Nonoy Oplas
The author is the head of Minimal Government Thinkers Inc in the Philippines.
Inequality is good because it respects and rewards hard work, efficiency and ambition. The self-driven, the self-reliant and highly ambitious among us will ultimately rise to the top because they are never complacent. They are always moving, constantly innovating and improving on old ways and technologies.
On the other side of the fence, there are people who have little or zero ambition in life. To drink and party everyday, to rely on some outside support – from parents, siblings, friends, government welfare, and so on – for their continued existence, these are their simple joys and complacency.
Between the two, and many others in the middle, inequality is sure to happen in the short term, and such inequality will widen over the long term.
Friedrich Hayek, the famous Austrian economist-philosopher, wrote in Chapter 3 of his book, The Constitution of Liberty (1960),
The highly ambitious, the highly innovative and inventive among us, are the key risk-takers in society. They are the ones who first invented the cellular phones, the computers, the flat tv, the new rice and corn variety, the new disease-killer drugs and vaccines. We see only the more successful products, and that is where envious eyes and minds are watching. We do not see the unsuccessful products made by other inventors which failed to show up in the shops, malls and supermarkets.
All those government welfare and entitlement programs that are meant to reduce inequality and improve equality among the people are mostly unproductive, some are even counter-productive and destructive. When being poor is rewarded with lots of welfare programs like education for the poor, healthcare for the poor, housing for the poor, credit for the poor, agrarian reform for the poor, cash transfer for the poor, and probably soon, condoms and ligation for the poor, and such programs have no timetables, then there are incentives to remain poor.
Here is Hayek’s additional position on the matter:
The implication of this is that government policies of institutionalizing forced equality, of confiscating a big portion of the incomes of the rich and self-driven people so that government will have lots of money to redistribute to others is dangerous. The mistake rests not only in penalizing hard work, performance and being ambitious, but also in rewarding people who are in the “confiscate here, subsidize there” programs.
When the poor and initially less ambitious see that there are less entitlements coming, when there are less taxes, regulations and bureaucracies if they become hard-working and entrepreneurial too, then they will become more self-driven and independent, less dependent on politicians and the state. And society can progress even faster.
Continued programs and policies that reallocate people’s talent away from more innovation towards more forced income redistribution, is among the scourge of modern human civilization.
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Photo courtesy of Wikimedia Commons.
强势插入前三!
More Chicago boy’s economic’s 101 poison, the cult of Milton is fast gaining track in Asia….
If the author’s polemic holds true, then the elites of society should let their children fend for themselves in the third world, is this not the best way to learn??
And I quote from this author
“The self-driven, the self-reliant and highly ambitious among us will ultimately rise to the top because they are never complacent. They are always moving, constantly innovating and improving on old ways and technologies.”
“Continued programs and policies that reallocate people’s talent away from more innovation towards more forced income redistribution, is among the scourge of modern human civilization.”
Showing Compassion to our fellow men “are incentives to remain poor” really?
Please read
Milton Friedman and the Social Responsibility of Business
Look what pure capitalism and minimal Gov did to Chile and Argentina in the 70/80s?
This is Darwinian economics nightmare come to life
http://www.thedailybanter.com/tdb/latin-america/
And the naughty title “Why inequality is good”
Try telling it to the 3 billion human beings without clean water!
without capitalism, we might still be part that of 3 billion
Thanks NAR, for publishing my article with a “naughty” title.
To Excuse me??, the elites of society, the middle class of society, work hard to give their kids a good future. They don’t over-drink, over-smoke, over-fight, have horrible life and leave their kids to fend for themselves. The desire to give their kids a good future is an incentive for them to excel, to work long hours, to be efficient.
Meanwhile, look at N. Korea, Myanmar, Zimbabwe, Congo, etc. They want to have an equal society, they got it. People are equal, equally poor, except the top officials of the Communist Party and the dictatorial governments.
Respectfully, Mr Oplas, I have to point out cetain lacunas in your essay.
However I question your definition of equality in this essay.
The common citizens in Communist and dictatorial governments are probably as you claim, “equally poor”. However they are certainly not politically equal to their “masters”. The inequality is thus a result of political structure coupled with entrenched corruption within the economy.
Furthermore, your analogy of a Communist country as an equal but failed society falls far from the argument for inequality. Infact Ludwig Von Mises term the issue as a “calculation problem”. The problem with Communism’s planned economy does not lie in the advocation of equality, but the ineptness of central planners to rationally allocate resources when compared to the price mechanism.
