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Of Workers and Wealth

Pope Leo XIII: Whether we have wealth or lack it makes no difference. What matters is to justly use what we have, especially if we are rich.


The great mistake made in regard to the matter now under consideration is to take up with the notion that class is naturally hostile to class, and that the wealthy and the working men are intended by nature to live in mutual conflict. So irrational and so false is this view that the direct contrary is the truth.

Just as the symmetry of the human frame is the result of the suitable arrangement of the different parts of the body, so in a State is it ordained by nature that these two classes should dwell in harmony and agreement, so as to maintain the balance of the body politic. Each needs the other: capital cannot do without labor, nor labor without capital. Mutual agreement results in the beauty of good order, while perpetual conflict necessarily produces confusion and savage barbarity.

Now, in preventing such strife as this, and in uprooting it, the efficacy of Christian institutions is marvellous and manifold. First of all, there is no intermediary more powerful than religion (whereof the Church is the interpreter and guardian) in drawing the rich and the working class together, by reminding each of its duties to the other, and especially of the obligations of justice.

Of these duties, the following bind the proletarian and the worker: fully and faithfully to perform the work which has been freely and equitably agreed upon; never to injure the property, nor to outrage the person, of an employer; never to resort to violence in defending their own cause, nor to engage in riot or disorder; and to have nothing to do with men of evil principles, who work upon the people with artful promises of great results, and excite foolish hopes which usually end in useless regrets and grievous loss.

The following duties bind the wealthy owner and the employer: not to look upon their work people as their bondsmen, but to respect in every man his dignity as a person ennobled by Christian character. They are reminded that, according to natural reason and Christian philosophy, working for gain is creditable, not shameful, to a man, since it enables him to earn an honorable livelihood; but to misuse men as though they were things in the pursuit of gain, or to value them solely for their physical powers – that is truly shameful and inhuman.

Again justice demands that, in dealing with the working man, religion and the good of his soul must be kept in mind. Hence, the employer is bound to see that the worker has time for his religious duties; that he be not exposed to corrupting influences and dangerous occasions; and that he be not led away to neglect his home and family, or to squander his earnings.

Furthermore, the employer must never tax his work people beyond their strength, or employ them in work unsuited to their sex and age. His great and principal duty is to give every one what is just. Doubtless, before deciding whether wages are fair, many things have to be considered; but wealthy owners and all masters of labor should be mindful of this – that to exercise pressure upon the indigent and the destitute for the sake of gain, and to gather one’s profit out of the need of another, is condemned by all laws, human and divine.

To defraud any one of wages that are his due is a great crime which cries to the avenging anger of Heaven. “Behold, the hire of the laborers. . .which by fraud has been kept back by you, crieth; and the cry of them hath entered into the ears of the Lord of Sabaoth.”

Lastly, the rich must religiously refrain from cutting down the workmen’s earnings, whether by force, by fraud, or by usurious dealing; and with all the greater reason because the laboring man is, as a rule, weak and unprotected, and because his slender means should in proportion to their scantiness be accounted sacred. Were these precepts carefully obeyed and followed out, would they not be sufficient of themselves to keep under all strife and all its causes?

But the Church, with Jesus Christ as her Master and Guide, aims higher still. She lays down precepts yet more perfect, and tries to bind class to class in friendliness and good feeling. The things of earth cannot be understood or valued aright without taking into consideration the life to come, the life that will know no death.

Exclude the idea of futurity, and forthwith the very notion of what is good and right would perish; nay, the whole scheme of the universe would become a dark and unfathomable mystery.

The great truth which we learn from nature herself is also the grand Christian dogma on which religion rests as on its foundation – that, when we have given up this present life, then shall we really begin to live. God has not created us for the perishable and transitory things of earth, but for things heavenly and everlasting; He has given us this world as a place of exile, and not as our abiding place.

As for riches and the other things which men call good and desirable, whether we have them in abundance, or are lacking in them-so far as eternal happiness is concerned – it makes no difference; the only important thing is to use them aright. . . .

