Wealth Is Not the Culprit

 

There was a viral video called “Wealth Inequality in America” making the rounds this week and a post by Derek Thompson at The Atlantic that cited it with the headline “Wealth Inequality Is a Problem, but How Do You Even Begin to Solve It?

It was enough for me to write a response at Forbes:

There are at least two problems with Thompson’s article.  First, the very term “wealth inequality” and second, his less than enthusiastic reference to the “returns of globalized capitalism,” a sentiment more obnoxiously expressed in the way the video he embedded put facetious quotation marks around “’dreaded’ socialism” to hint that such a system has actual merit as an alternative to capitalism.

To address the first issue, we need to agree right now to do ourselves a favor and stop calling it “wealth inequality.”  Wealth is not the culprit.  There should be no negative associations with the word wealth in the context of people having it.  Poverty and social dysfunction are what plague us; they cannot be fixed by taking from the haves to give to the have-nots.  To improve the situation, the have-nots must become the do-somethings.

While the solution may be complex in its execution, it can be simply stated: Establish stable institutions to empower people to be free and productive and they will prosper. Redistribution of a static supply of resources accomplishes nothing and makes no one richer.  Wealth creation is the answer.

I go on to explain what I mean by wealth:

Though the video uses little animated dollar bills, money is only the measurement of wealth, it is not the substance.  Wealth is instead a richness of life.  As John Stuart Mill put it, wealth may be defined as “all useful or agreeable things, which possess exchangeable value.”  It is potentially anything our boundless minds can produce from the materials at hand.

And then I go into the persistent, oblivious fascination with socialism, though it pains me that such things even still need to be said: 

Let’s get something straight once and for all.  Socialism is not to be satirically “dreaded,” it is to be summarily avoided at all opportunities.  Socialism is economic insanity.  There is no more adequate way to describe it.  Even if we were to tolerate the folly of redistribution, for instance through taxation and welfare transfer payments, this is merely the least offensive socialist idea.

Socialism entails nationalization, the state management of the means of production and resources.  The state is the main employer and therefore the main benefactor.  People are reliant on the whims of leaders and technocrats to determine a fair compensation for their labor.  Because the state sets prices arbitrarily, rationing inevitably follows.  Black markets become a necessity.  Socialism is an economic system that requires a shadow economy to operate.  It is at every level inefficient and global history more than proves this by now.

I close with an argument that many have been trying to make lately, a case for capitalism and its moral and material superiority:

Capitalism is not the enemy.  Not for a free people who have prospered because of it, at least. Capitalism has done more to save and enrich lives in Western civilization than we can possibly enumerate.  Perhaps that’s the problem.  Most Americans don’t know any other way of life.  They don’t understand how miserable, sick, and poor we’d be without the creative power of a free market.

They don’t grasp how disturbing socialism has been in practice.  In the 1930s, in the larger cities of the Soviet Union, abortions outnumbered births.  People had no incentive even to carry life on into the next generation.  People need incentives.  They need to believe that their children will thrive and prosper.  The only system to successfully and consistently instill that kind of confidence is capitalism.  So, yes, socialism is rightly to be dreaded and no, the returns of capitalism are not to be viewed with scorn.

The full post can be found here.  What do you make of the “wealth inequality” meme? Why does it seem to capture people’s attention?

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  1. Profile Photo Inactive
    @BarkhaHerman

    Hey Maura –

    I enjoyed the article very much.  The trouble with statistics is that you can manipulate data to your benefit.

    One thing I would add is that if markets were truly free, wages would regulate themselves better.  Crony capitalism is no one’s friend.

    Incidentally, there is a witty response to the video by David Angelo.  Check it out.  it is clever.

    https://www.youtube.com/watch?v=KENaWXPmBr0

    • #31
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    @DocJay

    Fantastic essay. Thank you.

    • #32
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    @MauraPennington
    DocJay: Fantastic essay. Thank you. · 3 minutes ago

    Oh, that’s nice of you to say.  Thanks for reading!

    • #33
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    @DonTillman
    Barkha Herman: 

    Incidentally, there is a witty response to the video by David Angelo.  Check it out.  it is clever.

    https://www.youtube.com/watch?v=KENaWXPmBr0 · 

    Oh ho;  very well done!

    • #34
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    @
    WI Con

    EThompson

    Mark:

    7.  I worked in the corporate world for many years and enjoyed it and am opposed to government intervention but it would be good to see a little more modesty and willingness to take less at the top.

