Equality

Congrats on Marriage Equality

congrats to all my LGBT friends on what is a momentous day with the Supreme Court striking down the state bans on gay marriage. this not purely an issue of individuals being discriminated against but a bigger issue of what the power of government should be (state or federal).
Should the government be able to control the kind of contract consenting individuals can enter voluntarily?
As I imagine most fellow libertarians would agree, the obvious answer is no. Any argument for government power would be for it to protect people’s rights and property. In no way does allowing states to ban voluntary association protect anyones rights or their property (considering estate tax law it can be seen as quite the opposite).
so overall no matter how you look at it, this is a solid precedent made in the name of liberty, love, and contract rights.
Alex Merced

AlexMerced.com

Why Taxing Wealth is a bad idea?

by Alex Merced

In his new book, “Capital in the 21st Century“, Piketty advocates for a global tax on wealth as a way to curb growing income inequality. Of course, as a libertarian you can probably guess I think this is a bad idea but for good reason. I have discussed income inequality in previous articles I’ve written, and disagree with Piketty that the correlation between the return on capital and income inequality means the capital growth is cause of the inequality (thus taxing it the cure). Instead, I believe my other article on how monetary policy and inflation increase income inequality not only explains the correlation (inflation increases returns to capital and decreases return on wages) but also just makes more sense in explaining the trends discussed by Piketty.

Although in this article I’m less concerned with what is the true cause and cure for income inequality, but with how bad a solution a global tax on wealth would be. Taxing wealth would not only have the effect of reducing and confiscating wealth which of course is abhorrent from a libertarian perspective, but it will also make capital gravitate to more risky investments than they otherwise would, destabilizing the capital structure of the economy.

So why would higher taxes mean riskier investments?

From an investors point of view, you are generally not just looking for a high % return but generally a return after you adjust for inflation and taxes. The higher the taxes and the higher the rate of inflation the higher return needed to survive both.

For example:

Let’s say you have a 10% (which is pretty good) with a tax rate of 35% and inflation rate of 3%

After taxes you will have a 7.5% return (10 – 35%)

Adjust that for 3% inflation (7.5 – 3)

your at a 4.5% return (and this ignores state and other taxes, also ignoring any issues in measuring inflation)

The point being is that as the hazards of inflation and taxes build up, one must seek more return and the name of the game is “more risk, more reward” meaning that higher returns will be found in increasingly risky investments.

Why do riskier investments return more?

Imagine a world where investments of all levels of risk gave you a 10% return, which one would you choose to put your money in?

If you answered the safest, that would be quite rational and would be what many others would do as well. The result is, that everyone wanting the safest investment will bid up the price which in turn reduces the return on investment (your giving up more for the same thing) and the return will continue to go down until the return goes so low it’s not worth it to investors to bid it any higher.

These investors would then do the same with the next safest investment, etc. By the time you start getting to the riskier investments there will be less potential buyers so they won’t be bid as high, and when you get the riskiest of investments they may be bid down (because maybe 10% return is not worth the risk) so a lower price would give you a higher return (giving up less for the same thing).

Bottom line, investments are generally priced heavily based on risk and reward. So more taxes and inflation will just lead to an increased demand for risk, which at some point will create a scenario that bad investments may outweigh good investments and growth turn into a slump.

The Mechanics of the Minimum Wage [Video]

by Alex Merced

Often times when you try to create protections or regulations of the market, the result is to create an undue burden on those least able to bear them. The result is those at the very bottom can seem stuck there, and those who are somewhat to very well off find themselves relieved of a lot of competition, allowing them to take a bigger participation in the ever changing economic pie. The minimum wage is one of the policies that have these results. Although due to the amount of labor that may already be working at bottom of the income ladder can be limited, the result of this policy for good or worse can be hard to truly measured or seen. Yet, understanding the impacts of market intervention on economic disparities and in turn economic tolerance needs to be more part of the economic discussion.

Why Economics, Choice and Tolerance are Inseperable

by Alex Merced

Often times people define issues into two categories, economic and social, as if there is no influence these have on each other. I contend a world with a more robust competitive economy would also be a world of greater tolerance. Many social and caste divides are born out of economic scarcity, out of a demand for a reason to justify taking more of the economic pie for “us” and leave less for “them” because the sentiment is that there isn’t enough for everyone. If anything history, I think, shows pretty clearly that wealth is more abundant when more of us cooperate and compete with each other to provide value (aka the FREE market) instead of competing over limiting market access to others (protectionism/regulated markets/no markets). Although these divisions over time get ingrained in the culture of these arbitrary groups and can lead to generations of resentment, hostility, and sometimes violence which is why a focus on robust free market policy is an imperative for wealth building but also social cohesion (if you are prosperous you’re less likely to resent other people for being prosperous, or try to prevent them from being so).