Therefore, those whom fortune favors are warned that riches do not bring freedom from sorrow and are of no avail for eternal happiness, but rather are obstacles; that the rich should tremble at the threatenings of Jesus Christ – threatenings so unwonted in the mouth of our Lord – and that a most strict account must be given to the Supreme Judge for all we possess.

– from Rerum Novarum (1891)

Trump’s Tax Plan Is Brilliant Politics and Even Better Economics by Jeffrey A. Tucker

Donald Trump’s tax plan seems to mark a new chapter in his presidency, from floundering around with strange and sometimes scary policies (bombings, border closings, saber rattling) to focusing on what actually matters and what can actually make the difference for the American people and the American economy.

Under Trump’s plan, taxes on corporate profits go from 35% to 15%. They should be zero (like the Bahamas), but this is a good start. Taxes on capital gains go from 23.8% to 20%. Again, it should be zero (as with New Zealand), but it is a start. Rates for all individuals are lowered to three: 10%, 25%, and 35%. The standard deduction for individuals is doubled (politically brilliant). The estate tax and the alternative minimum tax is gone. Popular deductions for charitable giving and mortgage interest are preserved. The hare-brained idea of a “border adjustment tax” is toast.

All of this is wonderful, but the shining light of this plan is the dramatic reduction in taxes on corporate profits. The economics of this are based on a simple but profoundly true insight. Economic growth is the key to a good society. This is where good jobs come from. This is how technology improves. This is what gives everyone a brighter outlook on life. If you can imagine that your tomorrow will be more prosperous and flourishing than today, your life seems to be on track.

Tax Capital, Wreck Prosperity

Where does economic growth come from? For decades dating back perhaps a hundred-plus years, people imagined that it could come from government programs and policy manipulation. Surely there are some levers somewhere in the center of power that can cause this thing we call economic growth. We just need solid experts with power, resources, and intelligence to manage the system.

This turns out to be entirely wrong. It hasn’t worked. Since 2008, government has tried to mastermind an economic recovery. It has floundered. We are coming up on a full decade of this nonsense with economic growth barely crawling along. We are surviving, not thriving, and income growth, capital formation, and entrepreneurial opportunity restricted and punished at every turn.

The Trump tax plan is rooted in a much better idea. Economic growth must come from the private sector. It must come from investment in private capital. The owners of this capital who are doing well and earn profits should be allowed to keep them and invest them. This creates new job opportunities. It allows for more complex production strategies. It expands the division of labor.

The crucial institution here is capital. Sorry, anti-capitalists. It’s just true. Capital can be defined as the produced goods for production, not consumption. It is making things for the purpose of making other things. Think about it. Without capital, you can still have markets, creativity, hard work, enterprise. But so long as you have an absence of capital, you are forever floundering around just working to make and sell things for consumption. This is called living hand to mouth.Without capital, and the private ownership of capital, and security over your property rights, you can’t have economic growth. You can’t have complex production. You can’t raise wages. You can’t live a better life. Every tax on capital, capital formation, capital accumulation, and business profit reduces the security of property rights over capital. This is a sure way to attack economic growth at its source.

And this is precisely what American policy has done. The rest of the world has been wising up about this, reducing taxes on capital for the last 15 years. But the US has languished in the mythology of the past, regarding capital not as a font of prosperity but rather a fund of stagnant resources to be pillaged by planners in government. It is not surprising that this strategy results in slow growth and even permanent recession.

What This Can Do for Growth

I have no regression to present to you but this much I can say out of experience and intuition. If this tax plan goes through, the entire class of entrepreneurs, investors, and merchants will receiving a loud signal: this country is safe for you to realize your dreams and make the dreams of others come true.It wouldn’t surprise me to see GDP growth go from an anemic 1-2% to reach 4% and higher in one year. There is so much pent-up energy in this country. This tax cut will unleash it. And think what it means for the next recession or financial crisis. It prepares the entire country to weather such an event better than we otherwise would.

The beauty of unleashing the power of private capital is that the brilliant results will always be surprising. We don’t know what kind of experimentation in investment and business expansion this will create. This is the nature of a capitalist economy rooted in the freedom of enterprise. It defies our every expectation. No model can forecast with precision the range of results here. We only know that good things will come.

