Archives for May 2019

Say there are 10 loaves of bread, and 20 hungry people. What is a fair way to distribute the loaves?

Answer however you want, and it will be the wrong answer. Wrong, because the question is wrong. Distribute how you will, but then ask yourself, what happens the next day, after the loaves are eaten and gone?

Distribution is not really the interesting problem. Any idiot can distribute loaves of bread (In Venezuela an idiot essentially did). The harder part is encouraging a system where loaves of bread are created, today, tomorrow and the next day.

Teach a society how to redistribute loaves and we’ll all eat for a day. Teach them about exchange and trade for mutual benefit, investment, employment, division of labor and comparative advantage—in other words free market capitalism—and they will eat all the days of their lives.

It is sometimes proposed to institute a “maximum wage” of sorts, to reduce inequality with either a hard income cap, or by restricting the ratio of the highest paid to the lowest paid person in a corporation.  Let’s do a thought experiment to see what might result from such a scheme.

Imagine a supermarket aiming to reduce inequality.  To this end, every item in the supermarket has the same price sticker on it. Everything costs the same. How would this work out?  At the end of the week, what do you think is left on the shelves and what is not? What will be restocked the next week by the wholesaler and what will not? What will producers be shifting their production to?

Hopefully your intuition leads you to suspect that everyone grabs the steaks and the cigarettes on the first day. The wholesalers then hoard these goods and only ship the cheapest goods to the stores the next week. After that, only the cheapest goods are officially produced and sold. The more expensive goods, if they exist at all, are only available on the black market, where they exchange at something closer to a free market price.

The same would be true in a job market, if everyone were paid the same.  Everyone would want the fun jobs, taking care of puppy dogs, playing in a rock band or being a centerfold photographer. Very few would want to do the messy and unpleasant jobs, or jobs that require many years of study, like becoming a doctor.

Of course, you might try to prevent this dynamic by having the government test everyone, to determine their aptitudes, and assign each person a mandatory occupation, according to the “needs of society.” Some of those jobs, no doubt, would be those of a jailer and border guard, to imprison those who rebel against such notions, or shoot those who try to flee the country.

The secondary effect would be that everyone would do a half-assed job at their work. In any given line of work, say an auto mechanic, the most-skilled and most-efficient and most-diligent worker would get not one cent more than the idiot who returns cars worse than when they arrived. With no incentives for excellence, few would strive to excel.

The third predictable outcome is that those of skill and talent would make their services available, at something approximating a free market price on the black market. Side by side with this would be a common practice of bribery. To get a qualified plumber, electrician, etc., would require a bribe.

Of course, the profit motive is not the only incentive known to man. In a pinch the threat of a firing squad can work as well.