So, essentially, economic performance will make people more tolerant of each other, which in turn improves economic scale. So, essentially, any discussion of promoting tolerance can’t be separated from people’s quality of life (which is partly determined by the wealth, and in other part determined by internal factors which often come from peoples ability to pursue their interests and attain property). As people’s quality of life drops, whether from losing their economic (wealth) or autonomous (choice) means to pursue their ends (goals), they begin to look for scapegoats to blame.

Bottom line: A libertarian world view which focuses on empowering peoples economic opportunities and individual choices, is the formula to having a more tolerant socially cohesive society.

A Discussion of the Civil Right Act of 1964

by Alex Merced

Having started an organization dedicated to building tolerance in a libertarian framework, I might as well go ahead an attack the elephant in the room when it comes to libertarians and issues like these. Often times when libertarians take on the mantle of social progress absent of government by discussing things like marriage equality or ending the drug war, progressives attempt to dismiss us libertarians by arbitrarily bringing up the Civil Rights Act of 1964 and its public accommodations clause. In order to show why this dismissive argument is unfair and a distraction from modern discussions, let’s first learn about the contents of the 11 articles of the civil right act and see what libertarian reservations would be.

Article I – Banned unequal application of voting laws. I can’t imagine any libertarian having a problem with this particular clause. It’s the epitome of “equality under the law.” Although, all this did was end unequal application of current laws, it didn’t end other forms of voting disenfranchisement. This was later done in the Voting Rights Act of 1965, which was weakened in 2013 by the Supreme Court. I personally think the voting rights act was a reasonable law. It’s not about state or federal rights but preventing oppression by government and any tool that can prevent any oppression is fine with me. (From my understanding the VRA doesn’t violate any property rights, instead it restrains state governments from limiting the participation of it’s citizens in democratic elections.)

Article II – Often referred to as the public accommodations clause, it prohibits discrimination in hotels, restaurants, etc. engaging in interstate commerce (exempting private clubs, so essentially you can create an establishment only open to private members if you really want to be discriminatory). I will discuss the controversy over this particular clause and my take on it after I finish all the articles of the CRA.

Article III – This banned discrimination in public institutions like public parks and restrooms. While libertarians are generally for privatizing most public property, anything that is publicly owned should be open to well, the public. In other words, this is a no brainer for libertarians. It’s like marriage. While many libertarians don’t think a marriage license should exist, as long as it does it should be available to everyone.

Article IV – This enabled the desegregation of public schools. For libertarianism this is perfectly fine by the same logic as Article III.

Article V – Strengthened the Civil Rights Commission that was created in 1957, which only investigates and makes recommendations. From a libertarian perspective this is mild since it can’t really compel anything but it costs taxpayer money to maintain such a commission. I understand the need of a feedback mechanism for issues like these, but like them or not, don’t organizations like the NAACP and ACLU kind of serve this purpose with mostly voluntary donations?

Article VI – Bans discrimination by agencies that receive federal funds. While libertarians aren’t really big on public funds in the first place, I don’t see why regulating the use of public funds and public institutions would bother any libertarians. You’re not messing with anyone’s property that wasn’t already confiscated via taxation.

Article VII – Bans discrimination by employers of 15 or more (also exempts business where the trait you’re discriminating against is vital to the job). Myself along with most libertarians don’t think people should segregate their business or be discriminatory in hiring based on things like race. But, it’s always uneasy with libertarians when you set a precedent for telling people what do with their property (for many their business is their property). So this along with clause II is what usually gets us libertarians in trouble with the orthodoxy.

Article VIII – required the collection of race and gender data in voting. Aside from the cost to the taxpayer, I can’t think of anything to really complain about here. The data can be useful. Although when you collect data like this, you make people think of data in terms of race and gender vs. other traits and characteristics that may highlight other trends. (You can’t measure everything, but what one measures does shape how people think about things, which is worth thinking about)

Article IX – This article made it easier to take a state case ruled on by a segregationist judge and move it to the federal courts. I don’t see any problems with this, if someone is in a situation where they can’t receive a trial from an impartial judge there should be recourse.

