Why is economic equity difficult to achieve in a free market economy?

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pohnpei397's profile pic

Posted on

Economic equity is difficult to achieve in a free market economy because people have different types of skills and different levels of ambition.  In a free market economy, this means that people will not be able to get the same amount of wealth.  Therefore, economic equity will be elusive.

In a market economy, the amount of money people get depends on the match between supply and demand and the people’s particular skills.  A person can get a lot of money if he or she has skills for which demand is generally greater than supply.  Perhaps the clearest example of this is professional athletes.  Unlike teachers or firefights or people like that, these are people who do not do anything that seems to improve our society.  However, there is a high level of demand for these talents and a relatively low level of supply. 

By contrast, when a person has skills that are very common or that are not in very high demand, that person will not make much money.  For example, relatively many people have beautiful singing voices or can take amazing photographs.  While people love music and great photography, there is much more supply than there is demand.  Therefore, such people typically do not make very large amounts of money.

Another issue is a person’s level of ambition.  Imagine two people who have similarly great math skills.  One decides they want to be a college professor and makes a good, middle-class salary.  The other wants to have more money and goes to work on Wall Street.  This person makes millions of dollars each year.  They had the same skills, but one of them was much more ambitious and chose to take a job that would pay them much more.

In a free market economy, we get paid more when have skills that are in short supply.  We also get paid more when we are more ambitious and we try harder.  Because of these things, people in a free market economy will not all be paid the same amount.  This makes it very difficult to achieve economic equity in such an economy. 

tjbrewer's profile pic

Posted on

The answer is what makes a free market economy work: Supply and demand.  If there is a lot of demand and little supply prices go through the roof.  If there is a lot of supply and little demand, prices go through the floor.  If there is a moderate supply and moderate demand, the prices are modest. 

So long as supply and demand remain moderate, economic equity is achieved.  However, this is rarely the case.  How many people can flip a burger, or clear the dishes off a table, or mop a floor?  How likely are you to find someone who demands less than $15/hour? 

How many people can teach an unmotivated kid?  How likely are you to find one of them who demands less than $15/hour? 

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