Friday, November 13, 2009
On Wealth and Income Inequality
“Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.” — Benjamin Franklin 
When tougher economic times come, as at present, we hear more about how we need to redistribute wealth and income to help those who have less. This is especially true under Barack Obama, who is on record as favoring redistribution. For him, this should have been part of the Supreme Court’s decrees during the civil rights movement of the 1950’s and 1960’s. We are fortunate that it wasn’t, because that would have brought on a constitutional crisis and, if serious redistribution happened, the collapse of our economy.
Equality of wealth and income in a nation has never been and never will be a fact. It is a grasping at straws and striving after wind to attempt to realize it. If it could be made real, it would result in universal poverty, economic depression and degradation of everyone’s standard of living.
When people observe the different economic levels among people, their sympathy for those at the lower part of the spectrum sometimes leads them to believe that wealth should be confiscated from those at the upper end, and distributed to the less wealthy. Sometimes this motive drives political movements and tax policy. In some people’s religious efforts to help and serve the poor, they call upon government to help in their projects through grants, tax changes, etc.
We do not wish poverty on anyone, but we do recognize that some people are going to be poorer and some richer than others. Poverty is not necessarily a permanent or long-lasting condition, nor is wealth. There are opportunities and hazards which can sometimes change things quickly. I want to discuss reasons that forced redistribution of wealth, as advocated by some left-wing or liberal activists is a terrible and destructive idea.
To start, I will say that we need some kind of safety net to prevent and correct conditions of life-threatening poverty, i.e., hunger and homelessness. For those unable to work and support themselves, we rightly have programs to help them. For the homeless, the focus should be, not only on helping them in their homeless condition, but also in striving to help them to earn their way out of that condition. Most welfare help, other than for those permanently disabled, should be of a temporary and emergency type.
A High Standard of Living
According to distinguished Austrian School economist Ludwig von Mises:
“Inequality of wealth and incomes is an essential feature of the market economy. It is the implement that makes the consumers supreme in giving them the power to force all those engaged in production to comply with their orders. It forces all those engaged in production to the utmost exertion in the service of the consumers. It makes competition work. He who best serves the consumers profits most and accumulates riches …
“This country enjoys the highest standard of living ever known in history because for several generations no attempts were made toward ‘equalization’ and ‘redistribution.’ Inequality of wealth and incomes is the cause of the masses’ well-being, not the cause of anybody’s distress. Where there is a ‘lower degree of inequality,’ there is necessarily a lower standard of living of the masses.” 
In general, it is unjust for the government to take the fruit of a person’s labor and give it to someone who has not earned it. It is, in fact, legalized thievery if it goes beyond a minimum reasonable amount. The best role of government in preventing and dealing with poverty, beyond a minimum safety net, is to maintain an environment of free market competition and to punish fraud and abuse.
Capitalism Is Not the Problem
Here is a brief conversation between Milton Friedman and Phil Donahue about the supposed drawbacks of capitalism:
There are so many examples of government interference and manipulation in the markets today that hardly any transaction completely escapes. Thus we have constant cost overruns, extreme tax rates, overbearing regulation and low incomes for many.
Any serious attempt to equalize wealth or income requires the imposition of socialism and the loss of economic freedom:
“The only alternative to this financial pressure as exercised by the market is direct pressure and compulsion as exercised by the police power. The authorities must be entrusted with the task of determining the quantity and quality of work that each individual is bound to perform. As individuals are unequal with regard to their abilities, this requires an examination of their personalities on the part of the authorities. The individual becomes an inmate of a penitentiary, as it were, to whom a definite task is assigned. If he fails to achieve what the authorities have ordered him to do, he is liable to punishment.” 
Inequality Is Not Unjust, and Is Necessary
The market economy requires an inequality of wealth and income. The pressures of the market serve as incentives to work, save, improve, advance, learn, and innovate. Without these incentives, under a socialist system, the incentives are toward gaining political power by exercising more control over others. The tendency is always to “innovate,” not by research, and more efficient production and marketing methods, but by more onerous requirements and expanding government power. This is always the tendency of bureaucracy. Bureaus try to perpetuate themselves by finding more things to regulate and more ways to control people.
Consider the fact that when the authorities determined that environmental pollution was a problem needing attention (as it was), the number and kind of regulations grew rapidly. Having achieved a good deal of cleaning up, government sought ever more authority to regulate and rule, and more hazards were “discovered,” even to the point that carbon dioxide, the gas we breathe out, has now been declared a pollutant, and the objectively stupid cap and trade legislation is actually being considered. We have reached the point where the “cure” is truly worse than the disease.