Article X – Created the Community Relations Service, which helps communities resolve disputes over discrimination. Aside from the funding, I don’t see any particular thing to be offended about.

Article XI – Allows placing the violators of the other articles in criminal contempt for up to $1000 fine and up to 6 months in jail. Aside from the enforcement of charges against private property use I don’t see a particular problem with this.

My Personal Opinion

The civil rights act isn’t on anyones radar to repeal for two reasons:

– There are laws that create actual problems that need to be dealt with like Sarbanes Oxley, Affordable Care Act, and Dodd Frank. Usually this half-century old law only comes up as political fodder to entrap libertarians.

– When I look at all the articles I find that I can more often agree with than disagree with the law. (Although, in principle, the clauses that violate private property rights can make me feel slightly uncomfortable. However the clauses preventing local governments from segregating public spaces makes me feel good and makes up for the previously stated discomfort.)

The controversy

Most libertarians probably aren’t fully aware of all the articles in the CRA, but libertarians like myself are very hard pressed to ever express any kind of flexibility on our resolution of private property rights (because they are integral to functioning markets, and we tend to really appreciate how small concessions can lead to large losses of other freedoms over time).

At the end of the day if I was a libertarian congressman in 1964 (probably wouldn’t have been back then considering I’m Latino), I would probably have to cast my vote for the act due to the value of it’s restraints on government power to compel discrimination. While many libertarians are very split on this pointless hypothetical that is often given to us I think it is generally a worthwhile law with fewer flaws than many others.

It’s Ok! Libertarians Can Think Something is Bad or Wrong

by Brian William Waddell

After my last piece, someone questioned whether a “true Libertarian” (this phrase alone begs the question of what a true libertarian is, and whether the size of the “L” matters, but that’s for another post) is allowed to think that having a female-only tavern or Christians only theater is wrong. Sure. Why not? I don’t personally think it’s wrong, I just think it’s bad business. But the idea that holding an anti-segregationist opinion flies in the face of libertarianism is absurd. The key distinction is that I will fight for your right to have that silly segregated business while I tell you it’s a bad idea and you shouldn’t do it. If that makes it so that I’m not a “true Libertarian” I’m okay with that.

Why Limit Your Possibilities?

If you were opening a retail business that had a target demographic of, let’s say, women between the ages of 21 and 35, would you only allow people in that specific group to come in? No, that’s silly. Maybe just limit it to women? That seems like a slightly smarter choice. But what if a man wants to purchase some of your goods for his significant other? Clearly this means the best route for the business is to be open to men and women. I can understand the niche market for a tavern only allowing women, ostensibly for a less meat market-like environment, but there is a reason there are not many of them around. Limiting your audience of your own accord is bad business. Usually the audience that a business serves is limited enough by outside factors without internal silliness.

I’ve run enough businesses over the years to understand that the best policy for building and maintaining a business is one of open arms and friendly smiles. Nobody should be turned away.

Right to Refuse Service

On that note, I’ve already written a piece on my own liberty-centric site regarding a recent event where a bakery declined to make a wedding cake for a wedding between two men. The baker was well within his rights as a business owner. He wasn’t within his legal capabilities as a business owner (according to one judge) in Colorado, however. Therefore, he was ordered that he had to make cakes for same-sex couples. This is the problem, and also the distinction. A business owner should be able to choose to not serve people for any reason. Yes, I said any reason. It’s wrong and ignorant to do it for certain reasons, but it’s still something that must be allowed. The free market dictates that just as the business owner need not serve people, people need not patronize that business.

I‘m Allowed

I think taking adverse action toward people based on the color of their skin is wrong. I think taking adverse action toward people based on their sexual preferences is wrong. I think taking adverse action toward people based on their religion is wrong. I’m allowed to think these things are wrong. I’m also allowed to say, “Yeah, that’s wrong, but he can run his business how he chooses. I’ll just never shop there.” On a philosophical level, at least, I have no problem with the creation of “black only” schools or other institutions. I have no problem with “Asian only” schools. I have no problem with “white only” schools. Frankly, as long as all groups are allowed to have their own institutions I don’t see how anyone is actually left out. Another requirement would be that nobody would be compelled to (they can if they want to, of course) pay for the institution. This would be allowed if we were truly living in a place of liberty. (I think all of the above institutions are silly and run counter to improving society because experiencing diversity is a key to becoming a well rounded individual. But, to each his own.)

