There has been a lot of talk about inequality lately. If we are going to discuss this subject, we need to define our terms. Equality of result is an extremely controversial subject and is not relevant to the discussion of this post. Equality of opportunity is.
What do we mean by “equality of opportunity?” We mean a fair playing field where people have equal opportunities to do what they want with their lives without interference.
I think a great example is our wonderful 14th amendment to the Constitution, which calls on all states to provide citizens with “equal protection” of the law. This same amendment points out that it is the purpose of government to protect the natural rights of “life, liberty and property.” It is easy to see what this amendment is calling for: people should be able to live in harmony with each other, competing as they may wish in terms of business enterprises, but left alone to pursue their own goals as long as they do not harm others and try to take away their life, liberty and property.
The story of how the 14th amendment was subverted by mostly southern judges in the closing decades of the 19th century is one of judicial activism. The result were the Jim Crow laws, segregation and many other evils of the pre-civil rights era. But note, like most interference with equality of opportunity, it was government that ushered in the evil and protected certain groups at the expense of others. In fact, it is government that is the biggest obstacle to creating a truly free society where people have equal chances to pursue their chosen paths.
Let us begin by illustrating the beauty of the free market system when it is allowed to work.
I own several Ipads. They cost about $500 each. They are a wonderful, liberating technology. I travel a lot, and I never used a webcam to communicate with my family on the road. Just too complicated to take out the laptop and get the software going. With the Ipad, I just click on the “Facetime” app, click on my wife’s information, and connect. There is one camera facing me so the kids can see me and another on the back so they can see the things I am looking at. Sometimes I just wander around the airport with my Ipad showing the kids the airplanes. They are spellbound. There is no doubt that this technology is improving my life.
You can use an Ipad to surf the web, read a book, play your Itunes music and many, many other things. But $500 is pricey for the entry-level Ipad, and there are several others that can cost up to $900 with accessories. That is a lot to pay.
So, Amazon came along with the Kindle Fire ($200). And now Barnes and Noble has the Nook Color ($250). These less expensive devices do many of the same thing as the Ipad, but they cost less than half as much. The free market, tuned as it is to the choices of consumers, will adjust and bring better products at lower prices.
Imagine another world, where the government stepped in and prevented competition and said no Kindles or Nooks could compete against the Ipad because Apple workers might lose their jobs. This is what government often does: it decreases equality of opportunity by interfering with the marketplace. Who loses an opportunity? All of the entrepreneurs who want to create a new product to compete against the Ipad. When the government does not intervene, these people have the freedom to be successful. When the government tries to “control” the economy (and protect certain jobs instead of others), equality of opportunity is lost.
Let’s say you are not the entrepreneurial type yourself. Why should you care? Because all companies have areas that have benefited from the free market. And the money produced by the market pays so students can go to school and so government workers can have jobs. If you work for a bank, somebody at some point took a chance to use his or her own money to start that bank. Same with Starbucks, same with Novell, same with any company out there. Whether you recognize it or not, your employment is a product of the entrepreneurial environment. When it is allowed to thrive, there are more opportunities for everybody.
A lot of you are saying that the government doesn’t intervene that much. Oh, that that were true. The government intervenes in so many ways that it is easier to think of businesses with intervention than businesses that are free. Let me give some examples.
Bailouts. I worked for a company, Worldcom, that went through bankruptcy. Worldcom’s executives made a lot of very poor decisions, and the company began losing money. The stock plummeted. What happened during bankruptcy? A judge appointed a team of executives with the power to reorganize the business. Money-losing units were closed — those that made money were given new capital so they could expand. The majority of Worldcom employees (like me) kept their jobs. Verizon ended up buying the company and keeping its most profitable assets and many of its employees. Should Worldcom have been bailed out? Well, you could make the argument it should have been. It was a huge telecom company employing tens of thousands of people. Wasn’t it “too big to fail?”
A government bailout of Worldcom would have been a disaster. It would have maintained the bad executives who made the bad decisions while wasting taxpayer money on a company with no real future. In short, a bailout of Worldcom would have decreased equality of opportunity by lessening the ability of entrepreneurs to create a profitable enterprise out of the assets of one that was not profitable (or well-run). Verizon has taken these assets and created an excellent product with one of the best telecom networks in the world. A bailout would have simply maintained the status quo of failure.
All bailouts interfere with equality of opportunity. When the government decided to bail out GM, it prevented competing entrepreneurs from creating a better company out of the best GM products. The same with Chrysler, AIG and the many other banks who were bailed out during the TARP process. All of these companies should have been allowed to go into bankruptcy. Their profitable assets would have been bought by other, better-run companies — their money-losing divisions would have been allowed to fail.
Bailouts interfere with equality of opportunity in another way: they take money from productive people (through taxes) and give it to well-connected, unproductive people (those who are being bailed out). This is the exact opposite of the intent of the 14th amendment, where individual property is meant to be protected by law.
Licensing requirements. Some readers may be familiar with the difficult-to-believe case of the Utah woman who is being told she cannot braid hair without undergoing 2,000 hours of cosmetology training, none of which has anything to do with hair braiding. The woman is an African immigrant — she has a willing client base that is willing to pay her to braid their hair. Yet the government stepped in and told her she could not pursue her vocation without 2,000 hours of training — that has nothing to do with her discipline!!
This is an outlier, you say. Oh, really? Every year the government finds new vocations that must be regulated. Alternative medicine is prevented, even when willing customers say they want to try something new. Among the other professions where you must receive a license to practice: cat groomers, tattoo artists, tree-trimmers, and dozens of other very simple occupations.
Such licensing requirements are simply a way for existing businesses to prevent competition. They interfere with your equality of opportunity: you cannot work in such fields without a costly and lengthy licensing process. This prevents willing buyers from purchasing from willing sellers.
Some of you are saying: doesn’t this help prevent fraud? Licensing prevents bad actors in the economy. No, it is the market that prevents bad actors. The government cannot be everywhere at all times, nor do we want to live in a world where it is. Companies that do a bad job providing services, and defraud customers, should be sued and should go out of business. Companies that provide good services, regardless of whether some bureaucrat has decided to give them a license, should thrive.
Subsidies. If you subsidize something, prices will go up. This is Econ 101. More money pursuing the same good causes inflation in the cost of the good. So, when the government decides to subsidize ethanol production, do costs go up or not? Well, in fact we have seen a massive increase in farm prices in the heartland. We have already seen Rameumpton discuss how subsidies are causing the price of university education to skyrocket.
Subsidies always have a price. Government takes money from some people (taxpayers) to give it to other people (the people being subsidized). The government picks winners and losers based on political connections. The is the very definition of interfering with equality of opportunity: those without connections face the double hazard of 1)not being able to succeed without the subsidies and 2)having their money taken away by government and given to others.
In a society that truly offered equality of opportunity, such subsidies would be illegal. Each company or person or farmer would have to survive based on their ability, not their political connections.
We are fortunate in that all but the most egregious totalitarians believe in equality of opportunity. People see this as an issue of basic fairness: people should have the opportunity to do as well as anybody else and not be hindered by bad actors in the economy. Unfortunately, many people don’t realize that the primary source of unfairness is the government itself. The proper role of government is to create a level playing field and to allow people to pursue their own paths without interference. As I have shown above, the government increasingly sees its role as picking winners and losers based on connections. This is the opposite of equality of opportunity.