The same kind of bureaucratic growth tends to happen whenever government can take authority over activities that under capitalism are part of the private sector.
Private Sector Abuses Involve Government
The main abuses by the private sector have occurred when companies, professional associations, and unions and others have succeeded in getting government to enforce their economic interests, to the disadvantage of others, and in defiance of market forces, as discussed here by Ayn Rand with Mike Wallace in 1959:
Because of private-sector interests colluding with government, we have a lot of large and smaller evils such as:
1. Abuse of eminent domain: Taking property from citizens to provide to other citizens for their private gain, including spending public funds to finance sports arenas and events.
2. Handing out government funds to lure businesses to locate in a particular area.
3. Using the power of the Fed and the Treasury Department to bail out large private banks and take over private companies.
4. Government granting authority over a given profession such that a private association’s pronouncements have the force of law (e.g., AICPA, AMA, and ABA).
Also, these groups can restrict education and practice in these professions.
5. Labor unions employing government help to shake down employers for more benefits, beyond what the market alone would warrant.
If these entities could all operate without the force of government, outside of dealing with crime and abuse, the market would determine the results of economic activity. And the market can do a much better job than government. The more government control we have in any area, the less freedom. “That governs best which governs least.”
A major mistake people make when they accept the liberals’ claims that the government must provide what they need, is that they somehow trust politicians more than they trust private enterprise. Politicians are definitely not more trustworthy, nor, as a group, better-motivated than businessmen. Nor are they more knowledgeable, and generally they are much less knowledgeable about running a business operation of any kind. So when they set about to determine everyone’s income (think: pay czar), and wealth (IRS), we need to be prepared to work at gunpoint. Remember, current government officials think it will be all right to imprison people who refuse to buy insurance. That’s how much respect they have for our freedom.
Low-income people have many opportunities in this country. True, a lot of better opportunities are open to people who have inherited wealth or who are especially talented in some high-paying skill. There is always someone who has more and who does more than his fellows. But these are among the differences that make life interesting, and encourage people to strive for improvement, and to appreciate their accomplishments.
Many of the poorer people have items considered luxuries not long ago. Many items people of modest means have are of comparable quality to items rich people have. Even after all the liberals’ attempts to destroy incentive, most people want to try to succeed on their own, and don’t want a handout unless life leaves them no other choice. For those who need help, many charitable operations are at work. The Obama Administration hurts this by planning to reduce income tax deductions for charitable contributions, and allowing the economy to languish, making it harder for people to contribute to charities anyway.
Liberals buy votes by promising government benefits to “victimized” groups. People in these groups are often willing to give over control of much of their lives to the authorities in order to receive these promised benefits. The benefits prove to be less than expected, and less as time goes by, but these voters are trapped into thinking that they must rely on government, so they keep voting for those who make the promises.
The demagoguery about “income and wealth inequality” is appealing to some people who think they should be entitled to what others have, and that government should give it to them. It also appeals to people who want to be in charge of the redistribution, whether to gain power over others, or to feel good about themselves. Class envy is the very lifeblood of liberalism, as it is with communism. The exploitation of the “class struggle” is the whole process. Clinging to that narrow and misguided view is what has produced much of the economic and social failure in our society. The sense of entitlement and victimhood encouraged by liberals, their false promises, and exploitation of the powerless drive much of the feeling of helplessness and despair around us. People who should know better, including politicians, fall for the liberal premises that lead to frustration and discontent. Liberals have little to offer as economic solutions. The results of their tax-and-spend and welfare-state policies can be seen in places like Michigan and California, and are coming soon to a state near you.
 Quoted at Goodreads.com.
 Ludwig von Mises, “Inequality of Wealth and Incomes,” Ideas on Liberty, No.1. Irvington, N.Y.: Foundation for Economic Education. (May 1955) 83-88. Reprinted in Essays on Liberty, III. Irvington, N.Y.: Foundation for Economic Education. (1958)123-31. Reprinted on Mises.org, at http://mises.org/EFANDI/CH9.ASP
 Ludwig von Mises, Human Action: A Treatise on Economics, Scholar’s Edition, Ludwig von Mises Institute, Auburn, Ala., 1998, 285-286. Ebook available at Mises.org. Excerpt at http://mises.org/humanaction/chap15sec7.asp.
Photo: Portrait of Ludwig von Mises