Free markets allow us to pass on the benefits of our good luck and minimize the impact of our bad luck unlike any other system before or yet designed.
It is apparent to the careful observer that many of us are often the beneficiaries of good luck or the victims of bad. Robert Frank has penned an excellent column on this topic, as well as made an appearance on EconTalk. This topic is the feature of his new book, Success and Luck: Good Fortune and the Myth of Meritocracy. In these pieces, Frank describes the often unseen and unattributed impact of luck in our lives and our common cognitive biases in recognizing bad luck but failing to take into account good luck. However true this may be, that we are in many ways the beneficiaries of good fortune or the victims of bad, it is worth noting that such an observation is insufficient justification for public policy that implements redistributive means to compensate the less fortunate. It also fails to justify any corresponding centralized power necessary to make this arrangement. Instead, alleviating the impact of bad luck in our lives and distributing the benefits of good is best dealt with through free market mechanisms, including charitable ventures.
One of the reasons for this is that even though individuals are often the beneficiaries and victims of luck, and even disproportionately so, it remains difficult for any central body to measure the value of information that is inherently diffused among many people even those that are the result of luck. As Hayek wrote, “The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.” In other words, information on good and bad luck is not easily obtained as it is diffused information unknown by any central body. By way of example, a prospector for gold in unexplored territories may, by and large, find gold as merely a function of good luck. However, capturing and using the information of the discovered resource, whether the result of luck or not, is not a function of luck, but instead of creating a means whereby this information is best utilized. As Hayek points out, the price system does a marvelous job at disseminating that information in a way to encourage its extraction, production and use.
Second, we each make decisions and act according to our respective luck, which, as previously outlined, is largely diffused information. This allows an individual to take precautions such as buying life or disability insurance, writing a will, choosing a place to live, opening a savings account, investing in retirement, living a healthy lifestyle, or even using technological advances to avoid risk and improve the quality of life.
People are often searching for ways to improve their lives and to minimize the impact and frequency of ill fortune. This isn’t to say that our ability to change our circumstances is unlimited. It certainly is, but it is also the case that we have minimized many risks significantly in the last 100, 50, or even 20 years.
Free markets also allow us the opportunity to use our surplus good luck to the benefit of others. And though I believe charitable acts are important, surplus good luck is not limited to distribution through charitable acts alone. The benefits of luck are not always limited to a single person, but are often entered into the stream of commerce where it can be enjoyed by many. Consider the gifted athlete who enters a professional sport where many will marvel and even model his athletic ability, often paying a premium to watch live. Or the software engineer who by sheer luck (assuming it so in this scenario) stumbles on a time saving algorithm for programming. Or the oil baron who finds a large accessible well of light sweet crude. Certainly their good fortune is meaningless if they cannot enter into commerce where those benefits are spread to others through the “marvel” of the market.
In making policy, one element of an argument does not justify any particular outcome. This is the difference between a necessary condition and a sufficient condition. The observation that the world is inherently unfair often as a product of luck does not demand any redistributive policy. When observing the elements that are not the mere product of luck, though, we see that it is immensely important that we allow them to remain unfettered.
It is also worth remembering that we are all the beneficiaries of luck when compared to our forebearers. Due to free market principles we live in a substantially wealthier time than ever before. Free markets move toward the accumulation of wealth and efficient use of scarce resources dispensing many of the ill effects of what was once considered merely bad luck.
I also agree with one of Frank’s many good points. We should feel grateful at our good fortune and aware of those who have less. Gratitude is scarce enough as it is.
James C. Devereaux is an attorney and freedom fanatic. He is exteremely lucky in some things that more than compensate for his bad luck in others. Questions, complaints and hysterics can be sent to firstname.lastname@example.org or follow him on twitter @jcdevereaux1. All views are my own.by