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The big trade-off

Capitalism—an economic system based on private ownership of production and distribution. The end game? Efficiency. Democracy—a political system of, by, and for the people. The end game? Equality. It’s no wonder why our capitalist democracy feels like an oxymoron. How can we possibly achieve equality when our economic institutions are designed to produce as quickly and cheaply as possible without blinking an eye at the prosperity being squelched from those at the bottom, fueling the machine? How truly free is this free market? How can it possibly be “working” if so many Americans are left poor, hungry, without a home? This is the big tradeoff. Efficiency and equality are not synonymous, and in fact, they’re counterproductive. American economist Arthur Okun articulated this compromise in his book, Equality and Efficiency: “Equal rights and unequal incomes generate tensions between the political principles of democracy and the economic principles of capitalism.” When the market works, parity is jeopardized. By design, efficiency and equality are in a constant game of tug of war.

But, maybe this game is not zero-sum. So, let’s break it down. On one end of the spectrum, we have rights, like free speech. On the other, we have market goods, like a pair of jeans. In between, we have a whole host of things that can fluctuate between rights and commodities, like education, housing, food, healthcare, and pensions. Rights exist to protect us from the government, from the market, and from indecency. In theory, rights are equally accessible to all citizens regardless of ability or intellect and have no price tag. They cannot be bought and sold and they are not incentivized, meaning you cannot acquire more rights than your neighbor by being more productive. Most rights are universal, unconditional, and most importantly, inexpensive. It would be quite a financial lift if we qualified food as a right of all people, whereas free speech is, well, free.

The tricky part is when things we believe should be rights are associated with monetary cost. Free community college is on the short list of things we’ve been debating that falls within this spectrum. If we look through a humanistic lens, we might say something like, “Everyone deserves a right to free post-secondary education!” But if we then look through an economic lens, that might evolve to, “Well, how much will this cost? If the government is paying for community college, where is it redirecting this money from?” And it becomes a slippery slope—free community college, free healthcare, free housing. Remember the broccoli mandate raised during the Affordable Care Art oral arguments? Ultimately, we may have to find a balance. If the end goal is full equality, the real question becomes how far should we go in using economic resources to ensure rights?

Suppose we do have unlimited funds and we are true champions of equality. We believe that things like education, housing, food, healthcare, and pensions are rights, not goods, that the government should provide to all citizens. As rights, anyone regardless of income, intelligence, and social status would have access. It would level the playing field, but would also bring another player into the game—the transgression of dollars on rights. In reality, not all rights are divorced from money. Take the Sixth Amendment, and its guarantee of the right to a lawyer. While technically a right, legal services have become an expensive commodity, and those with more financial resources have access to preferred treatment before the law. Money buys access and power, which furthers the inequities we set out to mitigate in the first place.

Thus, efficiency and equality are in constant tension. This idea is not foolproof, though. Identifying the two as mutually exclusive ignores that the world is full of nuance. Let us not forget that efficiency and equality have both been at gravely low points over the last decade—the financial crisis of 2007 for one, and income inequality hitting its highest point since 1928. This doesn’t quite fit this model, which leads to the good news—achieving equality without compromising efficiency may be less of a pipe dream than we originally thought. Perhaps we can have our cake and eat it, too.


Published On: September 19, 2017 |
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