In your essay, you claim that a welfare state promotes a more equal society but leads to sloth among its dependents. However you use a dictatorial government as an example in your comment. It is a general fact that dictatorial countries does not have a coherent welfare system- it is a cause of the poverty you mentioned earlier among citizens. Here is the point where logic contradicts: if dictatorial governments does not advocate welfare for its citizens, wouldn’t the society be better off as your essay argues? Why are many there so many poor counries with dictatotrial rule then? In a word of fairness, it could be because they implemented a central planning system along side a lack of welfare. But suely the lack of welfare will have spurred its citizens to work and produce more illustriously- as your logic claims – leading to a much higher overall level of GDP?
Although Austrian and Chicago schools tirelessly advocate the free market, they forget one simple fact: free markets never exist in reality. That is why externalities and free rider problems are taught in basic economics. They act as warnings and safeguards against the seduction and captivity to beautiful and attractive theories. I am not against the free market. In fact the Austrian and Chicago ideas are good models to start with in building our understanding of how real life economics works. However when economists stop refining the models to match reality, it becomes as dangerous as it is intellectually dishonest.
If we include human capital as one of the primary foundations for economic growth, the model changes dramatically. Suddenly it makes sense to invest in human capital (from the bottom to the top)- one of the tools utilized may include welfare provisiuon (the amount and specifics are moot). When we question the assumption the decision making mechanism as “individuals choosing between the utility of leisure versus income (from work) along an indifference curve”, we open our models to new revelations that neuroeconomics and behavioral economics can tell us.
Apologies for the typo error above. The main point is this: all economics does is to extract an abstract of reality. It is not reality itself.
We need to rethink what encompasses a “market” and model it after reality rather than to defend and propogate models as the defining solution to our economic conundrums. We need to an economics grounded in reality.
Before lambasting welfare using abstract theorem, we need to sort out a fundamental question: Are the poor really as slothful as alleged?
More enquiry needs to be taken on this matter.
To libertarians, inequality is irrelevant while it is considered a bad thing among liberals.
Please don’t be confused.
The author describes ONE cause of inequality, which has ONE effect among MANY OTHERS, of a CERTAIN KIND, and the effect “encourages” inequality. That one effect also provides incentives for production and innovation.
There are many other causes of inequality. An example which does not promote production and innovation is mentioned above, North Korea. Another one would be corruption in the government. Yet another one would be high salary for intelligent people in a slow, bureaucratic but profitable organization that rejects change and innovation.
There are many other effects of inequality, like social unrest and poverty.
There are many other factors that impact productivity and innovation.
Thanks Alex Ang. My comments will be long, so I will divide them into 2 parts. Let me enumerate again my arguments “Why inequality is good”. Consider this as part 1.
1. Because it respects and rewards hard work, efficiency and ambition.
2. There are people who have little or zero ambition in life. To drink and party everyday, to rely on some outside support for their continued existence are their joys and complacency.
3. Between the two, inequality is sure to happen in the short term, and such inequality will widen over the long term.
4. “The rapid economic advance that we have come to expect seems in a large measure to be the result of this inequality and to be impossible without it.”
5. Government welfare and entitlement programs that are meant to reduce inequality and improve equality among the people are mostly unproductive.
6. “All obstacles to the rise of some are, in the long run, obstacles to the rise of all… To prevent progress at the top would soon prevent it all the way down.”
7. Government policies of institutionalizing forced equality penalizes hard work, performance and being ambitious.
8. When the poor and initially less ambitious see that there are less entitlements coming, they will become more self-driven and independent, and society can progress faster.
In the comments section above, I added the following arguments:
9. The elites and middle class of society work hard to give their kids a good future. They excel, work long hours, are efficient, and this results in more inequality.
10. N. Korea, Myanmar, Zimbabwe, Congo, etc., governments there want to have an equal society. People are equal, equally poor. The pursuit of forced equality created unintended, totally opposite results.
And here is Part 2.
To Alex Ang points:
1. “The problem with Communism’s planned economy does not lie in the advocation of equality, but the ineptness of central planners to rationally allocate resources.”
2. “if dictatorial governments does not advocate welfare for its citizens, wouldn’t the society be better off as your essay argues?”
3. “so many poor countries with dictatorial rule … because they implemented a central planning system along side a lack of welfare. But surely the lack of welfare will have spurred its citizens to work and produce more…”
4. “free markets never exist in reality. That is why externalities and free rider problems are taught in basic economics.”
5. “Are the poor really as slothful as alleged? More enquiry needs to be taken on this matter.”
