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Fallacies of the Global Crusade against Inequality

By: Javier Garay - @Crittiko - Jan 30, 2014, 9:40 am

EspañolLast week, an Oxfam report came out, focusing on distribution inequalities around the world. Ironically, they presented the report at the World Economic Forum in Davos, Switzerland, where the most powerful leaders and businessmen in the world gather every year.

The report basically states that the 85 richest people on the planet possess wealth equivalent to the total of the poorest 3.5 billion people. But what stands out is the concern for global inequality, something that Nobel Prize winner Joseph Stiglitz referred to as an immoral situation.

During the 1970s, Friedrich Hayek published his book Law, Legislation and Liberty. What he wrote is as valid today as it was when it first came out, because the prevailing debates remain the same, and the Oxfam report is a precise example of what he addressed. In the book’s second volume, Hayek argued in detail against concern for inequality alone, and I believe we should reexamine what he wrote.

It was Thomas Kuhn, and not Karl Popper, who best succeeded at describing how human knowledge evolves. He demonstrated that men do not tend to seek the truth through verification of rational hypotheses; rather, sciences — including social sciences — are based on paradigms, often mistaken, sustained over a long period of time.

In the case of equality, its defense is not only considered politically correct, but also moral and humanitarian. However, a deeper analysis of this view demonstrates a different reality.

Those who demand equality of outcomes must acknowledge that it can be pursued only if a vast state goes ahead and redistributes the available resources on an ongoing basis. This ultimate goal, however, is based on the false assumption that wealth either does not grow or grows independent of who has it. In other words, these equality planners see wealth as the result of a zero sum game: in order for some people to win and get a bigger piece of the pie, other people must lose.

By defending this zero sum game, an individual is not only wrong, he is creating two problems that are impossible to solve. On the one hand, we are faced with incentives. Rich people — criticized as they are — are rich because they perform activities that the market values, at least those earning their wealth in a free market. That is why they keep on doing these activities. Similarly, those who are not rich seek to use their creativity and perform actions that generate value and better their positions.

If people are no longer able to receive the benefits of performing these activities — the fruits of their labor — why would they continue to do them? Where is the incentive to be creative in the market? People concerned with inequality would probably advocate another form of coercion, albeit concealed and doomed to fail, and a range of centrally planned incentives.

The other problem lies in achieving and maintaining the results. If we replace the natural situation with one close to equality, even an all-encompassing state will struggle to keep the same distribution. Each person will choose to exchange, save, or expend his resources in different ways, and in so doing he will undermine the precious equality.

Even if equality advocates do not foresee the downward spiral, they are likely to respond to this predicament with ever more severe levels of intervention: everyone should be forced to spend his money in the same way, on the same things.

This equality might continue to a limited degree, so long individuals can only buy what they need, rather than items that match their diverse interests. But do we all have the same necessities? Of course not. And who determines what is a need? Always, the fallback is the state. A central authority of elite rulers will define it all for us.

Some might contend that true equality flows from equal opportunities and access to limited, basic necessities. We may agree on this being desirable — for all individuals to enjoy health care and education — and that is what most developed countries have today. But even this will not solve the differences arising from how people raise their children or constitute their families, and these differences lead to both diverse opportunities and outcomes.

Again, any attempt to reverse this natural diversity necessitates even more intrusive state intervention in people’s private lives and in parenting. I am not sure that even the equality enthusiasts would appreciate this.

Given this predicament, one wonders whether equality is the true target. Oxfam and similar organizations don’t hesitate to criticize inequality when it arises in capitalist countries, only to keep their mouths shut when they witness inequality in socialist countries. Do we prefer inequality in Venezuela with its bourgeois class? Are we less concerned with inequality stemming from China’s communist party’s power?

As Hayek warned us, to pursue the ideal of material equality requires such a level of state intervention that liberty and justice become the greatest losers. Meanwhile, material inequality will not disappear. How moral and humanitarian is that?

Inequality exists because we are different, and we cannot change that. Upset over this fact stems from the prevalence of superficially appealing ideas that are in fact totalitarian and inconsistent. The notion that a “fair” and equal distribution of resources even exists is part of the paradigm we need to change.

Javier Garay Javier Garay

Javier Garay is a professor at the Externado University of Colombia. He has written two books on international issues, such as development, after his doctoral dissertation focused on the same topic. Follow him on Twitter @crittiko and through his personal blog, Crittiko.