market equitism

a new approach to economic equality

Clay Shentrup
5 min readJun 14, 2023
market equitism: coming soon to a billboard near you

economic inequality is one of the most pressing challenges of our time. the gap between the rich and the poor has been widening in many countries, leading to social unrest, political polarization, and human suffering. how can we address this problem without sacrificing economic efficiency, innovation, and growth?

one possible answer is market equitism, a philosophy that aims to balance the goals of equality and efficiency in a market system. market equitists believe that efficient markets maximize the amount of wealth available to society¹. they also believe that wealth inequality should be reduced as much as possible without creating deadweight loss, which is the loss of economic surplus due to inefficient taxation or regulation².

how can we achieve this balance? market equitists propose two main strategies: fixing market failures and redistributing wealth without deadweight loss.

fixing market failures

market failures are situations where the free market fails to allocate resources efficiently, resulting from negative externalities, monopoly power, non-excludable goods (common goods and public goods) or asymmetric information³. for example, pollution is a negative externality that harms the environment and public health, but is not reflected in the market price of goods and services. monopoly power is the ability of a single seller or buyer to influence the market price or quantity of a good or service, resulting in lower consumer surplus or producer surplus. asymmetric information is the situation where one party has more or better information than another party in a transaction, resulting in adverse selection or moral hazard. for example, health insurance companies may face adverse selection if they cannot distinguish between high-risk and low-risk customers, or moral hazard if their customers have less incentive to take care of their health after being insured.

market equitists argue that these market failures justify government intervention to correct them and improve social welfare. they support policies such as carbon taxes, antitrust laws, public funding for research and development, and regulation of information asymmetries. these policies aim to internalize externalities, provide non-excludable goods (i.e. public goods and common goods, those which cannot be provided on a private market because recipients cannot be forced to pay, e.g. national defense), prevent monopoly power, and reduce information problems.

redistributing wealth without deadweight loss

market equists also recognize that even if markets are efficient, they may not be fair. some people may have more wealth than others due to luck, inheritance, discrimination, or exploitation. moreover, some people may have more needs than others due to disability, illness, or old age. these inequalities may undermine social justice and human dignity.

market equitists advocate for redistributing wealth from the rich to the poor in order to reduce inequality and poverty. however, they are careful to avoid creating deadweight loss in the process. they favor taxes that have negative or neutral deadweight loss over taxes that have positive deadweight loss. negative deadweight loss occurs when a tax increases economic efficiency by correcting a market failure. for example, a carbon tax reduces pollution and increases social welfare. neutral deadweight loss occurs when a tax has no effect on economic efficiency because it does not distort incentives or behavior. for example, a land value tax does not affect the supply or demand of land because land is fixed in quantity. positive deadweight loss occurs when a tax reduces economic efficiency by creating a wedge between the supply and demand curves of a good or service. for example, an income tax reduces labor supply and demand by lowering the net wage.

market equitists prefer taxes such as carbon taxes and land value taxes over taxes such as income taxes and sales taxes because they have lower or zero deadweight loss. they also prefer giving cash transfers to the poor over providing in-kind benefits such as food stamps or health care because cash transfers allow the recipients to choose how to spend their money according to their preferences and needs.

one way to implement this redistribution scheme is to create a social state where everything is funded by a universal basic income (UBI). a UBI is a regular and unconditional payment given to every citizen regardless of their income or employment status. it provides a basic level of income security and freedom for everyone. the only time government spends money on other people’s behalf is on non-excludable goods like military defense where they can’t be bought on a private market with cash⁴. everything else is just UBI.

why market equitism is better than price controls

some people may argue that a simpler way to reduce inequality and poverty is to use price controls such as minimum wage or rent control. these are policies that set a maximum or a minimum price for a good or a service in a market. for example, a minimum wage sets a floor on the wage that employers can pay to workers, while a rent control sets a ceiling on the rent that landlords can charge to tenants.

however, market equitists contend that price controls are inefficient and ineffective ways to achieve social goals. they point out that price controls create deadweight loss, which is the loss of economic surplus due to inefficient taxation or regulation⁵. when prices are controlled, the mutually profitable gains from free trade cannot be fully realized, creating deadweight loss. with price controls, less trading occurs and both buyers and sellers miss out on the mutually profitable gains that could have occurred.

for example, a minimum wage may increase the income of some workers, but it also reduces the employment of others who are willing to work for less. this creates unemployment and reduces the total output of the economy. similarly, a rent control may lower the rent for some tenants, but it also reduces the supply of housing and the incentive for landlords to maintain their properties. this creates shortages and deteriorates the quality of housing.

market equists argue that instead of using price controls, it is better to use taxes and transfers that do not distort the market prices and quantities. they claim that this way, the economy can achieve both efficiency and equity without sacrificing one for the other.

conclusion

market equitism is a new approach to economic equality that combines the principles of egalitarianism and efficiency. it seeks to fix market failures and redistribute wealth without deadweight loss. it supports policies such as carbon taxes, land value taxes, and universal basic income. it offers a vision of a society where everyone has an equal opportunity to prosper and a decent standard of living.

Source: Conversation with Bing, 6/6/2023
(1) Price Ceilings: Deadweight Loss | Microeconomics Videos. https://mru.org/courses/principles-economics-microeconomics/price-ceiling-deadweight-loss.
(2) Price ceilings and price floors (article) | Khan Academy. https://www.khanacademy.org/economics-finance-domain/microeconomics/consumer-producer-surplus/deadweight-loss-tutorial/a/price-ceilings-and-price-floors-cnx.
(3) Economic efficiency (article) | Khan Academy. https://www.khanacademy.org/economics-finance-domain/microeconomics/consumer-producer-surplus/deadweight-loss-tutorial/a/demand-supply-and-efficiency-cnx.
(4) Price Control and Dead-weight Loss — SPUR ECONOMICS. https://spureconomics.com/price-control-and-dead-weight-loss/.
(5) Price Controls and Deadweight Loss: A Microeconomic Analysis — LinkedIn. https://www.linkedin.com/advice/3/how-can-deadweight-loss-measure-inefficiency-price.

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Clay Shentrup

advocate of score voting and approval voting. software engineer.