Government Enforced Inequality

By James Hanley

Note: This post is part of our League Symposium on inequality. You can read the introductory post for the Symposium here. To see a list of all posts in the Symposium so far, click here.

What, if anything, is wrong with inequality? From my perspective as a libertarian, inequality of wealth per se is not a problem. Nor, consequently, is increasing inequality of wealth so long as the least well off are not becoming less well off. That’s the classic Pareto improvement standard—if you can make some better off without making others worse off, then it’s good.

I do, though, care about inequality of opportunity, at least to some extent. And in this post I want to focus on a particular type of inequality of opportunity–government created and enforced inequality. There are several reasons for this focus. First and foremost, it’s an issue I’ve long been interested in. Second, I think it’s under-discussed in policy debates such as we have here at the League. Third, I think it’s an important counterweight to the standard “the market (or society) is the cause of inequality, and government is the solution” approach, which I think is simplistic and radically misunderstands the nature of government.

Government appears to have literally begun as an exercise in creating inequality. Jared Diamond, in Guns, Germs, and Steel, links the appearance of formal government to the development of agriculture and the consequent food surpluses. Hunter-gatherer communities generally fare well, but rarely experience long-term storable food surpluses. They also tend to have fairly informal governance, just the leadership of the influential person, with little formal or direct authority, in a society that was predominantly egalitarian. But agricultural societies tended to develop formal government. Diamond’s argument is that the governments came into being as a way to control food surpluses. Not a benevolent organizational development with the public service goal of ensuring the protection of the surpluses and a fair distribution, but essentially a hostile takeover by a gang capable of accomplishing the task. They then set themselves up as the elite of society, and doled out the food surpluses to those willing to kowtow to them. As Diamond argues,

[C]hiefdoms introduced a dilemma fundamental to all centrally governed, non-egalitarian societies. At best they do good by providing expensive services impossible to contract for on an individual basis. At worst they function unabashedly as kleptocracies, transferring net wealth from commoners to upper classes. These noble and selfish functions are inextricably linked, although some governments emphasize much more of one function than of the other. The difference between a kleptocrat and a wise statesman, between a robber baron and a public benefactor, is merely one of degree: a matter of just how large a percentage of the tribute exacted from producers is retained by the elite, and how much the commoners like the public uses to which the redistributed tribute is put. (p. 276)

The history of the world since then has been the effort to tame government, to enhance the public benefactor aspect of it and diminish the kleptocratic aspect of it. Obviously the U.S. is doing better at that than, say, Syria, but I don’t know many people, of any political stripe, who think that the U.S. has reached the ideal state of affairs in that regard. And I don’t mean that the U.S. doesn’t have a sufficient social safety net in comparison with European states, but that the kleptocratic tendencies are still rife at all levels of government. And I’m not sure that most close observers would agree that the kleptocratic tendencies are sufficiently dampened even in the European social democracies.

Some (like me) argue that government is not actually about discerning and fulfilling the public interest, but is essentially nothing more than a tug of war between specialized interests. There is very little that is truly definable as public interest. National defense, sewage treatment, and things like that, yes, but most policies are created at the demand of whatever interest manages to have sufficient influence at the right time. As Lasswell defined politics, it’s who gets what, when, and how. Yes, this means labor is a specialized interest, as are farmers, as are Christians, as are teachers, as are any identifiable group in our society. Or as James Madison defined them, they are factions,

a number of citizens, whether amounting to a majority or a minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adversed to the rights of other citizens, or to the permanent and aggregate interests of the community.

It is indeed a better system when lots of interests have influence (what Theodore Lowi calls “interest group liberalism”) than when only one or a few do But as public choice theory has amply demonstrated, the aggregation of specialized interests does not necessarily result in something we can plausibly call the “public interest.” If my group cadges a tax break for its particular activity, and your group cajoles legislators into giving it a subsidy, that’s just an accumulation of specialized interest policies; they don’t, by mere summation, transform into a public interest.

