By: Louis Woodhill
November 20, 2013
If the Democrats are not (electorally) washed away by a tsunami of voter outrage over Obamacare, they will no doubt seek to make “growing inequality” the principal issue in the 2014 elections. So, let’s apply a little unconventional logic to the subject of inequality.
The “Occupy Wall Street” crowd that took over New York City’s Zuccotti Park on September 17, 2011 was protesting inequality. They seemed infuriated that “the one percent” was so much better off than “the 99 percent.” But is this really true?
To make our comparison more vivid, we’ll compare representatives of the two wealth classes, and see which one is truly better off.
As our representative of “the 99 percent,” let’s select a typical “Occupy Wall Street” protester. And, to make this interesting, let’s forget about “the one percent” and use a real fat cat. We’ll select a representative of “the 0.0000032 percent,” in the form of a composite of the top ten people on the Forbes list of the richest 400 Americans.
Our Occupy Guy (61% were males) is toiling away in low-wage job, has no assets to speak of, and is mired in $20,000 of student loan debt. Our Forbes Four Hundred Fat Cat (FFHFC) has a net worth of $41.1 billion. Which one of them is better off?
The Occupy Guy is better off. Why? Because our FFFC would gladly trade what he has for what the Occupy Guy has, while there is no way on earth that the Occupy Guy would do the same. And why is that? Because the Occupy Guy is 24 and the FFHFC is 70.
Almost any 70-year-old male would gladly trade all of his worldly goods for a healthy 24-year-old body, even if it came complete with $20,000 in student loans. And, very few 24-year-olds would take the other end of that deal—not even for $41.1 billion.
The point here is that money is not the only form of wealth, and it’s not even the most important form. Life itself, health, vitality, loving relationships, children, and making a difference in the lives of others have a much greater impact upon happiness than does money.
But wait! Isn’t our growing inequality a bad thing?
Well, it’s actually more of a stupid thing. The rising inequality that America has seen over the past 40 years was caused by, and is being sustained by, the weird devotion of our political and economic elites to an undefined, discretionary, fiat dollar.
The chart below tells the tale. Inequality began its upward march at the very moment that President Nixon blew up the Bretton Woods gold standard, which had served America well in the post-war era.
In terms of wreaking economic havoc, our discretionary, fiat dollar is the gift that keeps on giving. Not only has it caused inequality to soar, but it has also suppressed economic growth. If our economy had grown as fast from 1973 to 2012 as it did from 1790 to 1973, real GDP would be 60% larger right now, and every “percent” in the land would have more.
But wait! Doesn’t “social justice” require that the government use its power to redistribute wealth from the rich to the poor?
No, because in purely material terms (governments cannot redistribute virtue, morality, or good parenting), a “poor” American in 2013 has a higher standard of living than did Queen Victoria. Also, forced redistribution doesn’t actually work. Despite spending $5 trillion ($2013) fighting poverty, the poverty rate is higher today than it was 45 years ago.
Progressives justify their programs with good intentions. They have to, because the results are invariably disastrous (see Obamacare). However, when progressives feel a need to present an intellectual justification for their schemes, they usually cite John Rawls’ 1971 book, A Theory of Justice.
Rawls maintained that most people would arrive at the same basic design for a society if they knew that they would have to live in that society afterward, but did not know in advance what their place in it would be. Based upon this methodology, he argued that inequalities could not be justified if they did not benefit the most disadvantaged members of a society.
Certainly, under Rawls’ rules, no one would design a society featuring slavery, because, when what Rawls called the “veil of ignorance” was lifted, they might themselves end up being a slave.
Unfortunately, what Rawls missed was the element of time. If the people designing a society did not know when (as well as where), they would be living in that society, they would give a very high priority to maximizing economic growth. This is because rapid economic growth makes tomorrow’s poor richer than today’s rich.
And, it is classic liberalism, whose economic expression is free-market capitalism, that maximizes economic growth.
Returning to the chart above, you will notice that the only period after the end of Bretton Woods where “the 99 percent” made significant income gains was 1993 – 2000. This was also the period during which the poverty rate fell most dramatically.
The Clinton years were a time of rapid economic growth. This was made possible by the relatively stable dollar that was delivered by Federal Reserve Vice Chairman Wayne Angell’s little-publicized commodity standard system. The capital gains tax cut that Newt Gingrich forced on Clinton in 1996 helped a lot, too.
America doesn’t need more government taxing and spending in the name of fighting inequality and promoting “social justice.” It needs a stable dollar and supply-side tax cuts to promote rapid economic growth.
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