In making a libertarian case for Bernie Sanders, Will Wilkinson draws attention to an awkward point for right-libertarians – that inequality is the enemy of freedom.
He points out that Denmark –the sort of country Sanders wants the US to be more like – has greater economic freedom than the US. This, he says, “illustrates just how unworried libertarians ought to be about the possibility of a Denmark-admiring, single-payer-wanting, democratic socialist president.”
Will is not taking freak cases here. My chart plots a measure of income inequality (taken from the World Bank) against the Heritage Foundation’s index of business freedom – their measure of how government regulates firms – for 26 developedish nations. There is a slight negative correlation between them, of 0.16. If anything, I’m biasing the chart against the point I want to make: if I were to exclude Malaysia, which is free and unequal, or include Chile (which is unfree and unequal) the negative correlation would be much greater.
Inequality doesn’t just reduce freedom for workers. It reduces freedom for business owners too.
Will says this is because countries that want to tax and redistribute must have a healthy economy, which requires business freedom. I suspect that there are two other mechanisms at work.
One is that many of the rich have no interest in economic freedom. They want to protect extractive institutions and the monopoly power of incumbents from competition. They thus favour red tape, which tends to bear heavier upon small firms than big ones. This, I suspect, explains why inequality and unfreedom go together in Latin America, for example.
Secondly, people have a strong urge for fairness. If they cannot achieve this through market forces, they’ll demand it via the ballot box in the form of state regulation. As Philippe Aghion and colleagues point out, there is a negative correlation between union density and minimum wages: minimum wage laws are more likely to be found where unions are weak. Regulations, in this sense, are a substitute for strong unions – and, I suspect, a bad substitute because they are more inflexible.
Through these mechanisms, inequality is the enemy of freedom even in the narrowest right-libertarian sense of the word.
That said, it doesn’t follow that people who want greater income equality will necessarily promote economic freedom: Megan McArdle might be right to say that Sanders can’t or won’t much enhance it. We should, though, ask: what sort of egalitarian institutions and policies might increase freedom?
For me, the answer is clear: those which increase workers’ bargaining power. This means fuller employment and a jobs guarantee; stronger trades unions; and a citizens’ basic income. The point here is that if workers have the power to bargain for better wages and conditions, and the real freedom to reject exploitative demands from bosses, then we’ll not need so much business regulation. In this sense, greater equality and cutting red tape go together.
What don’t go together – in the real world – are inequality and freedom. So-called right-libertarians therefore have a choice: you can be shills for the rich, or genuine supporters of freedom – but you can’t be both.