As a parent of six and now a grandfather of two, I am impressed at how early an age children come up with the complaint, “That’s not fair!” “That’s not fair; she gets a bigger piece than I got.” “That’s not fair; he gets to stay up later than I do.” “That’s not fair; they don’t have to do as much as I do.”
The concept of social justice, if not instinctive, is learned at nearly the same time that the very words used to express the notions are able to be uttered. Typically, the word “fair” is associated with the idea of “equal.” Within a family, thoughtful parents attempt to be fair. But soon enough, children encounter an economy in which “fair” and “equal” begin to diverge.
Within modern economies, markets are the dominant force which propel progress on the one hand and develop disparity on the other. Because of their tendency toward efficiency, economists usually favor market solutions to solve problems.
For example, science informs that we spout too much carbon dioxide into the atmosphere. What do economists propose? Sell permits to polluters. Auction the right to pollute to the highest bidders. Let those corporations, which are willing to pay the most money, give off the greenhouse gases.
Even in their homes, economists look for the market solution. Not long ago, as my wife and I were putting together wills, she raised the question of what to do with our sentimental knick-knacks. I suggested that we let the kids bid for them in an auction after we die. As an economist, this seemed perfectly logical. Yet my wife proclaimed that I must be several French fries short of a Happy Meal to make such a flea-brained proposal. Go figure!
Interestingly, modern societies side with my wife in taking a number of things out of the marketplace and giving them away to everyone in equal allotments. We call them “rights.” Societies have progressed to the point of offering many rights and privileges on an equal basis to every individual member.
Rights include the freedom to vote, speak, exercise religion, obtain justice, marry, procreate, emigrate, and receive services such as police protection, roadways, national defense, health care (in most countries, except the U.S.), unemployment benefits, and public education.
Rights have several key differences from goods and services traded in the marketplace. First, they are received without an individual usage charge. If free speech were to come with a price at each and every use, I wonder how much drivel could be eliminated from Facebook and the nightly news. Those with more to say might negotiate with others to buy them out of their right to free speech. But this transaction is banned.
Second, rights are not handed out according to comparative advantage, i.e., who can make the most out of it, as are resources in the marketplace. Some economists have suggested that voting rights be given according to one’s education and ability to make smart choices. But we reject this in favor of equality to all.
Third, once given, rights can neither be bought nor sold. I cannot legally sell my right to marry to someone who might desire two wives. Neither can I sell myself nor my children into slavery. Some folks will not vote in the upcoming presidential election. Might it be economically efficient to allow those who will not vote to sell their voting right to someone with the desire to buy additional votes? In this respect, we give up some degree of economic efficiency and freedom in favor of equality.
Why does a society, especially the American society, which honors the free market, set up rights which trample on the workings of a market? Arthur Okun, the great 20th century macroeconomist offered three broad justifications for rights in his classic book, “Equality and Efficiency: The Big Tradeoff.” He labeled these justifications libertarian, pluralistic, and humanistic. In short, rights protect us from the government, protect us from markets, and exemplify our view of the dignity and worth of each human being.
Economists often refer to libertarians as “market liberals.” Market liberals generally voice the virtues of markets over government. They lobby for minimal government and maximal markets. Ironically, government is central to the workings of a market (as we will examine in more detail next week). Governments also uphold rights, many of which are designed with the market-liberal view in mind. Rights such as freedom of speech, religion, and universal suffrage protect individuals from intrusive government abuse. When these disappear, government abuse rises.
Yet governments are not the only source of abuse. Markets themselves can be just as abusive. History upholds the reality that free markets exhibit a strong tendency toward monopoly. When left to their own devices, markets gravitate toward extremes in which a few savvy and powerful individuals hold most of the cards. Rights can therefore be seen as a way to protect citizens from the abuse of the market.
Quoting Okun, “Everyone but an economist knows why money shouldn’t buy some things. But an economist has to ask that question.” Each traded good has its value relative to other traded goods. But some things have a value far above that of money (at least that’s what I’ve been told). Money buys a microwave oven or a six-pack of beer. If votes can be traded for money, then the right to vote has no more value than a microwave or a six-pack.
A final explanation for rights points to the notion of human dignity. The mere fact that rights are distributed in equal shares highlights the value of the individual. Why are all people considered equal under the law? Because any other scheme would fail to acknowledge the inherent worth of each individual. We owe a mutual respect to each person as a moral being. Rights quietly yet powerfully teach this principle of mutual respect.
Some societies, including Canada, Australia, and the Scandinavian nations have chosen to include a wide variety of services as “rights.” For example, Finland offers free education through the doctorate level to all people of any nation. Such services, which are distributed equally, send a persuasive pronouncement of individual worth and human dignity.
I have found it interesting that the United Nation’s World Happiness Report includes Canada, Switzerland, Australia, and the Scandinavian nations in the top 10 happiest countries. The U.S. scores 13th in the 2016 update. The same nations also score at the top of the chart in the World Economic Forum’s “competitive rankings.”
Next week, we will examine how the government is inextricably intertwined with the market. In the meantime, I need to get back to my cold-blooded buying and selling of financial pieces of paper.
(Marcus Hutchins is a former economist, treasury-bond arbitrage trader, and hedge fund manager. He retired to Southport in 1997, where he resides with his wife, Andrea, and youngest daughter, Abbey. He welcomes feedback at coastaleconomist@me.com.)
