

    It’s one thing to argue that the state ought not to try to rectify this inequality of real opportunities, it’s another to deny it altogether.

  9. chidemkurdas Says:

    Greg,
    Many factors can affect one’s income. One’s choices are certainly one those of factors. Yes, differences in family circumstances exert an effect. But on the other hand two individuals from the same background can end up very differently.

  10. Greg Hill Says:

    chidemkurdas,

    Of course, choice plays a role. If it played more of a role, we’d presumably see a lot more social mobility than we do.

    Curiously, mobility up and down the income ladder is greater in most European countries than in the U.S. I’d be interested in your explanation of this difference.

  11. Joe Calhoun Says:

    “As it reaches into all nooks and crannies of society to remedy grievances and in doing so creates new grievances that cry for remedy, the government grows at the expense of civil society.”

    Great example of this recently with the waivers to some of the mandates of the health care reform granted to some firms (McDonald’s as an example). These firms provide so called mini med plans that are not allowed under the new rules. The firms pressured the administration into providing the waivers by basically threatening to drop all coverage if a waiver wasn’t granted. The administration didn’t want these companies dropping coverage right before the election so they granted the waivers. What about the smaller firms with no leverage or access? I guess they’ll still be required to meet all the requirements. Being large, well known and well connected paid off for the few firms granted the waivers. Too bad if you don’t fall in that group.

    So the new health care law applies to some companies but not others. Who gets to decide which companies are favored? What happens when a new administration is elected? Will they rescind previously granted waivers and provide new ones to their favored constituents? Talk about uncertainty….

  12. chidemkurdas Says:

    That is an excellent new example, Joe Calhoun. It is also what public choice economics would predict.


  13. Chidem has provided one part of my answer.

    Another part of my response would be that Greg Hill’s comment is that it proves too much. If choices don’t count because of one’s origins, then there is literally no scope for individual freedom. You move onto the slippery slope to paternalism.

    Mario has dealt with that.

  14. chidemkurdas Says:

    Greg Hill-
    Re “Curiously, mobility up and down the income ladder is greater in most European countries than in the U.S. I’d be interested in your explanation of this difference.”

    No doubt countries differ in a variety of ways. I would guess, however, that the well-known problems of the American educational system may play a role.

  15. Greg Hill Says:

    Jerry,

    I didn’t say “choices don’t count because of one’s origins.” Quite the contrary, I said that where someone ends up in the income ladder depends more on circumstances than choices.

    That said, it’s also probably true that culture, family, class, etc., have some effect on the the choices people make.

    I’ve been trying to stick with the, no doubt disputable,”facts,” but most contributors seem to want to get right to policy questions – “paternalism,” “taxation is slavery,” etc.

    I’m assuming you want to have a dialogue, not an echo chamber, hence I’m trying to make points, ask questions, etc., that we might debate rather than going immediately to our respective routines.


  16. @Greg,

    I don’t see how anyone who visits here very often could take it as an echo chamber. (Why ocme if it is.) No one gets a free pass here, not even the blogmeister.

    People have responded to your comments and questions. No matter one’s circumstances, one makes choices. For me, the “that” (one makes chocies) is what is important. I am not interested in the “why.”

  17. Tabela Says:

    wonderful, I really liked it very much … wonderful, I really liked it very much …

  18. liberty Says:

    “Curiously, mobility up and down the income ladder is greater in most European countries than in the U.S. I’d be interested in your explanation of this difference.”

    Actually, this is not true. RELATIVE mobility is greater in most European countries – but this is a direct result of greater equality: it is easy to move from the bottom quintile to the middle quintile if it only takes a $10 raise to love you there.

    Absolute income mobility is greater in the US, and if age is not controlled for it is much greater. (What this means is that over the course of your lifetime, as you gains skills and experience, you will tend to increase your income by A LOT in the US; in Europe, this is less possible, but you are more likely to move up relative to peers of your same age, as you switch places now and again, sometimes earning more and sometimes less than them.)

    I have a very old commentary on this here: http://economicliberty.net/mobility_stats.htm
    It sorely needs to be updated, but it will explain this further.

  19. Greg Hill Says:

    Liberty,

    Interesting post and paper. That said, your claim about equality opportunity in the U.S. doesn’t square with some recent research on the subject. The graph at the link below shows income mobility over four generations beginning with poor first-generation families earning about 25% of average national income. Mobility is measured by the increase in the family’s income as a percentage of average national income (rather than by movement across income quintiles). The U.S. comes in fourth out of five countries, behind Denmark, Canada, and Britain, but ahead of France.

    http://www.nytimes.com/packages/html/national/20050515_CLASS_GRAPHIC/index_02.html

    In addition, the study at the link below shows that the correlation between the wages of fathers and sons (not movement across income quintiles) rises with a country’s level of inequality (where inequality is measured by the country’s Gini coefficient circa 1975, and the sons’ average wages are as of 1999). In terms of intergenerational mobility (where a lower correlation coefficient indicates greater mobility), the U.S. “beats” Chile, Spain, Australia, and New Zealand, but “loses” to Norway, Sweden, West Germany, Canada, and Cyprus.

    http://people.anu.edu.au/andrew.leigh/pdf/InequalityMobility.pdf

    If income mobility, or, perhaps, more appropriately, equality of opportunity, is something of value, and if more egalitarian countries “produce” more opportunities for lower income citizens, should libertarians, Austrians, and other “pro-marketers” rethink their opposition to egalitarian policies that, directly or indirectly, promote equality of opportunity?

  20. liberty Says:

    You are still missing the point about relative vs. absolute income mobility. It is easier to move up relative to the average national income in a country where that average is $25k than in a country where it is $40k — and a smaller move up in the latter country will make the person better off.

