economic theory

All the justified fuss over inequality in recent months begs a rather significant question doesn’t it? If we are all so vexed over inequality we must have some yardstick or some more ideal state we could call equality. What is it?

The problem I have is that equality almost immediately disappears into a fog.

There are very few of us who would argue for the blandness of total equality. That seems to be as inhuman as extreme inequality. After all we are all very different and thus there is an inherent tendency towards lumpiness in society. Some people will always outperform others whilst some will underperform. Some will be richer and others poorer. This much is so simple we can move on quickly. After all we don’t want to fall into the trap that has ensnared orthodox economists: they cannot do their work without expunging humanity from their equations. Else all that lumpiness gets in the way of the smooth operation of maximization, efficiency, and rationality. So they sweep it away peremptorily by making absurd assumptions and then pretend to have discovered something of extreme value about humanity. Ridiculous, I know, but they plod on stupidly despite it.

So what is equality in the context of our discussion of inequality?

Let’s go back to the beginning.

Sometime after the Enlightenment set us free from the dead hand of religious certainty, we suddenly had the license to roam about the real world and enquire about the human condition. Somewhere along the way that led to questions about the state of the political and social structures within which we conducted our daily lives. From there is was quick work to get to an understanding of alternatives to the authoritarian institutions imposed by kings and bishops. The concept of freedom was dusted off from its ancient roots.

And, at least in those early stages freedom was inextricably linked with equality.

Equality as in we are all equals.

Equality as in we are all independent.

Equality as in we are all citizens.

Alike, free, and responsible.

This is the “equaliberty” of Etienne Balibar, as expanded upon by Pierre Rosanvallon in his recent book “The Society of Equals”.

If we sit back and ponder that triad of concepts, from our modern vantage point, we see immediately that they are riven through with potential contradiction. How can we all be free and alike? Doesn’t the impulse to protect our freedom conflict with our desire to express citizenry through collective action? And so on.

In the first flush of liberal expression, especially back in those heady decades at the end of the 1700’s, no one gave too much thought to these issues. Equality was a catchall word that wrapped up all sorts of longed for freedoms. Of course we were all equal and citizens and free. All at once. It was the contrast with the prior oppressive regime of monarchy and church that captivated everyone. Liberty mattered more than the details of what that actually meant and how we would have to balance freedom and citizenry. Or how our being alike was to be balanced with the freedom to vector off on our own unhindered by worrying about being held back by our fellow citizens.

So equality was born under a cloud of paradox.

And we ought remember that many of the modern concepts we associate with freedom and equality we scoffed at by even the most liberal of thinkers back in that era. Gender equality? Racial equality? Democracy? None were seriously discussed. If they were it was to be dismissed as dangerous or unjustified. To be equal was a moral question not a political question, so it was quite possible to advocate equality and yet tolerate what we now would see as gross inequality.

It was in the long subsequent struggle to define and reach for those additional freedoms that the original view of equality began to splinter into its contradictory components. Great fissures opened up between what we view as freedom – especially the freedom to own and dispose of property, and what we view as citizenry – especially in its modern democratic and redistributive form.

The latter implies a legitimacy in the seizure of private property – taxation – in order to redistribute.

This is the root of the conflict between capitalism and democracy that now plays out as the rise in income and wealth inequality. Both sides have rich and long intellectual histories. Both sides are rooted in those heady days when equality was allowed to be a fuzzy, breezy, and imprecise morally laden slogan rather than a concept well thought through and politically implemented.

If anything the modern libertarian view – which festers on in orthodox economics – is the longer tradition. After all the early pioneers of liberalism were landowners and aristocrats seeking to throw off a monarchical authority. Their idea of equality was not very deep. It certainly didn’t include women or minorities. It didn’t even include the majority of men. Libertarian freedom, then, is not at all about equality. Indeed it has inherited and thoroughly absorbed those early liberal’s scorn of community. A cursory read of modern economics or of biographies of people steeped in the libertarian tradition explains why it is so difficult to deal with inequality. Libertarians exult in it. They regard inequality, no matter how extreme, as a badge of honor. It is a ‘natural’ outcome. It is to be applauded because it means the ‘natural system’ is working. Attempts to redistribute are doomed to fail because they are going against that natural system. And it is that system we rely upon to drive our social welfare to the heights we now expect and experience. So mucking about with it is to make it less ‘efficient’. And in the world of libertarian thought, efficiency is all. Because freedom, that is unhindered individualism conditioned only by the most minimal of laws, will always, in the libertarian view, produce the most efficient result.

