It is taken as read by certain commentators on what is loosely known as the ‘left’ (sorry to use that term for those that hate such crudities) that one of the terrible things about market economies is the inequality of outcomes they spawn. Hence their enthusiasm for steeply progressive tax rates, heavy state spending, positive discrimination in favour of the poor and other preferred groups for things like university admissions, and so on.
A pretty classic demonstration of this mindset appeared in the Guardian newspaper <drums roll!> this week, in a column by Polly Toynbee. Polly is one of the most articulate, if consistently wronghead exponents of the Procrustean view of equality.
For her, equality of wealth is regarded as an utterly self-evident good, of no need of further justification or support. And yet surely what these folk ignore is that their view of the world depends upon us thinking that wealth is essentially fixed. For them, there is no such thing as wealth creation, only redistribution. Their mental apparatus is in this sense seriously defective.
It also misses another fairly obvious point. The wealth held by individuals varies through the life cycle. People typically save more and accumulate more capital into their middle age and then begin to draw down upon it as they reach the age of retirement. That is why claims that X own a shockingly high proportion of nation’s Y’s wealth are so misleading. They crucially fail to see how circumstances vary through time.
You might wonder, gentle reader, why I am getting het up about issues which are blindlingly obvious to Samizdata readers. Well, for one thing, it seems pretty obvious that so-called Conservative politicians no longer feel able to argue the case any more for the market. I also think that with Labour seemingly lurching to the left and with Tony Blair in peril of losing his job, the time may come again when we have to spell out the basics. It is never too early to start.
Spot on regardng Polly’s total lack of reason and infallable logic.
These caffelattesocialists and North London Guardianistas never understand even the basics of economy when they go preaching for more “redistributive” taxes and policies.
High taxation has NEVER worked to make the citizenry wealthy, it only encourages tax evasion and pushes your most productive, innovative and highly educated entrepreuners to seek more rewarding opportunities overseas.
As Xeng Diaoping said “I cannot redistribute wealth, but I can distribute misery equally.”
Lovely Deng quote.
Depressing evidence coming in from psychologists that we may be finetuned by evolution to care most angrily about others having a slightly better time than us.
Ordinary anti-socialist folk seem to care most about welfare scroungers, and likewise ordinary anti-capitalist folk seem to care most about the idle rich. Perceived unfairness hits the hottest button first on both sides.
My feeling is we could start by saying “It’s not your money to redistribute, the state’s power to push citizens around is on loan and is fundamentally limited by all of us, not just some of us” over and over again.
Or cheerily telling our Polly Toynbee friends “Yes, I think the richest should be taxed very heavily – we should start with those earning a hundred pounds a year more than us, don’t you agree?” can work well. Then quickly adding “Or perhaps there should be a real sliding scale, so a slightly different tax band for everyone?” [Hungary tried it in the early 90s, a hilarious failure.]
The one who loses their temper first loses.
Everyone needs to keep repeating two truisms.
1. Whatever you tax, you get less of.
2. Whatever you pay for/subsidize, you get more off.
Taxing the rich to give to the poor means you’ll have less rich and more poor.
For those of you that don’t already understand this, here is why. (In dollars, cause I’m a bloody Yank)
1. Let’s say I could earn $30,000 for working 20 hours a week. (Slightly above the average yearly US income, for half time work). And let’s say the net tax was 25%. But the net tax on $60,000/year was 50%. Work 20 hours a week and take home $22,500 or work 40 hours a week and take home $30,000.
Now factor in the fact that people are lazy, and what do you get? Lower total productivity.
2. Now for welfare. Some people can’t work due to no fault of there own. Let’s say that poverty level is $10,000/year, and so these people are given 10k a year.
Let’s add 1. in to this.
a) Work 40 hours/week and take home $30,000.
b) Work 20 hours/week and take home $22,500.
c) Work 0 hours/week and take home $10,000.
See the problem here? A $60,000 a year person is a valued employee and a productive member of society. But why should they spend all of that time working when they can do a third as good by spending all of their time at home watching TV?
Most people start off in low paying jobs. You combine high taxes with high welfare benefits, and it doesn’t make economic sense to work at an entry level job. Add in the fact that it won’t be possible to get welathy through hard work, and you destroy the incentive to work at all.
One final note. I just read a stat on NRO that says that 31% of Americans think they are going to be rich ($122,000/year, net worth of $1 million) in their life time. How many Brits feel the same way?
I’m pleased you made this post. Just because it’s obvious to us why free enterprise is a good thing does not mean it is obvious to everyone else. Socialism became such an accepted order by the 1970s in Britain that most of its leading proponents had forgotten how to make the case for it by he time it came under serious attack. We must not follow in their footsteps.