Make My Day

Go ahead. Open a business where you only allow redheaded men with handlebar mustaches over the age of 33. Call me when you reach your first anniversary and I’ll throw you a huge party to celebrate.

Why libertarians should care about Tolerance

by Alex Merced

After my article on advocating for tolerance of/acceptance for the transgender population I got several critical messages not about whether people should be accepted/tolerated but attacking my libertarian bona fides for even discussing it, as if being libertarian means being completely agnostic on the outcome of all issues all the time. If anything, these individuals have seemed to miss the point of my article, and possibly of libertarianism itself.

From the libertarian perspective just about everything should be solved by the interplay of individuals and their choices, also known as markets. Which cell phones should be sold? Let the market decide. How should you educate children? Let the parents decide. Which house should you buy and how should you finance it? You should decide. This extends to the market for values and preferences (what you think is right or wrong, what rituals and traditions do you practice, how do these things change), etc. Although these things evolve in an interplay of individual choices (a market) as well, even if there aren’t direct exchanges of money, decisions are made and some social norms succeed and fail over time.

These markets work because people act on their preferences and values. As a libertarian, I want people to have a view on which cell phone they want, to choose to act on that view, and even evangelize their choice. I just don’t want anyone making the choice for them. As a participant in the market for social norms, I am entitled to being able to choose the norms I like and evangelize them. I’m free to make the claim that if people voluntarily embrace these norms the world may be better off (I just don’t advocate forcing people to adopt these norms).

To me, engendering a culture of tolerance and acceptance has many consistently libertarian benefits:

– Libertarians are against violence and coercion. It’s one of the primary reasons we have such a distaste for government as a mechanism for economic or social engineering  (the fact that it often works poorly at doing so doesn’t help). Intolerance can often be a big motivator of violence (a good transgender friend of mine was recently beaten and sent to the hospital with her boyfriend). While I think there should be equality under the law and a crime should be treated as a crime for a jury (the judge should have the discretion to lessen or worsen a punishment based on circumstances in my view, but the jury should only determine if a crime has been committed not determine whether they liked the motivation for the crime which is what hate crime legislation does). Although, if social norms were more tolerant from the get go, the violence may have never occurred for it to be a legal issue in the first place.

– Promoting tolerance doesn’t mean people don’t have the right to be intolerant with their own property and choices, but promoting tolerance is about ending the atmosphere that makes people feel it’s alright to destroy someones property because they may be different in some way.

My point is that if libertarians are anti-coercion and anti-force, creating a culture that exalts individual choice and property ownership and shames violence/coercion from government or individuals is a project that must be actively taken on. If this isn’t, other cultural norms that may be ok with violence/coercion will win out in the cultural market.

On Equality

by Brian William Waddell

To many libertarian thinkers, speakers, and writers, equality is somewhat of a dirty word. Many don’t like to discuss it because the very word brings forth an image of socialism and equality of outcomes. But that isn’t how equality should be looked at. Equality is important in a libertarian society. Everyone must be treated equally from the start. However, it is not equality of outcomes, but equality of opportunity that is important for society to function in a truly fair and equal manner.

A Metaphor

Imagine the home field of your favorite baseball team. See the grass and dirt, feel the cool breeze, hear the roar of the crowd. Now, think about how the field looks with your team in the field. Finally, think about how the field changes if the other team is in the field. Do artificial barriers suddenly rise up to keep fielders from throwing to first? Does the fence move in so that the home team has a much easier time hitting a home run? Of course not. That wouldn’t be fair. The scoreboard on that field would hopefully show more runs for your team than the other. It’s okay to hope for this because the field itself did not determine the outcome of the game, but the skill and athleticism of the players did.

Now imagine what a field would have to look like to make sure that all contests ended in a tie. The easiest way to do this would be to stop both teams from ever being able to score. Maybe a wall that pops up to stop you as you round third? Even ignoring the uselessness of a contest where neither team has a chance of winning, this would make for a very boring game. Maybe all the games would end in a 3-3 tie instead. This would be more interesting at least. If a team with an excellent pitcher (which wouldn’t be necessary given everyone will score the same amount of runs regardless) faced a team with a poor one the necessity of the field to control the run production could become very entertaining in and of itself.