    People “at the top” are paid according to what the market will bear. Modesty has nothing to do with a free market. · 11 hours ago

    I used to believe that “People at the top are paid according to what the market will bear” – 

    ?Big corporations always have a tendency to promote beyond a person’s capabilities. In a relatively free market this will all even out. Even on smaller scales employees never think the owners or top officers deserve what they’re paid. Bitter envy, paranoia and back-stabbing are never far away, especially in business. Another version of ‘you didn’t build that’.  I personally have always wondered why anyone would want to work for even medium sized corps, and now am reminded by personal circumstances what a ‘game’ it is. Yuck. But if you join it, don’t complain about the rules. Reminds me of the member thread about The Atlantic guy not being paid… 
    • #35
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    @RachelLu

    I already said something like this, but it seems to me that this column is exonerating wealth even though, 38 comments in, I still don’t know what the crime is.

    Why is it so hard for both sides to prescind from “Capitalism Yay!” and “Capitalism Boo!” and have more meaningful discussions about the kind of society we have and want to have? By all means, hash out the economics and correct the distortions of the left concerning stratification in America. But don’t think you’ve somehow settled the matter that way. Of course we should still be interested in the way that economics is shaping American life and culture. And if we’re unhappy with the way that’s going, we should be ready to talk about correctives (not necessarily explicitly political ones) to the problems.

    • #36
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    @MauraPennington

    Ugh.  That “wealth inequality” video just popped up in my Newsfeed again, even after I posted my article.

    Maybe I should have made mine a cartoon.

    • #37
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    @Gretchen

    Excellent piece.

    I refuse to consider material inequality a problem. Poverty is a problem. It is unrelated to “inequality”.

    Time was Americans admired success. Now we are taught to resent it, which does nobody any good (except for the demagogues who promote resentment).

    • #38
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    @DonTillman

    I think we should dive deeper into the fundamental premise of this video.  Maybe two premises in this case.

    One premise is assumption that an ideal distribution of wealth exists, and that distribution should be determined by a survey of people who have no understanding of what the current distribution of wealth is.  (And ominous background music.)

    The second premise is this survey that finds that 92% of Americans point to this ideal distribution.  Really?  I mean, really?

    Of course not.  Here’s the original paper:

    Norton and Ariely: Building a Better America, One Wealth Wealth Quintile at a Time

    http://people.duke.edu/~dandan/Papers/Other/BuildingBetterAmerica.pdf

    The survey seems very different than what was presented.  A detail on page 2:

    In considering this question, imagine that if you joined this nation, you would be randomly assigned to a place in the distribution, so you could end up anywhere in this distribution, from the very richest to the very poorest.

    Well, look at that.  It’s not about that at all.

    • #39
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    @
    Maggie Somavilla:

    Time was Americans admired success. Now we are taught to resent it, which does nobody any good (except for the demagogues who promote resentment). · 10 minutes ago

    Did we admire success, or did we admire certain behaviors that were supposed to lead to success?  I think one reason there’s now more resentment toward the successful is that success seems to have less to do with virtue than it did formerly.

    • #40
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    @FullSizeTabby
    Jolly Roger: The great flaw in Thompson’s logic is as follows. He blames wealth inequality on globalization. However, aren’t even most of the poorest people far wealthier and better off then most people around the world? in countless countries the average income is way below the average in the US. Why should people who are poorer in the US be redistributed money so as to be on par with other Americans but leaving all the other inhabitants of this world bereft? Because by turning back globalization, by putting all these controls on the free market economy, the real transfer of wealth and income is from the destitute of foreign countries to the “poorer” people of the US. That sounds inhuman and draconian based on his own ethics and logical standards. But isn’t that the question he doesn’t answer? · 13 hours ago

    Alternatively, if the graph were global instead of US-only, the top 1% income earners globally include most of the US “middle income.”

    • #41
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    @FullSizeTabby
    david foster: Note that there is not much concern aboutpower inequality. Barack Obama says there comes a point where you’ve made enough money, he never said there comes a point where you have enough power.

    Yet power is always convertible into wealth. Sometimes this is an in-kind conversion, as with the dachas, cars, and special stores available to Soviet officials. Sometimes the conversion is in the form of money, as in the $200,000 per-event speaking fee that Hillary Clinton will reportedly be getting.

