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

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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.

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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. 

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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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It is misleading to suggest that a free market means a level playing field or a pure meritocracy. Market economies do not exist in some ideal theoretical world with no history and no concrete realities.

People start from different places. If someone inherits several million dollars, and places it in safe investments, perhaps with the help of a financial advisor, that person needs no special talents to remain rich and pass their wealth down to their children. Even more, assortative mating makes it likely that wealthy people will marry other people from similar socio-economic backgrounds. Their children will be raised in a safe environment, attend good schools, have out-of-school tutoring, attend good universities, not need to work while going to school, and inherit wealth. They will have lived in areas and attended schools which enable them to develop networks and social connection with other wealthy people. On the opposite end of the spectrum, children from poor families lack many of the advantages of children from wealthy families. 

Even worse, the growing disparity in the share of wealth stemming from capital over labor means that very few people can earn sufficient money to move into a higher economic stratum than their parents. This inequity especially affects black and Hispanic populations who historically have lower net worth than Caucasian ones.

In a pure market economy, there are no barriers to monopoly, rent-seeking, or structural inequality. This is why the United States has less opportunity for social mobility than European nations with a stronger social network and a more redistributive economic system. 

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Economic equity is very difficult to achieve in a free market economy because people naturally have different levels of ability and determination.  In a free market economy, those differences end up leading to differences in economic status.  Those differences can be passed down generation to generation until they become quite entrenched.

People may be born equal in the eyes of the law, but we are clearly not all born equal in every way.  Some of us are clearly smarter than others.  Some of us are more talented in particular ways.  Some are taller, thinner, and/or better looking than others.  Some of us seem to have personalities that cause them to be more driven and ambitious.  All of these are attributes that can help people succeed economically in a free market system.

In a free market system, you can make more money as you have more of the attributes mentioned above.  Free markets reward the talented and determined and punish those with lesser gifts.  Over time, the gaps that this creates become more and more entrenched, when talented people marry other talented people and bring up children who may be more talented and who surely benefit from growing up in privileged circumstances. 

It is hard (and perhaps impossible) to achieve economic equity (if, by that, we mean something like a situation where everyone has a roughly equal amount of wealth) because free markets naturally lend themselves to inequality.

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