One–not the only, but one–consequence of this is a tendency for government to pass policies that create, reinforce, and effectively mandate inequality.

Let’s begin with the most obvious, or at least most egregious, examples, to demonstrate the point: slavery and genocide. Slavery is a system that cannot exist without government complicity. Free markets don’t create slavery, government policy does. In a world absent government, I am able to enslave you against your will only if I am able to be continually vigilant and deny you any opportunity to escape. If I fail, you get away and have the opportunity to make a better life for yourself, or at least give your children the chance for an improved life. In the world of government approval of slavery, the force of the state can come to bear on you and on anyone who assists you in escaping. It’s not that in a world absent government people won’t try to enslave others–they will, and some will succeed. But as a systemic social structure it requires governmental support. Genocide arises out of the ugliest of human impulses, impulses that exist whether government exists or not. But only governments have been able to organize people sufficiently well to commit genocide on a grand scale. Declaring that you may live, but he must die, each due to an accident of birth, is surely the worst kind of inequality.

Less severe than either slavery or genocide, but still obviously unacceptable is legal segregation. Again, based on accidents of birth, we tell this person, “you get to go to the good school, use the public swimming pool, and use the public restroom when you have need,” and tell that person, “you must go to the unfunded school, may not use the public swimming pool, and if you have to pee you’ll need to go around back and use a tree (and by the way, then we’ll call you an animal for not using a restroom.” Again, in a world absent government, there will, of course, be discrimination. But the best I could do to discriminate against you is to refuse to associate with you, socially or economically. Only with government can I tax you for benefits to me that are denied to you, and only with government can I go beyond refusing to serve you at my lunch counter to actually having you arrested and jailed for daring to sit down at it.

Next to those, what does simple economic inequality matter? Would you prefer to be a wealthy person who has to go to the kitchen door of the restaurant or a poor person who can walk in the front door. People can reasonably differ on that, as subjective preferences differ, but you can’t reasonably sneer at the person who takes dignity over wealth.

But those are the easy cases. Let’s look at things that are likely to create more debate.

How about education, which is obviously related to equality of opportunity? Who educates, to the extent they get educated, the vast majority of children in the U.S.? Governments. To the extent some children are screwed out of the opportunity for economic advancement because of a lousy education, it’s primarily government that’s screwing them. If our current system was in fact the result of the market is there any doubt that critics would be pointing the finger of blame in that direction? And yet there are vigorous objections to pointing the finger of blame at government for bad schools. That is, the institution that organizes the system would be blamed if it were the market, and demands would be made to supplant that organizing institution with another one, but when the organizing institution is the government it is not the institution that gets blamed, and there is no call to replace it with a different organizing institution–instead, blame is directed at specific policies and specific actors in the political system without ever realizing that such policies and such actors are very much the typical consequence of a government-based aproach. It is the nature of government and politics that creates many of the problems that result in a subpar education for so many children.

Or consider economic regulations that create barriers to entry in a particular profession. Most states require a person to be licensed to be a hair stylist. Yes, damage can be done by hairstylists that is worse than a bad perm. Scissors could put out an eye, the wrong use of chemicals could cause burns, etc. But that’s a call for a credentials program, not a strict licensing regimen. And my understanding is that the licensing regimens normally focus less on chemical safety than on knowledge of particular techniques. One example is finger curls. I believe it is (or at least was) New York that required a course of training that included learning to do finger curls in order to become a licensed hair stylist. That’s a barrier to entry for immigrant women who A) can’t afford the courses at a beauty college, and B) are unlikely to have a clientele that demands finger curls. Want to help reinforce inequality? Regulate poor people out of a profession in which they could improve their lot in life. (See, for example, here.)

In my experience, a common response is, “Oh, yes, that’s a bad regulation.” But by focusing on the particular example, the response misses the point that regulatory schemes tend to move in the direction of creating barriers to entry. They tend to for two reasons: 1) regulators find it easier to justify adding more rules than in reducing rules, because there’s always something that might be advantageous for a person in the profession to know, and if something ever goes wrong for one customer of one person in that profession there is likely to be a call for regulation to ensure that the particular thing never happens again; 2) those already in the profession find it advantageous to make it harder to get into the profession, to limit their competition.

