The “Fair” Problem: Peanuts for Everybody

The most compelling argument against conservatism is that it is inherently unfair and discriminates against underprivileged classes of people.

To the left, the most compelling argument against conservatism is that it is inherently unfair and discriminates against underprivileged classes of people. We conservatives should take this criticism seriously, if only because seeking the best possible economic outcomes for the disadvantaged is an obvious moral and social good. Answering this criticism will also go a long way to having an honest discussion about these issues in America, because the question isn’t whether or not it is morally and socially desirable to help the poor and disadvantaged (it is). The question is ‘What is the best way to maximize fairness and minimize economic marginalization of underprivileged classes?’.

So let’s start by defining what we mean by “fair”, because the word “fair” is pretty loaded, with many different meanings depending on how it’s being used. In political terms, the best definition is probably “just or appropriate in the circumstances“. So what we are looking for is an economic system that maximizes economic justice for as many people as is possible and is appropriate to our ideas of civil liberties.

Unfortunately, what is considered “just” by the left is a bit different than what is “just” on the right. To the left, an equitable distribution of wealth would be just, so that the poor are not paid much less than those who are relatively wealthier. To the right, a distribution based on what is earned would be just, so that people receive an amount based on how much they produce. So, who’s right? Well, that’s a long and complex answer…

Peanuts For Everybody!

Our economy consists of literally billions of combinations of goods, services, and capital resources, so let’s start with an simple universe of goods: peanuts. Our goal is to achieve a fair and equitable distribution of peanuts that does not unduly benefit some individuals at the expense of others.

Our first goal is obviously to make sure that no one goes hungry, so we’ll distribute enough peanuts so everyone has enough to eat. Next, we will reward those who do more for society (doctors, scientists, etc.) by giving them a few extra peanuts beyond what’s needed to sustain themselves. Have we maximized justice in our society?

Everyone should have what they need, except, of course, all the people who we killed because of their peanut allergy. No problem. Instead of peanuts, we’ll provide these people cashews instead. Problem solved, right? Well, except for the fact that cashews are significantly more costly, and a can of cashews is roughly three times as expensive as a can of peanuts.

So obviously, it’s really not a fair distribution at all. What do we do now? Triple everyone’s peanut portions? Ignore the costs and consider only the utility of the peanuts (or cashews)? Bring yet another good to balance out the value? And what about people who don’t like nuts, because they aren’t getting any value at all in our economy? This is the fundamental problem with the pursuit of absolute fairness. Even in our ridiculously simplified economy, if we manage to find a solution that is quantitatively “fair”, there are still huge qualitative disparities in the actual value experienced by each individual.

Best of Intentions. Worst of Results.

When we look at real economies, the disparities between those who are able to participate in the market and those who have been pushed to the margins are much more complicated than the simple example with the peanuts. The regulations, welfare programs and wages (the peanuts of our example) don’t necessarily always match up with the various needs, wants, and issues facing the poor and disadvantaged.

After over fifty years of the War on Poverty, the poverty problem has only gotten more complex and widespread, with poverty increasing to levels that haven’t been seen since the 1960’s (www.census.gov). According to the Initiative for a Competitive Inner City (www.icic.org), about 32% of inner city residents are living in poverty. That is more than twice the official US poverty rate of 14.5% (www.census.gov). The civilian labor participation rate is at 62.6%, a rate that hasn’t been seen since 1977 (www.bls.gov). In St. Louis, the fastest shrinking city in the last 50 years, the employment population ratio (the percentage of working age citizens who are employed) is 61.5%. The unemployment rate in St. Louis is at 9.2%, and is staggering 15.7% among black citizens living in St. Louis (www.bls.gov). Unfortunately, these numbers are typical of every metropolitan area across the United States.

The most tragic aspect is the reversal of improvements made throughout the 1950’s and 1960’s in labor participation rates and poverty rates among minority groups, especially among black Americans. Since 2000, black poverty rates have been climbing steadily from a low of 21.2% in 2000 to 25.7% in 2012. Black employment population ratio is down to 53.0% as of 2012 (www.census.gov). Among blacks with less than a high school education and over the age of 25, the employment population ratio is at 31.3%, compared to whites at 42.6% (www.bls.gov).

Why are these numbers continuing to worsen despite over half a century of the progressive cultural socialist policies of the left’s War on Poverty?

What Goes Up Drives Labor Down

Since the start of the industrial revolution, cities have been the industrial centers of the world. The dense populations had been a ready source of the workers that manufacturing depends on. Until the middle of the 20th Century, the core of the United States economy was manufacturing and textiles. In 1965, manufacturing was 31.5% of the GDP of the United States. By 1997, manufacturing was only 19.7% of the overall GDP (trade.gov). And as of 2013, manufacturing was only 12%, a third of the 1965 level, of the overall GDP (data.worldbank.org).

With the decline of manufacturing and textiles, two industries which offered workers middle class incomes regardless of education, millions of workers found themselves unemployed as factories were shuttered one after another. Statistically, blacks have made up the majority of people living in major American cities, so they have unsurprisingly been the hardest hit ethnic group in the United States as manufacturing and textile jobs disappeared. In 1979, American blacks represented 23.9% of manufacturing workers. As of 2007, that number had fallen to a low of 9.8% (www.cepr.net).

This increase in unemployment has led to steep increases in poverty among blacks in general and inner city blacks in particular. So, what caused the steady decline in manufacturing and textile industries in the United States?

The Root of the Problem

Unfortunately, the answer to this question is obvious: the price of labor. In 1965, when manufacturing was still about a third of GDP, manufacturing wages were about $2.50 an hour, twice the statutory minimum wage of $1.25. By 1997, when manufacturing was less than a fifth of the GDP in the United States, the average manufacturing wage was about $13.00, climbing to $13.45 an hour late in the year as the minimum wage was increased from $4.75 to $5.15 an hour. By 2013, the average manufacturing wage had soared to $19.30 an hour, almost three times the minimum wage of $7.25 an hour.(trade.govtradingeconomics.com, data.worldbank.org, and money.cnn.com).

With minimum wage almost 6 times its 1965 rate and manufacturing wages almost 8 times its 1965 rate, foreign competitors emerged around the world, becoming competitive in productivity and technology but with a massive advantage in the cost of labor. As of 2010, the average manufacturing worker in India was paid a wage of $1.46 an hour (www.bls.gov), a rate 13 times less than the average manufacturing worker is paid in the United States, meaning a company can hire more than a dozen workers in most of the rest of the world for the price of one American worker.

So there are two possible solutions: (a) we wait another century for the entire rest of the world to catch up or (b) we begin the process of slowly letting the air out of the American wage bubble, and bring down the cost of hiring less experienced workers to put more Americans to work with the added bonus of reducing the cost of goods and services in the United States. Only one of these choices leads to prosperity in our lifetimes.

In upcoming articles, we’ll talk about how we can work on bringing the cost of labor down, improve employment, and why there is so much resistance to any of this happening.

Liberty is For The Win!


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