As the third inning ends, it’s two to nothing in favor of the home team. When they return to bat in the bottom of the fourth, the leadoff batter hits a homerun. The next hitter gets up and takes a mighty swing. The ball flies out toward the wall in left-center. Just as the ball is about to go out of the park, the wall extends itself up four feet to keep the ball in the playing field and the hitter settles for a useless double. The next batter hits a shot in the gap and the runner comes from second, rounds third, and is immediately stopped in his tracks when a snare catches him by the ankle and his face meets the field. He is tagged out as he tries to loosen himself from the snare. The player who hit the ball stops at first because he doesn’t see the point of running to second since he has no chance of scoring.

Now, the field has to find a way to help the trailing team score three runs. After keeping the home team from scoring through the eighth inning the field only has the top of the ninth to get the visitors three runs. The pitcher for the home team strikes out the first two batters. Then, with every pitch, for six straight batters a wall pops up in front of home plate to keep the ball from reaching the strike zone. Three runners score due to the walks issued, and the pitcher strikes out the final batter.

In this scenario, the field becomes the featured player instead of the actual players or the teams. The fields with more inventive traps and ways to make teams score would have the highest ticket sales. Players would just be placeholders rather than valuable assets.

If you haven’t picked up on the metaphor you either know nothing about baseball, or are not a libertarian. So, I’ll spell it out just in case. Government, or the state, is the field. The players are the people. The scoreboard is simply the reflection of what can be accomplished by the players. With the state (field) predetermining outcomes there must be some system to hinder certain people (players) and to help others.

Another Naughty Word

Let’s step away from the metaphor for a minute. In economics and governmental systems a guaranteed equality of outcomes has a name. Anybody know it? Yes, that’s right, socialism. I know for some of you I may as well have just dropped the f-bomb. However, the stigma surrounding socialism doesn’t come from the pursuit of socialistic society. Instead, it comes from the state mandating socialist policy.

I personally believe that socialism is against human nature and cannot be achieved in a massive scale without state influence. The idea that millions of people would willingly pool their resources and talents (or lack thereof) to end up having the same amount to show for it as all of their neighbors is not a likely occurrence. Humans like to have their own stuff. This is more of a primal urge than many like to admit, but we have certainly not evolved past it. Nor are we likely to any time soon.

On the other hand, the free market exists seamlessly without state influence. I suppose that’s why they call it the free market though. It needs nothing, besides being left alone, to guarantee it exists. Millions of people are much more likely to willingly exchange their goods and services for other goods, services, or means to acquire such things.

I’m sure by now you can tell which system I favor. But, let me explain my view on these two systems more completely. I believe both systems to be honorable goals so long as every individual willingly adopts them and there is no governmental interference that compels the use of one system or the other. In theory, a town could decide to live in pure socialism. They could decide that all products that were produced there were the property of the town and not the individual. Even if they all agree initially, what happens if someone who does not agree with the system moves to the town? Can such a system survive without the town government compelling all citizens of the town to surrender their personal property at the town line? Maybe. Sort of? But the system ceases to be pure socialism once one person can have property of his or her own. Many, including (and maybe especially) constitutionalists, would argue that the one who believes in personal property should just move elsewhere. He can, if he wants to. But why can’t beautiful weather or even proximity to a loved one supersede a difference of opinion on personal property? All should be able to live how they choose, so long as it does not interfere with the lives of others, anywhere they choose.

The free market does not suffer a similar breakdown if any number of people willingly decides to share what they produce. No coercion is necessary to keep people freely trading goods and services.

But, I digress. Sort of. Socialism is a prime example of the fallacies that surround equality. If someone can answer this question in a manner that supports socialism, I will consider socialism a valid option for building a society based on equality: How is taking things from people who produce more and giving them to those who produce less actually equal?

The Human Aspect

No more finances, for now. Instead, human equality.  Yes, that’s right, the concept that all humans, regardless of any identifying trait or marker, should have equal opportunity is the most basic form of equality. The very categorizing of people into groups besides human is counter to equality. Allow me, not that you really have a choice, to use another sports analogy. ESPN does something every year before the teams going to the NCAA tournament are announced. The resumes of two bubble teams are put up on the screen without the names of the teams. Basing the decision solely on the merits of who had the better season, it is usually clear who should get into the tournament. Then they reveal the teams involved, and sometimes your mind is blown. “But that’s my team that clearly shouldn’t get in,” you say to the TV. Suddenly, instead of believing that the better team should get in, you pick your team. If you happen to be on the selection committee, then your bias has just kept the better team out of the tournament that they deserve to be in.

