Equal Is Unfair

1. Economic inequality is not inherently unjust; it often reflects differences in ability and effort

If we look at the actual individuals who make up society, it is self-evident that human beings are unequal in almost every respect: in size, strength, intelligence, beauty, frugality, ambition, work ethic, moral character.

Natural differences lead to unequal outcomes. In a free society, these innate differences in ability and choices in effort naturally lead to differences in economic outcomes. Someone with exceptional intelligence, creativity, or work ethic is likely to produce more economic value and accumulate more wealth than average. This inequality is not unfair, but rather reflects the reality of human diversity.

Wealth creation is not zero-sum. A crucial point is that in a market economy, wealth is created, not simply distributed from a fixed pie. When innovators like Steve Jobs or J.K. Rowling become billionaires, they do so by creating products and services that enrich the lives of millions. Their success does not come at the expense of others, but generates prosperity that benefits society broadly.

Forced equality stifles progress. Attempts to enforce economic equality inevitably require violating individual rights and freedoms. This destroys the incentives that drive innovation and wealth creation, ultimately making everyone poorer. A degree of inequality is the natural result of protecting equal rights in a free society.

2. The American Dream is about opportunity, not guaranteed outcomes

If we agree with the opponents of economic inequality about anything, it's that today's status quo is unacceptable. There are genuine barriers to opportunity, and the deck is becoming stacked against us—but not because "the rich" are too rich and the government is doing too little to fight economic inequality.

Equality of opportunity, not outcome. The American Dream has always been about having the freedom to pursue success through one's own efforts, not being guaranteed an equal share of wealth. It promises a fair chance to rise based on merit, not an equal result regardless of choices and abilities.

Barriers to opportunity are the real problem. While some inequality critics portray the American Dream as dead, the authors argue the main threats are government-created barriers that restrict economic freedom and mobility. These include:

• Excessive regulations that stifle entrepreneurship
• Occupational licensing laws that block entry into professions
• Minimum wage laws that price low-skilled workers out of jobs
• A failing public education system that doesn't prepare students for success

Focus on expanding opportunity for all. Rather than trying to tear down the successful or redistribute wealth, we should focus on removing artificial barriers and expanding opportunities, especially for those at the bottom of the economic ladder. This means increasing economic freedom, improving education, and fostering a culture that celebrates achievement.

3. Human progress depends on innovators and wealth creators being free to pursue their vision

The source of human progress is human ability, which means intellectual ability. The greatest contributors to production are not those who supply physical labor but those who contribute ideas—new theories, inventions, tools, businesses, and methods—to the productive process.

Innovation drives prosperity. Throughout history, leaps in human progress and living standards have come from breakthrough innovations - the steam engine, electricity, computers, etc. These innovations required the creative genius of exceptional individuals who had the freedom to pursue their vision.

Creators need economic freedom. To foster innovation, society must protect economic freedoms like property rights, freedom of contract, and the ability to start businesses and accumulate capital. Without these, even brilliant innovators lack the means to bring their ideas to fruition at scale.

Key freedoms that enable innovation:

• Right to profit from and control one's inventions (intellectual property)
• Ability to raise capital and form companies
• Freedom to challenge existing industries/business models
• Limited liability to encourage risk-taking

Celebrate and incentivize achievement. A culture that admires success and protects the freedom to profit from one's ideas will see more innovation and faster progress than one focused on equality of outcomes. We should appreciate how innovators and entrepreneurs drive prosperity for all.

4. Government intervention often harms opportunity and economic mobility

Today it is popular to cite studies that claim that the unemployment effects of the minimum wage are small or even nonexistent (ignoring the vast majority of studies that show the opposite). But these empirical studies not only face the usual problem of examining a complex phenomenon, where cause and effect are elusive, they also run into two other major barriers.

Well-intentioned policies backfire. Many government interventions aimed at helping the poor or middle class end up restricting opportunity and mobility. Some key examples:

• Minimum wage laws price low-skilled workers out of jobs
• Occupational licensing creates barriers to entering professions
• Rent control reduces the supply and quality of housing
• Education regulations stifle innovation and trap kids in failing schools

Regulations protect incumbents. Complex regulations tend to favor large established companies that can afford compliance costs, while making it harder for new innovative competitors to enter markets. This reduces economic dynamism and opportunity.

Welfare programs can create dependence. While social programs aim to help the poor, they can create disincentives to work and become self-reliant. This traps people in poverty rather than providing a temporary safety net.

Focus on removing barriers. Instead of trying to engineer outcomes through intervention, government should focus on protecting rights and removing artificial barriers to opportunity and mobility.

5. The welfare state can undermine self-reliance and trap people in poverty

Anti-poverty programs haven't just failed—they've made things worse.

Perverse incentives. Welfare programs, while well-intentioned, often create perverse incentives that discourage work and self-reliance. Benefits that phase out as income rises can create high effective marginal tax rates, making it financially disadvantageous for recipients to take entry-level jobs or increase their hours.

Culture of dependence. Reliance on government assistance can foster a mindset of helplessness and entitlement, eroding the values of personal responsibility and self-improvement that are crucial for escaping poverty. This can create intergenerational cycles of poverty and dependence.