If you ever find yourselves in a discussion with a socialist, use Sweden as an example of what socialism actually do. Sweden has (as many of you might know) one of the highest taxes on the face of the earth, still, the standard of schools, hospitals and other institutions payed by taxes is below any reasonable level. Not enough money to buy books or pay teachers, not enough money to have enough staff in hospitals etc. etc. (and the list goes on). And we all ask ourselves where our money is going? No one seems to know…or, let me rephrase; the ones living on social welfare know
Or we could ask “Is equality of opportunity fair?”, and “At what point is it fair?”.
Sympathetically but carefully examine some socialist assumptions and they start to unravel by themselves.
Mark:
Don’t you mean ‘equality of outcome’ for the socialists? It’s us libertarians who argue about equal opportunity. At any rate, I would prefer to use a term like ‘similarity of outcome’ to describe what socialists want. The word ‘equality’ has connotations of being something fair and just, and the forcible sameness that socialists wish to impose on people is neither fair nor just.
Byna:- what annoys people is that it is the poor sods doing 50 hours for $15,000 that allow a company to pay you $30,000 for 40 hours.
On another hobby horse, I tire of hearing how “absenteeism costs the country £98,000,000,000 a day in lost production”.
One never hears how much money is saved by paying low wages.
Fair point, Ted.
I was actually thinking of trying to attack at the strongest point – often a good approach which sometimes wins actual changes of mind.
A crucial topic we have to tackle is being open about the natural desire everyone has to help their children avoid some of the slog they had to go through. Get Toynbeeists to admit that they are personally unwilling to have their own children enter the game with a sporting handicap [such as when strong chess players facing weak players offer to open the game with one less bishop or knight to make things a little more even for a more enjoyable game]. It’s tricky, but it can be done.
Few Toynbeeists are willing to have their own child sportingly start life’s game one knight or one bishop down, and this is the core of the whole free-individual case, isn’t it?
The end goal of any democratic nations economy should be to enrich the populous, that all should enjoy ‘economic freedom’, that is to live their not having to live a poor quality of life, because of lack of wealth.
(Does any body disagree with this?)
Pure socialism and pure free market economies both are not able to meet the above goal. Socialist economies are not able to produce enough wealth to satisfy the populous, while free market economies are prone to concentrating the wealth into small sections of the populous.
IMHO either another economic system will be developed [1] that has more advantages and less failings than the current economic systems [2], or the first world will continue on it’s way and remain with the hybrid systems that are in place today.
1- Hey what do we pay those economists for anyways?
2- Hmm a system run buy really smart ™ AIs do all the work, while we humans live in a hedonistic utopia, hey it worked for The Culture. 🙂
Zack,
The person you describe is an idiot, and they deserve to only earn $15k a year.
Wages are based primarily on three factors:
The maximum wage is based on the total value supplied by the employee.
The minimum wage is based on the amount the employer has to pay to get the position filled. (The ration of positions to willing and able prospective employees).
The actual wage is based on how good that particular employee is at the job, compared to everyone else (minimum < actual < maximum). Some positions contribute a great deal to a company, but there are a lot of people ready, willing and able to fill that position. This leads to a low wage. Some positions have very few people that are ready, willing and able to fill them ("Sanitation Engineer", rocket scientist). These positions get paid closer to the maximum, but never over the maximum. To maximize your personal ecnomics, you never to find a job that you are good at, are willing to do, and has less competition. Bitching about someone else earning more won't get you more money (see chool teachers, day care workers), even if your position is very important. Byna, Likes being good at something, and likes earning good money. But would prefer to build Lego spaceships all day long.
Aren’t Byna’s 3 wage criteria themselves absurdly wrong? The argument is actually quite close to Toynbee-ism in its willingness to ignore social reality in pursuit of an ideal. (In this case approximately a rational equilibrium concept.)
Wages are no more rational than anything else.
There’s no maximum. Plenty of employees are paid vastly more than the value they supply (Marconi directors spring to mind). I once came across someone who managed to pay himself two-and-a-half times his company’s _turnover_, at the bank’s expense.
Minimum wages can be constrained by all sorts of things in addition to the availability of staff freely to labour at a particular price. The minimum wage may not even be above zero, given subsidies from third parties, or a worker willing to pay to learn a skill or obtain some other indirect benefit.
Actual wages are not remotely related to relative merit in the real world, tho’ clearly the minimum actual wage must be greater than or equal to the absolute minimum wage, and the constraint is what you can get people to continue working for, not what it costs to get them to start–and that may may be higher or lower than the wages for someone new.
The sewage worker and rocket scientists are not very helpful to the case. They are both actually great counter-examples to a labour-value theory.
Wages are based primarily on three factors:
The maximum wage is wholly theoretical and based on the total value supplied by the employee.
The minimum wage is based on the amount the employer has to pay to get the position filled. (The ration of positions to willing and able prospective employees).
The actual wage is nothing to do with how good that particular employee is at the job compared to everyone else (minimum = actual < maximum). Working for less than you are worth is not stupidity, it is expedience. You cannot pay everyone what they are worth or the whole economy collapses. You must exploit a large number of people so that a small number can benefit.