  21. chidemkurdas Says:

    Interesting point, Liberty.

    Greg Hill Re “should libertarians, Austrians, and other “pro-marketers” rethink their opposition to egalitarian policies that, directly or indirectly, promote equality of opportunity?”
    Given the horrendous damage these policies do to the integrity of the political system — as described in the post — shouldn’t proponents of the policies rethink their advocacy?

  22. Greg Hill Says:

    Liberty,

    I did, indeed, grasp you point about absolute changes in income and was trying to meet you half-way between the conventional measure of social mobility (between income classes) and your idiosyncratic measure.

    Nevertheless, I do think your measure is interesting. If I understand it correctly, you’re saying that the probability of a U.S. citizen now making, say, $15,000/year, earning an additional $5,000/year at some point in the future is greater than the probability of, say, a Swedish citizen now making $15,000/year (in PPP terms) earning $5,000/year more in the future. If this is a correct interpretation of your criterion, then I’d be interested in the data that supports this claim.

    chidemkurdas,

    You argue that egalitarian policies do “horrendous damage . . . to the integrity of the political system.” The centerpiece of egalitarian policy is, of course, the progressive income tax. When egalitarians propose, and lobby for, a more progressive income tax, and business interests, upper income citizens, and the Tea Party lobby to oppose it, do you regard this process as doing “horrendous damage to the integrity of the political system”?

    I don’t deny that many “special interest” policies invite bad politics. That’s why Rousseau, among others, said that laws should be general.

  23. chidemkurdas Says:

    Well, Rousseau may be among those who said that laws should be general, but redistribution policies are necessarily not general. After all, the logic is to take from some & give to others.

  24. liberty Says:

    Greg Hill –

    “Nevertheless, I do think your measure is interesting. If I understand it correctly, you’re saying that the probability of a U.S. citizen now making, say, $15,000/year, earning an additional $5,000/year at some point in the future is greater than the probability of, say, a Swedish citizen now making $15,000/year (in PPP terms) earning $5,000/year more in the future.”

    Yes, that is my point; although I think the difference would be even greater if you used “an additional $10k” or even more so “an additional $30k”.

    As for sources, it is somewhat difficult getting hold of good longitudinal data to prove this, but I think it follows pretty surely from combining the relative mobility data with the absolute income levels of the quintiles used in the relative income data.

    Regular relative mobility studies that do not adjust for age show that there is relative mobility in the US but often the move is, for example, one quintile less in the time period for a certain percentage of those who are mobile.

    So, e.g., lets say: 60% of the population of the bottom quintile moved out of the bottom quintile in Sweden in the period, and of those half moved more than one quintile, the other half just one quintile.

    And lets say that this study shows that in the US only 55% moved out of the (US) bottom quintile, and out of those 45% moved more than one quintile and 55% only moved one quintile.

    Then you have to look at the absolute quintiles: if 60% of the bottom quintile in Sweden moved out of it but only 55% in in the US, does the absolute difference in income magnitude of the quintile threshold explain this? How many dollars would it take to move above the threshold if you both start at $10k? If in Sweden it would only take $4,000 but in the US it would take $10,000 then you might have a better probability of earning an additional $5,000 in the US and still see lower mobility out of the bottom quintile.

    Similarly, if to move up two quintiles in Sweden it takes only $15,000 while in the US it takes $40,000 then a difference of only 5 percentage points between relative mobility in Sweden and relative mobility in the US would indicate that you have a better chance of earning an additional $20,000 in the US than in Sweden.

  25. Greg Hill Says:

    chidemkurdas,

    I think your conception of generality in law needs to be spelled out in more detail. A tax code that applies a tax rate of 15% on income between $40K and $70K, a tax rate of 25% on incomes between $70K and $120K, etc. is a general law.

  26. Greg Hill Says:

    Liberty,

    Thanks for the thoughtful reply. Let me try a different approach, which circumvents the problem of “wider” income quintiles in the U.S., is based on a criterion of income mobility that’s widely used, and has been carefully estimated with actual data.

    The measure of income mobility I have in mind refers to the fraction of income differences between parents that, on average, is observed among their children in adulthood. For example, if the incomes of two sets of parents differ by 100%, and the incomes of their children differ by 60%, then the generational persistence of incomes is 60% because six-tenths of the difference in parental income is passed on to the children.

    Notice that this formulation makes no reference to income quintiles.

    The study linked below finds that, in the U.S., 47% of parental income advantages are passed on to their children. The comparable figures for other countries are: Denmark 15%, Norway 17%, Canada 19%, Sweden 27%, Germany 32%, France 47%, and the United Kingdom 50%.

    http://ideas.repec.org/e/pco98.html (fist working paper)

    Here’s another study that focuses on the correlation between parents’ incomes and their childrens’ incomes and concludes that this correlation is higher in countries with greater income inequality.

    http://people.anu.edu.au/andrew.leigh/pdf/InequalityMobility

  27. Seth Says:

    Frank suggests we try to do something about it.

    I agree. Here are my suggestions:

    1) Tell people like Frank to get over it.
    2) Encourage folks to work hard, take a few risks, develop their marketable skills, spend less than they make and save for the future.
    3) Spend time on problems that actually matter.

  28. Greg Hill Says:

    Seth, et al,

    Reading the posts on this subject suggests that many commenters hold a normative theory that goes something like this: a person’s economic fate should depend on his or her choices. People who work hard, take risks, and save deserve greater incomes than people who don’t.

    But suppose it turns out that effort, risk taking, and saving explain only, say, 25% of the variation in income, whereas the remaining 75% is due to circumstances.

    Question: should government do anything to increase the effect of choice, while reducing the effect of circumstances, in the determination of income?

    If you answer “no,” then you might ask yourself whether you really care about fair equality of opportunity at all.


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