Crowding out civil society. Government welfare has largely displaced the role of mutual aid societies, charities, and community organizations in helping the poor. These civil society institutions were often more effective at providing personalized help and promoting self-reliance.

Key problems with the welfare state:

• High effective marginal tax rates on the poor
• Erosion of work ethic and personal responsibility
• Breakdown of families and communities
• Fiscal unsustainability as costs grow

6. Many critiques of inequality are based on flawed data and assumptions

Although Piketty's graphs give the appearance of rigorous finality, this disguises the fact that there are enormous challenges in assessing the extent of inequality and how it has evolved over time.

Income data is limited. Much of the alarm over rising inequality is based on income data that doesn't capture the full picture of economic well-being. It often:

• Excludes government transfers and non-cash benefits
• Fails to account for changes in household size and composition
• Doesn't reflect consumption, which has risen for all groups
• Uses flawed inflation adjustments that overstate price increases

Snapshot vs. lifecycle view. Looking at income distribution in a given year ignores the fact that people's incomes typically rise substantially over their lifetimes. Most people who start in lower income quintiles move up over time.

Conflating correlation and causation. Many studies showing correlations between inequality and social problems don't prove that inequality causes those problems. Other factors may be responsible.

Cherry-picking time periods. The baseline years chosen for comparison can dramatically change the picture of how inequality has evolved. Many alarming statistics use carefully selected start and end points.

7. A free market system provides the best conditions for widespread prosperity

Human progress depends on innovators being free to "think different" and challenge the status quo. Regulations are innovation killers because, unlike legitimate laws, which proscribe criminal behavior, regulations proscribe and prescribe productive behavior.

Economic freedom enables innovation. Free markets create the conditions for innovation and economic dynamism:

• Freedom to start businesses and challenge incumbents
• Ability to accumulate capital to fund new ventures
• Price signals that direct resources to valuable uses
• Competition that drives efficiency and improvement

Rising tide lifts all boats. While free markets produce inequality, they also generate broad-based prosperity that improves living standards across society. The innovations of successful entrepreneurs create jobs and new products that benefit everyone.

Comparative advantage. Free trade allows people and regions to specialize in what they do best, increasing overall productivity and wealth creation. This creates opportunities at all skill levels.

Creative destruction. The constant churn of a dynamic economy - with new innovations displacing old industries - creates short-term disruption but drives long-term progress and opportunity.

8. Envy and resentment of success are destructive social forces

Envy is so ugly a motive that we are compelled to keep it hidden, not just from others, but from ourselves. It has to be justified, or more accurately, rationalized.

The politics of envy. Much of the rhetoric around inequality stems not from genuine concern for the poor, but from envy and resentment of the successful. This manifests as a desire to tear down high achievers rather than lift others up.

Rationalizing envy. People often disguise their envy with seemingly noble concerns about fairness or social justice. But the underlying motive is a destructive desire to punish success.

Cultural corrosion. A society that resents and attacks success will see less of it. When achievement is demonized rather than celebrated, it reduces the incentives for innovation and wealth creation that drive progress.

Dangers of envious attitudes:

• Demotivates high achievers and wealth creators
• Creates social discord and class resentment
• Leads to destructive policies that harm the economy
• Shifts focus from creating value to fighting over existing wealth

9. True justice means respecting individual rights, not enforcing economic equality

To respect human dignity means to treat them as individuals—as people who have the right to exist for their own sake, not as servants of the group, forced to justify their existence by the service they render to other people.

Rights-based justice. True justice means protecting individual rights - life, liberty, property - not enforcing any particular economic outcome. People have a right to keep what they earn through voluntary exchange.

Earned vs unearned wealth. We should distinguish between wealth acquired through productive achievement and wealth gained through government favoritism or force. The former is just, the latter is not.

Positive rights vs negative rights. Claiming a "right" to economic goods produced by others essentially claims ownership over those people's labor. This violates true rights, which are freedoms from interference, not entitlements to what others produce.

Voluntary charity vs forced redistribution. While voluntary charity is virtuous, forced redistribution violates rights and destroys the conditions that create prosperity. Justice requires protecting rights, not equal distribution.

10. Celebrating achievement and protecting economic freedom are key to reviving opportunity

Creating a culture that is hospitable toward success is not something that happens easily or automatically. It requires us to do the opposite of what was done to Rearden and celebrate success.

Admire achievement. Foster a culture that admires and celebrates success and achievement rather than resenting it. This inspires others to strive for excellence and creates role models.

Protect economic liberty. Safeguard core economic freedoms that enable opportunity:

• Property rights
• Freedom of contract
• Sound money
• Limited government

Education for success. Reform education to cultivate the knowledge, skills, and mindset needed for achievement in a dynamic economy. Focus on developing human capital.

Meritocracy, not privilege. Remove government-granted privileges and level the playing field so success is earned through merit, not connections.

Entrepreneurial spirit. Encourage risk-taking, innovation, and wealth creation as engines of progress that benefit all of society.

By embracing these principles, we can revive the American Dream of opportunity and upward mobility for all.

Last updated: August 11, 2024