Tag Archives: Luck

The Inevitable Unfairness of the Free Market

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I just finished reading Milton Friedman’s book Free to Choose: a plea for the free market. Friedman has some compelling claims against government intervention in economic transactions. Price is – as he claims – the most informative entity there is in communicating individuals’ demand and supply of goods and services, and, in a capitalistic society at least, provides people with the incentive to utilize this information, thereby satisfying the needs of those that demand the goods/services. Furthermore, by acting upon the information, individuals provide themselves with the resources required to live a decent life. But although the free market – as Friedman describes it – seems a beautifully simple and elegant construct, there are some ‘side-effects’ of the system that might run against our intuitions about the notion of fairness.

It seems clear that the free market is the most efficient medium there is for maximizing the value of each of the individuals involved. And that (the ‘maximizing of value of each person involved’) is, according to libertarians, what makes the free market a fair system. After all, if you want to sell a computer, and another person is prepared to pay you the price you charge, then it’s only fair to let this deal take place, isn’t it? There is mutual consent between the parties involved, so what – if anything – could give a third party the right to intervene in this seemingly flawless transaction?

While there indeed might be nothing wrong with the free-market mechanism from the perspective of exchanging value, it might be doubted whether it is fair to make this mechanism the only mechanism for exchanging value. For while it’s no problem – and might even be beneficial – for those parties in a free market that possess the means to participate in the ‘game’ of exchanging value, it might be harder for those that – by nature or environment – have been unfortunate in acquiring the means required for satisfying their needs.

Because what if you’re not as intelligent as the average person, therefore getting a relatively low-income job, such as being a plumber, because of which you are unable to satisfy your needs to the same degree as – let’s say – a banker or lawyer? Of course, a libertarian might say, the plumber can still participate in the free market, just like the banker or lawyer can. But, even though the three parties might have the same needs (for luxury or otherwise), the plumber cannot satisfy as many of his as the banker and the lawyer can of theirs: only because nature happened to endow him – in contrast to the banker and lawyer – with capabilities that apparently are less appreciated (since less demanded) in society. So the question is: is it fair to let nature – and thus chance – play such a drastic role in the ability of any person to satisfy his needs?

A libertarian can answer this question in either of two ways. Either he admits that the extent in which we’re able to satisfy our needs is indeed – in principle – determined by nature’s authority over our capabilities, or he must come up with an ingenious invention for how to solve this negative side-effect of the free market without thereby endangering the libertarian heart of his plan. The first option, although this appears to be mostly ignored by libertarians, seems to imply a notion of ‘fairness’ that I – and I assume many others – find highly questionable. On the other hand, it at least is a notion, and – given that this truly is the libertarian’s view of a fair world – should be accepted for what it is.

The latter option – on the other hand – provides more room for discussion. Because how – if ever – could it be possible to solve nature’s capability-casino by means of a libertarian solution? There are of course many plans one could come up with, all of them mitigating the negative effects, but all of them being either (1) in conflict with the libertarian aspiration of a free market or (2) don’t get down to the root of the problem (that is, the unequal distribution of capabilities over mankind). It seems fair to say that (2) is a kind of unfairness that is inextinguishable – not by socialism nor by libertarianism. We after all cannot redesign our beings in order to endow everyone with the same capabilities. And even if we could do so, it’s high questionable whether this choice would be beneficial to society as a whole. So it seems we’re stuck with (1), pointing us to the possibly unfair consequences of the free market.

The above reflection shows that there seems to be an intuitively unfair side-effect of the free market; a side-effect that is unsolvable by means of the free market-paradigm itself. It either requires us to adopt the libertarian notion of ‘fairness’, or requires some sort of (government) intervention in order to compensate for nature’s ‘unfair’ distribution of capabilities.

What do you think?

The Butterfly Effect: How Small Decisions Can Change Your Life

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The butterfly effect: a term often used within the context of ‘unpredictable systems‘ like the weather and other ‘natural’ systems. For those who don’t know it, the butterfly effect refers to a system being ‘(very) sensitive to changes in its initial conditions‘. As the name implies, think about a butterfly flapping his wings and, because of this small flapping, causes a hurricane to occur at a later point in time and possibly an entirely different region in space. The butterfly in this example is the symbol for how small changes in an earlier stage can cause huge changes to occur at a later point in time.

But can’t this concept be applied to life as well? Think about it: have you ever experienced a small phenomenon occurring – like you receiving a mail, you stumbling upon something on the internet or you meeting a person who happens to change the way you think – that, looking back, has influenced your life significantly? Let’s take the example of you talking to a person who made you change your mind. I can only speak for myself, but I definitely have had a couple of such experiences in my life. Let me give you an example of my life that illustrates the effect utter randomness can have on the course of your life:

I didn’t know what kind of Master to attend after finishing my Bachelors. While thinking about studying economics in Rotterdam (the Netherlands), I came in touch with a professor philosophy of science, who – at the time – was supervising my bachelor thesis. I had always though about attending a Master philosophy somewhere at a university, but I had difficulties with the ‘vague touch’ Philosophy masters tend to have; none of them seemed analytic or logical enough to me.

The professor and I – during one of our supervising sessions – accidentally stumbled on the question what I wanted to do after my Bachelor philosophy; so I told him about my plan to go to Rotterdam. When he asked me why I wanted to study Economics there, I didn’t really know what to say. I said, ‘Well, I always dreamed about studying abroad at a nice university; Oxford, Cambridge or something along those lines. But there don’t really seems to be Masters over there that suit my interests. That is: thinking about the world in a “non-vague” manner.’ He responded, `Have you tried the LSE (London School of Economics and Political Science)? They have a Master Philosophy and Economics and a Master Philosophy of Science. Isn’t that something for you?’ ‘Also,’ he added, ‘A good friend of mine – someone I hang out with on a regular basis – is a member of the selection commission of that Master Philosophy of Science. It might be interesting for you.’ I took a look at this Master and I was sold right away. I applied, got accepted and have studied a year in London.

What if I wouldn’t have talked to this professor about my ambitions? What if I would have had a different thesis supervisor? What if I would have had a headache that day and didn’t feel like talking? Then my future would very likely have looked very differently.

So what can we – or what did I – learn from this story: I learned that I shouldn’t hesitate to take opportunities, no matter how small they might seem. Because those small opportunities might cause a stream of new possibilities to arise later on. And the same goes for the opposite: I should avoid bad actions, no matter how small. I remember that – a couple of years ago – I said something mean to my football trainer, and I have regret it ever since. In other words: small actions can have significant consequences.

But what do you think?