What purpose does the bar exam for lawyers actually serve? Does the ability to pass one more big test after successfully completing three years of law school really separate the good lawyers from the bad ones? I’ve asked numerous lawyers, and not yet had one agree that the bar exam serves that purpose. Then there’s the California Dental Boards, which require the dental school graduate to find their own patients on which to perform a specific set of procedures within a three day period, a test they can attempt only once. Failure for any reason (“I had someone lined up for a root canal but they didn’t show!”) means you can never practice dentistry in California (unless you redo dental school, at which point you can try the boards, once, again). Does that protect the public from unqualified dentists, or does it serve to reinforce economic inequality?

Then there’s my favorite economic regulation scheme, taxicab medallions. I used to drive a cab. I paid $85 a day to drive a piece of shit I personally wouldn’t have driven for my own vehicle. As the low man on the company’s totem pole, I was given the leftovers, including cabs with faulty brakes, non-working windshield wipers, and suspension systems that had me roaming from lane to lane at the breakneck speed of 45 mph. I’m all in favor of regulating cabs for safety, because it’s a market where there’s too little information. Too many customers are one-timers, so they don’t know what kind of vehicle they’re getting in to, and the problems may be hidden. So by all means make everyone who wants to be a cab driver have a clean driving record and demonstrate their vehicle’s safety. But that’s not what medallions do. The medallion system limits the number of cabs, hence the number of cab owners. And the money is not in the driving, but in the owning. That $85 dollars was 1989 money, equivalent to about $150 today. At 5 nights a week, that’s $750 per week, or $3000/month. You damn sure betcha I could cover a car loan, insurance (even though it would be more than for the normal driver), and repairs and still have some left over. Not everyone wants to be their own boss, of course, but those who do are denied the opportunity by medallion schemes, because the limited availability means the ones that do become available on the market go for over $700,000. Is that a free market problem? No, it’s the market responding rationally to a market-distorting government regulation that limits economic mobility, especially among immigrants.

And looking at economic policy in general, while one of the best routes towards economic advancement is entrepreneurship, the U.S. actually has one of the world’s smallest small-business sectors. The likely response is that it’s about cost of health insurance. Perhaps (that’s a suggestion offered–not demonstrated, just offered–by the report’s author), but it’s not certain that’s all there is to it. Examples of other types of red tape that inhibit small businesses are not hard to find. To the extent regulations hinder small business startups, it must be recognized as government creating policies that (even if inadvertently) reinforce inequality.

Of course inequality of opportunity can arise from one’s social environment, too. I don’t think anyone will disagree that growing up in a comfortable suburban home as the child of white collar parents gives one a better likelihood of success than growing up in the ghetto as the child of a poor mother and an imprisoned father. And the primary cause of the latter case is government. Prior to the great drive to create affordable housing for the poor, lots of kids grew up in shitty tenements, but in those tenements most of the fathers worked and then came home to their families. Public housing projects tend to be much more dangerous, and the men tend not to go to work in the morning and come home in the evening because of the war on drugs. What makes my blood boil is that while my kids see mommy and daddy working at a college and just intuitively know that an education is the route to economic advancement, there are kids who see nobody in their neighborhood who has a college degree, no men holding steady jobs, and damn near every adult male having a criminal record. You want inequality of opportunity? There is the most significant inequality of opportunity in the U.S., brought to you courtesy of government. Is it intentional? Hell, no. But yet another road to hell paved with good intentions? Hell, yes.

Does government sometimes reduce inequality? Sure, without a doubt it does so at times. But does it also create and reinforce inequality? Without a doubt it also does that at times. And so any discussion of inequality that focuses solely on the market as the problem and government as the solution cannot be taken entirely seriously, because it ignores a fundamental part of the problem.