    To a large extent, the issues being raised about economic inequality are a smokescreen for the attempts of certain elites to centralize and dominate political power and to enjoy the personal rewards thereof. · 15 hours ago

    Yes. My anecdotal experience with people who are concerned with wealth or income inequality is that they want the power to decide who gets what. 

    • #42
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    @Mike45

    I didn’t plow through all of them, but the analyses all seem reasonable and probably correct, but they were analyses, and today the facts that these analyses make clear don’t seem to be palatable to the electorate.  Maybe we should concentrate on the consequence of solving wealth inequality to the typical American who thinks he has tried to save something for a rainy day.  That something is wealth, and now the government thinks it should be spread around.  If he had spent everything he earned he would have little or no wealth and would be the happy recipient of someone else’s frugality.

    In the end the “progressive” appeal is to envy.  But few envy the celebrity; instead, most envy the family down the street, the ones who aren’t scraping by, because they’ve not been profligate.

    We should alert the middle class to the quite real fear that the government is coming after their savings, their wealth, because that’s where the money is.

    • #43
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    @HVTs
    Adrastus

    … if we prefer to pretend that life and the market are inherently fair …

    Who makes such a ludicrous claim about life or markets?

    The question is how to improve what is inherently unfair—life.

    Everyone wants prices they pay set by competitive market forces. That defines ‘fairness.’  Compensation is simply the price of labor and we want that determined impersonally too (except our own), not rigged by the self-interested. 

    Well, there are no perfect people, no perfectly competitive markets, no perfectly managed currencies. These are all subject to human frailties of intellect and morality.

    By centralizing price/compensation/valuation decisions in political institutions we ensure: (1) static solutions for dynamic problems; (2) enormous power flows to politicians, guaranteeing anti-competitive abuses. One only need look at how Congress uses the tax code to serve political self-interest.  Or at Obama filling pockets of solar company executives who raise huge campaign contributions for him.

    So governmental/regulatory solutions don’t solve the problem of market fairness, just relocate it. We ought to demand politicians stay out of the marketplace, and that our government enforce competition-enhancing measures while punishing anti-competitive behavior. Sounds easy, but it isn’t.

    • #44
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    @PaulDougherty

    “Given the number of economists that refute this argument, not to mention sociologists, I find it difficult to take it seriously.”

    This is the response I received upon my Facebook posting of this thread. It is, coincidentally, by the person that posted the offending “income inequality” video on my timeline. Go figure.

    • #45
  16. Profile Photo Member
    @
    HVTs

    Adrastus

    … if we prefer to pretend that life and the market are inherently fair …

    Who makes such a ludicrous claim about life or markets?

    The question is how to improve what is inherently unfair—life.

    I’ve seen literally dozens of posts and comments on Ricochet that make some version of that claim.   Anyone who tries to dismiss the problem of income inequality by saying that the rich are rich because they work harder and produce and the poor are poor because they don’t is asserting the basic fairness of the market. 

    I understand that people talk this way because they don’t want to open the door to socialism, but there must be ways of taking the problem of income inequality seriously without advocating a state takeover of the economy.  If the market can be more or less fair, and if it’s becoming less fair, then surely it’s reasonable to talk about ways of moving it back in the direction of greater fairness.  (I think David Foster, in his comments, offers a good line for conservatives to take.)

    • #46
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    @JosephEagar

    I have a, perhaps unusual take on this issue.  I don’t think inequality is ever going to be solved by economic redistribution in America; if the Great Recession wasn’t able to drive the American masses into the hands of the redistributionist left, nothing ever will.

    There is simply too much evidence that redistribution harms the recipients.  Instead, what I think (hope, anyway) will happen is Americans will start looking at every other policy option besides economic redistribution (and in my ideal world, the GOP would lead the way).  Crony capitalism, municipal corruption, zoning laws, the way American politics is currently captured by the upper middle class; that’s where the battles will be fought.

    There’s a lot we could do to improve inequality without redistributing anything at all, from sane immigration reform, regulation cuts (even if we have to pack SCOTUS with libertarian judges to do it), school choice, municipal governance reforms, civil service reform at all levels of government, etc. 

    • #47
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    @LastOutpostontheRight

    What do you make of the “wealth inequality” meme? Why does it seem to capture people’s attention?

    It captures attention because of the word inequality.