I think the implication here is clear, but once again I‘ll spell it out. Having a favorite is fine. You can gravitate toward people who are more like you, less like you, or not at all like you. But when you choose them over better-qualified individuals for jobs you are doing something wrong. Not only does it sometimes hurt the individual, it also hurts the organization when an inferior (due to ability, not any identifying trait) person is hired. We all have prejudices and we all discriminate. Ensuring that we are discriminating based on the quality of the individual, and not a prejudice against an institutionalized group they belong to, is the important part.

Treating people equally is important, but it won’t always happen. Some people will, unfortunately, choose inferior applicants for jobs because of the color of their skin or some other identifying factor. It’s wrong, but inevitable. But, in a free market where this type of discrimination is not institutionalized, the wronged individual can get a job somewhere else. And, as a bonus, the individual can urge people not to utilize the offending employer’s services. Exceptional people come in all forms and there will always be plenty of people out there who recognize that and will give those people the opportunities they deserve without any form of governmental or societal interference.

The Payoff

Equality evokes different images to different people. For many, equality means having all the same chances in life as everyone else if you’re willing to go out and find them. For others, it means having all the same things as everyone else no matter what your lot in life. The question really comes down to whether you value the opportunity to succeed and make something of yourself, or having stuff. I’ll take the opportunity to make something of myself any, and every, day. I can buy the stuff that I want that way, instead of the stuff someone else thinks I should have.

Income Equality and Income Mobility – The New Frontier for Libertarians

by Alex Merced

Often times we hear conservative pundits, and the occasional libertarian one, respond to social and economic critiques concerning income equality with a dismissive tone. They will say it doesn’t matter as long as there is mobility or “equality of opportunity.” However, recent studies make it clear that there is a  correlation between economic equality and mobility. So how do you make an argument for the free market in light of this data? Some, such as libertarian philosopher/economist Roderick Long, have already begun attempting to have a deeper libertarian discussion about equality, and at least about what kind of equality libertarians should be concerned with. Libertarians don’t need to shy away from discussing economic equality because there is a compelling case to be made that economic equality has plenty to do with a free, or at least a freer, market.

Before arguing the case one must discuss the causal direction in this relationship between equality and mobility (assuming there is one). Does more equality lead to more mobility? Or does more mobility lead to more equality? The answer to this question should lead to very distinct policy views. Progressives, through their policies of redistribution to create equality, argue that equality will create mobility. I would contend that this is putting the cart before the horse. Increasing mobility would lead to more equality. Thus, policies of redistribution are not needed if mobility can be repaired.

In economics there is a theoretical condition of “Perfect Competition.” This is a situation where so many firms compete over the potential earnings in a particular sector that those firms inadvertently evenly distribute those earnings. Labor markets are similar. Higher wages will attract more participants which, over time, will result in reducing the amount of earnings each individual makes because the total earnings is split among more workers. This result is another sort of equality. The implication is that if wages aren’t being distributed more evenly that must mean something is prohibiting or limiting the participation/competition in that market for wealth (profits from your enterprise, earnings from your investments, or wages from work).

In reality, there can be many societal, geographical, and cultural reasons why certain wealth markets may not be as competitive as we’d like, but some of the strongest barriers come in the form of interventions in the market. Reducing the ability for people to participate reduces an individual of a lower economic condition’s ability to have upward mobility and also reduces an individual of a higher economic condition’s downward mobility. Upward and downward mobility are equally important (you have to be able to lose from bad choices and gain from good ones or the market mechanism loses much of its effect). Let’s take a look at different wealth markets and discuss some of the conditions reducing competition in them.

Wealth Market # 1 – Entrepreneurship

Entrepreneurship is one way people can elevate their economic status. Anything that increases the costs of entrepreneurship in time and money will have a disproportionate effect on small entrepreneurs (as they are less likely to have the time and money to pay these costs). Some of the biggest costs in running a business are the legal and accounting costs. An ever growing complex legal and tax system only make these costs greater regardless of the absolute size of the tax bill or legal fine (because of the amount of billable hours paid to accountants/lawyers to guide through the complexity).