My rejoinder to his above comments:
On #1. Check again ALL communist revolutions, both successful, failed and on-going. They are ALL advocating social equality , (1) like land redistribution — confiscate the land of the rich landlords, give to the poor landless farmers. Like social or collective or communal ownership of the means of production – expropriate ownership of the rich of manufacturing plants, power plants, banks, etc., and give ownership to the workers, the farmers, the urban poor, the upland dwellers, etc.
On #2, ALL dictatorial governments advocate welfare for its citizens, at least in words and promises. The Philippines for instance, has its experience of dictatorship under the Marcos government (1965 to 1985). Within those 20 years in power, Marcos programs include (a) land reform or forced land redistribution, (b) monopolization of sugar trading, coconut trading, etc. to protect workers in the sugar and coconut industries, (c) created many new bureaucracies to provide more market regulations, more welfare to the poor, and (d) declared Martial Law, imprisoning and killing many political dissenters who criticize his programs.
On #3, The purpose of having central planning is to have central ownership by the state, central taxation by the state, central welfare and subsidy programs by the state. So ALL dictatorial and central planning governments have welfare for the poor as their main reason or alibi. The poor who usually improve their lives are those who did not depend on state welfare, but those who become micro-entrepreneurs and capitalists. Those who work in the “informal or underground” economy.
On #4, Free markets exist. ALL markets are composed of individuals – buyers and sellers, producers and consumers, rich and poor, young and old, male and female. Someone looking for a haircut for only US$1, a barber shop provides the service at such price, a market equilibrium is created where demand meets supply. Facebook, google, youtube, yahoo, etc., they all exist and thrive because people demand social networking sites, search engines, for free. They provide the services at a price demanded by the people – zero cost – and the market for social networking and search engines is created.
On #5, I did NOT say, explicitly or implicitly, in my article above that the poor are slothful. On the contrary, I did say that the lazy, the complacent and irresponsible become poor. But the poor who “become hard-working and entrepreneurial, they will become more self-driven and independent, less dependent on politicians and the state. And society can progress even faster.”
Thanks for clarifying. I learnt some new things along the way
The examples above weighs strongly that allowing inequality is perhaps one of the most enlightened measure that can be taken by a government.
When I mentioned that our markets are not “free”, I mean that the notion of perfect competition is a fantasy. Therefore the equilibrium outcome of markets may not necessarily be the most efficient outcome for society. This is especially acute in scenarios where negative externalities and imperfect information distorts the pricing mechanism.
It is true that certain measures such as monopolization and land redistribution may violate economic efficiency and the consequently, the nation’s economic progress. However, it may be too hasty to dismiss other policies as detrimental to the economy. I believe economic policies are always uniquely embedded in its local context, though I do not deny that general patterns and principles may be derived from various case studies.
It has been increasingly recognized that other than the availability of physical and financial capital, an entrepreneur may succeed due to other “unorthodox” factors such as social capital and institutional capital. Although the exact dynamics of how these capital interact together are not certain yet, they are not easily built up via a simple redistribution of monetary wealth. New policies, which may still require funding but with new focus on the social and institutional aspects, are needed to tackle inequality. Addressing inequality may increase social & institutional capital – the benefits accrued from the improvement may then outweigh the cost of redistribution. This is an arena worth exploring.
Furthermore, inequality carries effects that are not measurable by economic indicators. It is said that capitalistic societies tend towards inequality- and this inequality leads to class dominance. I am not a Marxist, but I recognize that economic relations are interlaced with power. I stand by the caveat that governments should not foolishly assume that they are able to replace market forces to produce the best outcome for their economy but I disagree that left to markets, civil society can reach its fullest sense of compassion and dignity.
After all, free market has self-interest as its central tenet. Self interest motivates profits and economic growth, but it neither compensates nor rage against the vicious cycle poverty perpetuates. Free markets allow goods and services for those who are able and willing to pay, but leaves out those who are not able to afford it. One hypothetical scenario is that the economy may grow, but it is built upon the sufferings of a proportion of the population. Left fully to markets, health and human dignity are measured in monetary terms. I am not saying that we ought to patronize the poor. I am not stereotyping the poor as permanently in need of handouts. I am however highlighting the fact that for some among them, they could sure use some help.
An interesting note: neo-classical economics expound value in terms of scarcity and desirability of the good/service. However the value and desirability of a good/service is largely a subjective perception. The numbers of a GDP for the goods and services produced in the economy is an agglomeration of various subjective perspectives of agents in the economy itself. This is problematic: How much is human dignity worth in the light of GDP figures? Can we do a cost-benefit analysis of the opportunity cost between promoting a person’s dignity and the potential economic growth forfeited?