It is a concept of fairness rooted deeply in a rugged acceptance of the inequalities inherent in human nature and in they wider world at large. It is a concept of fairness that to many of us seems deeply unfair.

It is also frail.

It falls apart when it comes into contact with those exact human qualities we call human nature. In particular it flounders when exposed to our desire to protect any advantage we have and to prolong our dominance artificially. Libertarians, especially economists, love to admire competition, but few willingly enjoy its consequences. The number of tenured economists attests to their rejection of competition even as they protest its value as the force behind the inexorable march towards efficiency. Competition amongst workers to lower wages is good. Competition amongst economists for work is bad.

Libertarians overlook the full gamut of human activities. Our proclivity to cheat. Our desire to cooperate. Our willingness to set aside our own goals for some greater good. The list goes on.

In the subsequent exploration of equality, and in view of the later consequences of industrial freedoms accorded capital and land owners, democracy emerged in its modern form to mitigate and shape those consequences to the advantage of a wider audience. The masses forced their way into the discussion.

The horror and recoil expressed by libertarians at this turn of events, as equality was extended and re-shaped to include more than just those with privileges, lingers on within orthodox economics. Alan Greenspan sums it all up nicely in this quote from his recent book “The Map and The Territory”:

“Most commentators take it as self-evident that taxing the wealthy at a higher rate than lower income groups is ‘fairer’. But that implies that somehow upper income taxpayers have not ‘earned’ their income, a view that rests on the belief that in a division of labor society, all income is produced jointly. The alternative view is that even though output is produced collectively in a free, competing market, each individual’s income reflects that person’s marginal contribution to total output.”

This is the libertarian view writ large. It rests on all sorts of specious assumptions and technical dodges. Things like marginal productivity theory, for instance, which happily ignores any institutional or cultural constraints and simply assumes that merit is the only ingredient in an individual’s ability to contribute. How convenient. How extraordinarily simple minded. It makes mathematics easy – the models can work. It overlooks practically everything we experience as we grow and then join the workforce.

Greenspan goes on:

“We can choose to buffer the competition’s ‘losers’ from the extremes of suffering and want … but there is always a trade-off between productivity and such buffering.”

And:

“Capitalism’s inequality of wealth, of course, reflects the variations of economic talent among our populations.”

Of course.

Not at all of course.

Who benefits from all that productivity that buffering against the extremes of competition somehow diminishes? Certainly not those who are suffering. Certainly not those who, through no act of their own, lack the necessary basis from which to compete.

The disadvantaged are not self-disadvantaged. They are not lacking in energy or incentive. They simply, most often, start from further back. They are not lacking in merit, it’s just that their merit is insufficient to offset their place lower down the starting list.

Conversely, and quite contrary to Greenspan’s assertion, many of our society’s winners only win because they began the race at the front.

How then can the marginal productivity model stand up? How does it measure the inequality that hampers and prevents so many from excelling?

Arguments based upon a bedrock of merit need to acknowledge that there are a multitude of factors that inhibit its flourishing. Pompous assertions such as Greenspan’s demonstrate just how far removed we are from being a society based on merit. For if it were we would not being having this discussion. The self-evidence that Greenspan and his fellow libertarians so glibly presume must be challenged.

All that other stuff that gets in the way of markets being efficient affects the equality of opportunity.

Which is why we need to understand equality in order to tackle inequality. The libertarians and orthodox economists don’t care. They love inequality. Poverty is justified by the lack of contribution by the poor. The poor deserve to be poor.

How horrid.

But we do care. And poverty is often undeserved.

Somewhere in the word ‘equality’ there resides hope for the poor. It is our responsibility to bring it to the fore. Despite orthodox economics and its libertarian fans.