Yesterday morning a conservative/libertarian friend of mine posted the following quote from F.A. Hayek on his Facebook page. His post got me thinking about the notions of equality and inequality in US society and how some misguided notions about equality may in fact be major contributors to the ever widening income and political gaps of recent years.
In this quote Professor Hayek is clearly playing with the words “equally” and “equal” and suggesting that while it is possible to treat everyone the same way (equally) it is not really possible to actually make then the same (equal). On the surface, this seems like an innocent enough and quite accurate claim. Human beings come in all sizes, shapes, colors, degrees of athletic prowess and levels of intelligence and it is not possible or even desirable to make them all the same by any natural, governmental or miraculous means.
Hayek is not arguing against the possibility of homogenizing the human race. He is rather making a point about economics and saying that the economic system or the market can be arranged to treat everybody equally but that it can not and probably should not seek to equalize the economic outcomes derived by people as they engage the economic system. He is saying that the in the free market, citizens who are treated equally will have different economic outcomes resulting from the choices they make, they effort they expend and simply the luck of the economic draw.
From a political and economic point of view Hayek is arguing that governmental and economic systems can be created that treat people equally but that the outcomes of this equal treatment are likely to vary considerably and that attempts to equalize these outcomes by redistributive or other means will not only fail in the long run but will also remove the economic incentive to create, innovate, manufacture and otherwise take financial risk. Hayek, like Milton Friedman and former Chairman of the Federal Reserve Alan Greenspan, believed that those who benefited unequally from relatively unregulated commerce would be guided by “enlightened self-interest” and checked by “market forces” in such a way that, although a degree of economic inequality would exist in society, that inequality would never grow to a point where it became unhealthy for society as a whole. In fact, this school of economists would argue that some inequality was a kind of requirement for the generation of the capital needed for all to prosper even those who benefited least from these inequities. In short, the rich could get richer and the poor less poor–a net plus for both groups.
Over time the gaps between different economic strata, if Hayek et al are correct, should remain relatively stable or even shrink somewhat. Inequality should not grow. These economists would further argue that as inequality diminishes or remains relatively stable, via the natural mechanisms of market forces and enlightened self-interest, more people, through hard work and perseverance, would be able to move upward from one economic strata to another or at a minimum not take a precipitous slide down the economic ladder.
Following this line of thinking, we are supposed to conclude that although free market capitalism is not a perfect system in the sense of benefiting all equally, it is the best and most efficient alternative available and that attempts to engineer more equitable outcomes by the imposition of government regulations, procedures, tax policies and social programs will only have deleterious affects on both the self-correcting and economically animating forces of that free market.
The line of thinking I have been summarizing is the line of thinking that under-girds the seemingly self-evident quotation from Hayek posted by my friend who is, somewhat wryly, suggesting that there is something foolish and naive about any view that suggests that it is possible for a society to structure itself to achieve greater economic equality without at the same time sentencing itself to an overall economic decline.
However, the data of the last thirty years which corresponds with an easing of governmental regulation on the free market has not produced a diminishment or stabilization of income inequality but rather the opposite. The rich are getting richer and the poor are getting relatively poorer.
A recent survey of Americans’ perception of how wealth is distributed in the US reveals just how off the mark many people’s perception of the situation is.
This trend in disparity should prompt us to question the economic arguments of Hayek, Friedman and Greenspan. The gap between rich and poor is growing and this growth in wealth at the top is not lifting the entire economy. Rather we have only recently recovered from a disastrous recession and are only improving at a modest rate. The free market failed to self-regulate and enlightened self-interest seems not to have shed very much real light on our economic circumstances at all. Rapacious greed seems to have taken over from enlightenment and eaten away at our sense of interdependence and social solidarity. As the economic gaps widen, a kind of every person for themselves attitude overtakes many, political polarization increases and a cynical darkness covers the land.
I would therefore like to co-opt and alter Hayek’s sentiments quoted above:
R&R: reflections and remarks on society and culture 
I really like this article. My only problem is that how can this rather enculturated economic idea be shown for what it is and are we npow so ploarized that nothing can be done? Society does not seem very civil to me at all today!
The market only works well when there is balance. The scales have been tipped so far in favor of the wealthy and corporations over the past 30 years that the economy is very much out of balance. The same thing happened in the 1920s and 30s.
Agreed Michael.