Let me comment on these 4 points, in quotations:
1. “The notion of perfect competition is a fantasy. Therefore the equilibrium outcome of markets may not necessarily be the most efficient outcome for society.”
2. “Addressing inequality may increase social & institutional capital – the benefits accrued from the improvement may then outweigh the cost of redistribution.”
3. “Capitalistic societies tend towards inequality- and this inequality leads to class dominance… I disagree that left to markets, civil society can reach its fullest sense of compassion and dignity.”
4. “Free markets allow goods and services for those who are able and willing to pay, but leaves out those who are not able to afford it.”
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On #1. In most cases, perfect competition does not exist, but in a few cases, it does. For perfect competition to occur, ALL these four factors should be present at the same time: (a) homogeneous product, (b) many sellers of a particular product, (c) many buyers of that product, and (d) perfect information.
Take tomatoes. The small, rounded, red cherry tomatoes are different from small, not rounded (maybe flattened, oblong, etc.) tomatoes, are different from medium-size rounded tomatoes, are different from medium-size, not rounded green tomatoes, are different from large-size rounded tomatoes, are different from large, seedless tomatoes, are different from large, few seeds tomatoes, and so on.
Here, there are heterogeneous products among tomatoes alone. If we talk of perfect competition, then comparison should only be on homogenous, similar or same product in terms of quality and characteristics. Once you introduce a different product, say a different type of tomato, then one factor of perfect competition – the homogenous product criteria – is immediately violated.
Thus, the real world is characterized more by monopolistic competition, not perfect competition, because it is very easy to create a mini-monopoly in each sector and sub-sector. The different qualities and characteristics of tomatoes mentioned above would constitute a mini-monopoly in the production and trading of tomatoes.
A few products would qualify under perfect competition, like petroleum products. Whether the gasoline is sold by a Shell gas station or Chevron or Total or Petron or PTT or any other gas stations, we assume that it is of same quality. A really homogenous product. There are many gas station sellers, there are many motorists, and the prices by different gas stations are generally the same, there is perfect information.
On #2, forcing equality may increase social capital, or it may increase social deadweight loss. When you redistribute income and assets by force and coercion, you are confiscating money and resources from the efficient and hard working people, give to (a) government bureaucracy that legislates and administers the income confiscation and redistribution, and (b) the poor who become poor because of natural causes (their house, car, farm or shop or factory were wiped out by flash flood or tsunami or volcanic eruption or huge fire, etc.) or because of personal irresponsibility (over-drinking, over-smoking, over-eating, got various diseases that dissipated personal and household savings).
Since most forced equality welfare programs do not care the cause of poverty, some personal irresponsibility can be augmented and worsened by social and government irresponsibility. And overall social deadweight loss is expanded.
On #3, “Class” categorization in modern capitalism has become murky and vague. The traditional capitalist class (“bourgeoisie”) vs. working class (“proletariat”) no longer applies strictly. The richest men in the planet do not own the biggest manufacturing plants or power plants or own tens of millions of hectares of land. Rather, they are software producers and sellers, real estate developers, mall developers. The income plus perks of top ranking UN, WB and IMF bureaucrats are much higher than the income of many medium-size, even big-size companies that are grappling with fierce competition from other companies. These international bureaucrats are neither capitalist nor workers in the traditional definition and class delineation.
If we distrust civil society – civic clubs, business clubs and professional associations, industry associations, sports clubs, church organizations, private and corporate foundations, villages association, etc. – to give “compassion and dignity” to the poor, why do we trust government bureaucrats, politicians and UN bureaucrats to do that job? Are the latter group composed of different molecules, different heart rates and IQ, than the rest of humanity?
On #4, as I argued earlier, free markets means free individuals as ALL markets are composed of individuals. Market segmentation ensures that there is a market for everyone, from the richest to the poorest. The very rich may aspire for a $1,000 meal while the very poor may aspire for a $1 or $0.50 meal. It does not mean that the latter food is poisonous and have zero nutrition while the former is super-nutritious that it is capable of prolonging the life of the person up to 150 years or more.
When people know their place under the Sun, they will realize that they need to work more, than envy more and lobby more for government welfare. A person having an average take-home pay of $200 a month should not aspire a lifestyle of $300 a month or more, then demand that government should subsidize him so that he can live a bubble lifestyle that he wants.
Do not discount the capability of individuals, rich and middle class alike, for voluntary charity, to help the less privilege people. Especially if such people are showing deep desire to improve their lives on their own.