These costs may make some businesses less profitable or slow down their growth, but, most disturbingly, they discourage potential entrepreneurs from throwing their hat in the ring to begin with. The answer is a simple one that people across the board can get behind, simplification. While I’m all for lowering taxes which would make the costs of entrepreneurship lower, simplifying the tax and legal codes so that people can effectively participate without huge legal/accounting overhead would encourage more entrepreneurship. It would also free up the firms resources to be used for things such as improving the product, decreasing prices, or even higher wages for those involved in production of the good or service. Keep it simple stupid.

Wealth Market #2 – Capital Investment

Another way of developing wealth is to take wealth you have from your small business or job and invest it into capital either in equity (owning property or stocks) or via debt (lending money or buying bonds). Buying equity/ownership in companies early in their life cycle is often where some of the largest growth in wealth occurs, and it would be people of a lower economic status who can benefit most from that dynamic (of course more risk, more reward). In an effort to reduce the risks to the common man, laws like Sarbanes Oxley in 2002 were passed to make publicly traded companies more transparent. While access to information to people who are investing their capital can lead to better investment decisions, the costs of preparing this information fell on the company (which is fine, but many of standards can arguably so stringent that the costs increase may be less than reasonable). Essentially, Sarbanes Oxley brought at least an appearance of transparency of public markets in exchange for higher accounting and auditing costs, higher legal costs, and higher cost for executive pay for public companies (more liability is placed on executives so it is sensible that they’d ask to be compensated for the risk).

With these higher costs most new businesses decide to raise money in private markets first (where only wealthy “accredited” investors can participate). As a result, companies that issue IPOs (initial public offerings) are often more mature compared the plethora of IPOs we saw in the 90’s. (While some companies fell prey to the bubble, many people were able to grow their wealth more efficiently since they were able to invest in companies earlier in their life cycle.) The problem is, if companies are not available to the public for investment until later in their life cycle, most of the growth in wealth is made exclusively for the already wealthy while the public is left with the scraps of growth. (Less risk, Less Reward).

To the credit of lawmakers, this has not been ignored and the JOBS act was primarily passed to deal with much of this issue, but layering a complex law over another may result in just increasing legal costs which offsets any savings from simplified accounting costs.

Wealth Market #3 – Skilled Labor

The reality of markets is that the demand for labor is constantly changing, not only the quantity but also the skills and knowledge demanded (Cobblers are of course are still in huge demand still, right?). This can cause what’s often known as structural unemployment (unemployment due to skills of the labor force not matching the skills demanded by firms looking for labor). The people in the most dire circumstances, as previously mentioned, have the least money and time to acquire new skills to enter a changing labor market, so of course increasing costs of attaining skills will disproportionately punish those less able to pay those costs and reward those who can (often people who are “better off”). Here a few of the ways these costs increase:

– Compulsory licensing requirements will often result in months of studying full time to pass exams just to be allowed to work in a particular field (The Institute of Justice has done a lot of work on Compulsory Licensing). While making sure people are qualified to do particular jobs is a good thing, most, if not all, licensing requirements are less about competence and more about making workers aware of the ever expanding regulations of their new field of work (essentially the result of complex laws).

– The cost of higher education is primarily the result of the diversion of credit into the education market. Making it easy to borrow money for education has reduced the incentive for education institutions to rethink the way they price their product (why do you pay the same tuition for all degrees despite the huge variation of potential income they provide?) and for students to think about how they finance their education (there probably is a kickstarter like site for tuition now, but one probably would have existed sooner). Aside from distorting the whole pricing mechanism for education, this diversion of credit also means less credit for other types of investment. This may affect the quantity of work for those graduates with huge debts.The cost is currently so high people don’t get do overs. If education pricing was more sane people could afford to go back if their first program didn’t necessarily offer them the income they expected or hoped for.

Conclusion

The ability for people to be upwardly mobile depends on their ability to participate in wealth markets, and the ability for the wealthy incumbent class to be downwardly mobile depends on the ability for others to compete with them in wealth markets. If wealth markets are more difficult to enter, then those at the bottom fall further behind and those at the top get further ahead. This creates the inequality we see today. So essentially, a more free market, when properly understood, can offer a clear path to a more equal or more “fair” distribution of wealth without the use of intervention and intrusions of government.