    Our society has distorted equality to require that very few are allowed to be exceptional:

    • Exceptionally Talented – witness the legion of Lebron and Kobe haters.
    • Exceptionally Generous – the MSM gets on Mitt’s case for not taking the full tax deduction for all of his donations.
    • Exceptionally smart – “I’m always struck by people who think, well, it must be because I was just so smart.” – guess who

    We’ve been so conditioned to reject any inequality that we now falsely equate the sexes, achievements, moral values, and even intelligence. So if some people are more wealth than others, then it’s unequal … and it must therefore be evil.

    • #48
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    @LastOutpostontheRight
    Adrastus

    Did we admire success, or did we admire certain behaviors that were supposed to lead to success?  I think one reason there’s now more resentment toward the successful is that success seems to have less to do with virtue than it did formerly. · 4 hours ago

    We admired success, but we recognized and celebrated the behaviors that most often lead to success.

    In our conspiracy-driven, 24-hour news cycle, the dominant narrative is that “exceptional gains are typically ill-gotten.” The embezzler makes leads the nightly news. But no one knows about my boss – who has earned his wealth through relentless hard work and by demanding the utmost in integrity from himself and his employees.

    There have always been those who achieve success without virtue. I do believe that we hear about it more today than we did in the past.

    • #49
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    @JamesDelingpole

    It seems to me that when the epitaph is written (shortly) on Western Civilization it will be: “Hey but at least they really believed in equality.”

    • #50
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    @DonTillman
    Last Outpost on the Right

    What do you make of the “wealth inequality” meme? Why does it seem to capture people’s attention?

    It captures attention because of the word inequality.

    ‘Nailed it.  Well done, sir.

    • #51
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    @HVTs
    Rachel Lu: HTV, can we never discuss questions of justice and morality unless we’re prepared to advocate a law or ham-fisted government program to force everyone into compliance? I certainly never thought that supporting limited government required me to abandon most of my moral precepts.

    There’s plenty of room to discuss justice and morality in the abstract. But in this particular thread the intersection of those concepts with compensation and government policy was the topic. So I thought . . .

    Perhaps I’m overly focused on the present regime, which sees no meaningful limit to the size and scope of government. The tiny pin-prick of sequestration cuts—a trivial decrement to what is still relentless growth in government spending and debt—caused the most ludicrous political theater a President has concocted in my life time . . . I confess this has me on edge for the fate of the Republic.

    Let me add . . . limited government is a moral precept. Fidelity to that precept necessarily means eschewing certain superficially appealing solutions to what are fundamental flaws of human nature. Last century alone, government attempts to ‘fix’ inequality resulted in tragedies measured in tens of millions of innocent souls.

    • #52
  23. Profile Photo Inactive
    @HVTs
    Rachel Lu:

    … as though we can trust (markets) to reward people according to their true (moral) merits.

    … concerned about selfish, reprehensible behavior on the part of the rich. The mere fact that I have acquired my wealth through the workings of an undistorted free market does not release me from attendant (moral) obligations concerning its use. Until we can appreciate all these points … liberals will always think us callous and inhumane, with some justification.

    Do you want the government deciding “true (moral) merits”?  If not, then to what authority are you appealing?

    Similarly, who should enforce “attendant (moral) obligations”?

    I fear State power enabled to impose its idea of the proper answer to such profound (moral) questions.

    Finally, it strikes me as naive to think if conservatives simply “appreciate” all that liberals say they want us to, that the Left will stop thinking us “callous and inhumane.”  Their whole claim to legitimacy turns upon conservatives being vilified as callous and inhumane (cf., Obama v. Romney 2012).  This is a struggle for power, not debating points.  Concede something to the Left and at that very moment the goal post moves to a new location.

    • #53
  24. Profile Photo Inactive
    @EThompson
    WI Con

    EThompson

    Mark:

    7.  I worked in the corporate world for many years and enjoyed it and am opposed to government intervention but it would be good to see a little more modesty and willingness to take less at the top.

    People “at the top” are paid according to what the market will bear. Modesty has nothing to do with a free market. · 11 hours ago

    I used to believe that “People at the top are paid according to what the market will bear” – while it’s true in the sense of what the market will bear – does the compensation truly reflect the value added by these individuals?

    If corporations are forced to operate freely and independently without government intervention (unlike GM), compensation will be forced to reflect value.

    • #54
  25. Profile Photo Member
    @DonTillman
    Adrastus

    I understand that people talk this way because they don’t want to open the door to socialism, but there must be ways of taking the problem of income inequality seriously without advocating a state takeover of the economy. 

