Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
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?
Published in General
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, youdeservemore wealth.
I totally agree with Rachel’s comment that we don’t want to buy into social Darwinism. But I’d also add that often it’s not the faster gazelle that survives or the better company that prevails. The world I perceive looks a lot more like the one in Ecclesiastes:
Again I saw that under the sun the race is not to the swift, nor the battle to the strong, nor bread to the wise, nor riches to the intelligent, nor favor to those with knowledge, but time and chance happen to them all.
More to the point, though, the modern market is hopelessly distorted by massive government intervention, direct and indirect. This is not Adam Smith’s free market. Why do conservatives want to defend the outcomes of a “market” corrupted by trends we ought to hate?
The real deception came when he said “The top percentage won’t even fit on my graph!!” Yes, because that is the way he designed it.
Ha! That’s funny, because I’m pretty sure I’ve quoted that same Ecclesiastes passage in previous discussions about the merits of the rich. And I quite agree. Conservatives like to think that the market naturally rewards talent, hard work and entrepreneurial spirit, and to some extent it does. But even ignoring the gross distortions of the current over-regulated market, we’re all subject to the whims of fortune; on top of that, there are some vicious traits (unscrupulousness, neglect of family obligations, avarice) that frequently do “pay off” in material terms. It’s very foolish to suppose that people are always morally deserving of everything they’ve legally earned.
There’s no reason to worry that acknowledging these truths will throw us into the arms of socialism. We should have a little more confidence in our ability to make the case against political measures that undermine prosperity, eliminate precious freedoms and precipitate corruption and social breakdown. Capitalism and socialism really shouldn’t be thought of as conflicting economic systems. One is a politically imposed program that distorts the economy; the other is just what happens when people come together in human society.
Anyway, my suggested response to leftist hyperventilating:
1) Continue to correct liberal distortions of what the material picture is really like. Wealth inequality is indeed hard to measure, but we should be able to get some idea of how economic developments are affecting American life and culture.
2) Continue to argue that inequality is not intrinsically bad, and is indeed an inevitable aspect of a healthy society.
3) Consider seriously the consequences of the actual inequalities in our present society, with a willingness to acknowledge that some might be both worrisome and, perhaps, unjust. If we decide that they are, multiple responses might be warranted. Sometimes we might just decide that current injustices are less bad than the consequences of intervening. Sometimes we might consider indirect means of political redress. (For example, subsidizing training /credentialing programs targeted to help disadvantaged groups get back on their feet.) Sometimes the best solutions are found more on a level of society and culture. Just as an example, if we decided that society is inevitably becoming more stratified, we might want to try reintroducing a more robust appreciation of noblesse oblige as a way of preventing abuses and relieving the burdens of the poor.
I have similar concerns to yours, Adrastus. It does seem to me that conservatives, in their enthusiasm for free markets, often want to attribute some kind of moral force to them, as though we can trust them to reward people according to their true (moral) merits. One can appreciate the problems of socialism and still be concerned about undesirable trends in the way the market affects wages, wealth distribution etc. One can also appreciate that the rich aren’t *stealing* per se but still in many instances be 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 on the right, liberals will always think us callous and inhumane, with some justification.
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. ·March 9, 2013 at 2:02am
Doesn’t this power only flow when there is a government monopoly in place?
When the government issues liquor licenses which your business needs, in order to run its restaurant, or when the government controls who and how many can drive a taxi in New York City, then that power to select and distribute can be sold and denied.
This is why Washington D.C. is fully of lobbyists.
The real deception came when he said “The top percentage won’t even fit on my graph!!” Yes, because that is the way he designed it. ·12 hours ago
Very astute.
I think we conservatives react negatively to discussions on inequality because such discussions are typically framed in a way that favors the policy preferences of the left. Thus, inequality is presented as being the 99% against the 1% (which is economically absurd), and can only be corrected by redistributive taxation (in ignorance of all economic fact).
Actually, what the left really believes is that crony capitalism and corruption is inevitable, and high statutory tax rates (with deductions to match), is the only instrument blunt enough to offset the social damage. The idea isn’t to raise taxes on the rich (though the left does want them a bit higher), so much as create a psychological disincentive for people in high income brackets to seek higher incomes or greater wealth.
It’s a confused, incoherent view of how tax policy should work. And mercifully, the American people doesn’t seem to be buying it; they believe the wealthy should “pay their fair share,” not that tax policy should seek to compress incomes.
More:
3.) Wealth (net worth) is not the same as income. It is probably more closely associated with age. Assets are acquired over time. For example, I am sure that my personal lowest wealth status was when I bought my first house in 1988. Between the mortgage and my school loans I was probably $200K in debt. It was my income earned (and either saved or invested) over a period of time that has given me the assets that I now have.
4.) Because net worth is closely associated with age and the Baby Boomers (who make up 27% of the population) are now 49 to 67 years old it makes sense that wealth is concentrated in a relatively small proportion of the population. The Boomers, as a demographic, are in their peak net worth years and have not yet really entered retirement. During retirement their assets will decline. So, I would think that 15-20 years from now, when the boomers have either spent their assets in retirement or are dying off, the wealth distribution in the USA will look different.
Thank you Tad for your comments. Yes, the left always speaks as if wealth should be equally distributed among all. And of course, those older people who have more wealth have it because they saved or invested. It would be ludicrous to think that twenty-somethings should have as much wealth as sixty- or seventy-somethings, but that is the left’s presumption.
Thomas Sowell often points out (I think) that most people spend some part of their lives in each of the quintiles.
My objections to the video:
1.) The video used wealth in place of assets or net worth because wealth, as in “the wealthy”, has a negative connotation that the producers of the video, in my opinion, wanted to exploit. I admit that they used the term “net worth” once in the video and I am OK with that term. The video also used the word “income” in place of wealth twice, thus confusing the issue. But I wish the video had used “net worth” throughout and put actual money numbers on their graph, but they didn’t.
2.) Another place where actual numbers would be helpful would be the ages of those people in each group. They counted all 311 million people in the USA for this analysis. This meant that they included children, teens and college students – who, of course, would have no or negative net worth and this, therefore, skews the graph to make things look more inequitable than it really is. According to Wikipedia, people <=19 years old make up 27.3% of the population, 85 million people who, in my opinion, they should not include in this type of analysis. OOPS – out of space.