I was surprised by this post on Common Sense Concept, a blog published by the American Enterprise Institute. Although the author has written in support of private charity, in this post he argues that fairness in terms of material outcomes is not desirable. He supports this argument with quotations from various Christian texts and concludes by saying, “Let us be content with managing our own affairs”.
I won’t address the religious justification for this position, but I’d like to point out that the author is overlooking several ways in which fairness matters for the free market. First, unfair outcomes such as poverty and economic immobility can be an indication that the market is not working so well as it should. This may be caused by government intervention or incompetence, as when centralized education policies trap poor children in schools that don’t prepare them to enter the workforce. Or it may be a sign of untapped opportunities, like the lack of access to banking services by residents of the central Amazon. Whether the solution is the curtailment of government power or entrepreneurial innovation, we should heed these instances of unfairness so that we can make the market better.
Second, economic conditions change and the people who are privileged today could be needy tomorrow. We’ve all heard stories of people who lost their life savings in the latest recession; even in calmer economic times, giant corporations and once-profitable-looking investments can vanish as technology evolves. The existence of a safety net, possibly based on private charity, could give people the confidence to start new ventures and to take the risks necessary for innovation, knowing that their basic needs will be met if they fail. Charities should also ensure that the poorest people can survive without resorting to theft and crime, which can cripple a market system. The post’s author might counter that we should give charity without regard to fairness, but I don’t see how that’s possible. Do you give charity to the first wealthy person who walks by your door? Of course not. You look for the people who need charity the most–in short, the people in the least fair situations.
Finally, I’d like to remind the author that we don’t have a free market with perfect efficiency. While based on the econ textbooks, one might think that demand for innovations will lead to an increase in the number and quality of innovators, in real life that doesn’t always happen. If the person who could have cured cancer or revolutionized communications was born into unfair circumstances, he might not obtain the necessary human capital investments through no fault of his own. That’s not just a tragedy for him. It makes the rest of us poorer too because we don’t get to benefit from his potential contribution to the economy. So while we shouldn’t count on government to smooth every inequity, we should give serious thought to fairness if we want a successful market.
Filed under: Efficiency, Market Efficiency
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