    Ah, but what exactly is the “problem of income inequity”?  How do you measure it?  How do you measure its effects?

    This reference:

    Kopczuk and Saez:Top Wealth Shares in the United States, 1916-2000: Evidence from Estate Tax Returnshttp://www.columbia.edu/~wk2110/bin/estate-NTJ.pdf

    shows declining income disparity (see figure 2).

    —-

    Some people will have nothing, which will always throw off any ratio.  

    Some will owe money on top of nothing.  Should we subtract the national debt ($53,200.00 per capita) from everybody’s net worth?  How about a student who just graduated with a degree in Gender Studies and no employment prospects, $80,000.00 in college loans, and the aforementioned $53,200.00 putting them effectively $133,200.o0 in the hole.  (Yikes!)

    So I think it’s a difficult thing to measure, and it’s hard to tell if it’s getting “better” or “worse” or what optimum ought to be.

    • #55
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    @LastOutpostontheRight
    Don Tillman

    Last Outpost on the Right

    What do you make of the “wealth inequality” meme? Why does it seem to capture people’s attention?

    It captures attention because of the word inequality.

    ‘Nailed it.  Well done, sir. · 2 hours ago

    Thanks, Don.

    This whole “inequality is a problem” really gets on my last nerve. Inequality is neither a cause of our problems nor a solution to our problems. It’s simply the natural outcome of competition. The faster gazelle gets to live longer than the slower ones. The stronger companies get more customers. And if you happen to be an owner at one of those companies, you deserve more wealth.

    – Jose.

    • #56
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    @LastOutpostontheRight

    @Rachel Lu: As a read your responses, it seems to me that we’re in agreement, but that you interpret my post as moving us towards pure “survival of the fittest” kind of culture.

    Social Darwinism leaves the weak unprotected by the rule of law. I am no advocate of such a system.

    When those rules are just, they are rooted in unchanging truths and commands, like “You shall not afflict any widow or fatherless child.” (Ex 22:22), and “You shall not pervert justice; you shall not show partiality, nor take a bribe, for a bribe blinds the eyes of the wise and twists the words of the righteous.” (Deut 16:19).

    But when the rules serve the immoral goal of equalizing results, then we end up with …

    actual inequalities in our present society, [some of which] might be both worrisome and, perhaps, unjust.

    – Jose

    • #57
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    @RachelLu

    The most elementary plank in creating a civilization is deciding that we don’t want to live like the beasts, simply urging everyone to “do what comes naturally” and decreeing that whatever results must be right and good. In such a world, children would run wild and destroy things, cads would impregnate women and abandon them, psychopaths would kill people and so on. That’s “natural” in a brutal, materialistic sense, but since we’re humans, we don’t accept that this is how the world has to be. We give thought to what human society ought to look like, and we civilize people so as to make a greater form of human thriving possible. Jose’s recommendations are a pretty narrow step away from advocating total barbarism. It’s as though he set out to caricature the “social Darwinism” that the left always accuses us of advocating. I certainly hope that isn’t the only real alternative to socialism, because that’s not much of a choice.

    • #58
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    @RachelLu

    HTV, can we never discuss questions of justice and morality unless we’re prepared to advocate a law or ham-fisted government program to force everyone into compliance? I certainly never thought that supporting limited government required me to abandon most of my moral precepts.

    • #59
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    @
    HVTs

    This is a struggle for power, not debating points.  Concede something to the Left and at that very moment the goal post moves to a new location.

    I don’t think it’s conceding something to the left to take inequality seriously.  If we offer conservative solutions to inequality, we gain ground in the battle for voters’ support.  George Bush’s “compassionate conservatism” shtick was annoying (insofar as he made it sound like his compassion was something new) but it won him votes.  Imagine if a Republican candidate pointed out, forcefully and repeatedly, how many outrageously high incomes are derived, directly or indirectly, from government largesse.

    Don Tillman

    Ah, but what exactly is the “problem of income inequity”?  How do you measure it?  How do you measure its effects?

    I grant you, it’s a tough thing to measure.  (The article you reference is interesting, but other measures — like the Gini coefficient — tell a somewhat different story.)  And there’s a huge subjective component: people can feel more or less unequal for all sorts of reasons.  But the lives of nations are shaped by forces that are subjective and hard to measure.

    • #60
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