Now, of course, the opponents will talk of the deficit and the national debt. What about the lost revenue? The problem is that every revenue forecast is based on a static model. But an economy rooted in capital formation is not a static one. It is entirely possible that new profits and business expansion will produce even more revenue, even if it is taxed at a lower rate.If you want to cut the deficit, there is only one way: cut spending. I see no evidence that either party wants to do this. Too bad. This should change. But it is both economically stupid and morally unsound to attempt to balance the budget on the backs of taxpayers. Letting people keep more of what they earn is the right thing to do, regardless of government’s fiscal problems.

In the meantime, these pious incantations of the word “deficit, deficit, deficit,” should be seen for what they are: excuses to continue to loot people of their just earnings.

The Politics of It

Already the opponents of this plan are kvetching in the predictable way. This is a tax cut for the rich! Well, yes, and that’s good. Rich capitalists  – sorry for yet another hard truth – are society’s benefactors.

But you know why this line of attack isn’t going to work this time? Take a look at the standard deduction change. It is doubled. Not a single middle-class taxpayer is unaware of what this means. This is because they are profoundly aware of how the tax system works. If you take the standard deduction from $6,200 to $15,000, that means people are going to keep far more of their own money. There is not a single taxpayer in this country who will not welcome that.

This is why it strikes me as crazy for Democrats to inveigh against this plan. Doing so only cements their reputation as the party of pillage. Do they really want the United States to be outcompeted by every other nation in the OECD? What they should do is rally behind this, forgetting all the ridiculous pieties about the deficit and the rich and so on. Do they favor the interests of the American people are not?It’s also fantastic politics to retain the deductions for charitable giving and mortgage interest. These are popular for a reason. They are two of the only ways that average people can save on their tax bill. It always pained me when the GOP would propose a “flat tax” that eliminated these provisions. People are very aware: taking away an existing tax break is a terrible foreshadowing of bad things to come. So this Trump plan dispenses with all that. Good.

As for compliance costs of the current system, the elimination of the Alternative Minimum Tax will do worlds of good.

What I love most about this plan is its real-world economic foundation. It embraces a truth that so many want to avoid. If you want jobs, rising wages, and economic growth, you have to stop the war on capital. You have to go the other way. You need to celebrate capital and allow rewards to flow to those who are driving forward economic progress.

It’s a simple but brilliant point. Finally, we’ve got a tax proposal that embraces it.

Jeffrey A. Tucker

Jeffrey A. Tucker

Jeffrey Tucker is Director of Content for the Foundation for Economic Education. He is also Chief Liberty Officer and founder of Liberty.me, Distinguished Honorary Member of Mises Brazil, research fellow at the Acton Institute, policy adviser of the Heartland Institute, founder of the CryptoCurrency Conference, member of the editorial board of the Molinari Review, an advisor to the blockchain application builder Factom, and author of five books. He has written 150 introductions to books and many thousands of articles appearing in the scholarly and popular press.

2016 Is the Year of Inequality – And Prosperity by Chelsea German

This past weekend, the Economist uploaded a short video to its Facebook page called, “The year of the 1 percent.” The video shows a graph superimposed over the Earth seen from space, while a voice narrates, “2016 is set to be a more unequal world than ever before. For the first time, the richest 1 percent of the population will enjoy a greater share of global wealth than the other 99 percent.”

The Economist’s graph reminded me of another graph, which also shows two lines that eventually cross but tells a very different story. Despite population growth, there are fewer people living in extreme poverty today than ever before:

How can both graphs be accurate? Poverty can decline even as inequality rises, as long as the total amount of wealth in the world is growing.

To ignore this is to fall prey to the “fixed pie fallacy.” Throughout most of human history, global wealth hardly changed. But thanks to trade and industrialization, wealth has skyrocketed, especially since the 1900s, and continues to climb.

At the same time, technological advances have also increased human wellbeing in ways not captured by looking at GDP alone.

Because the pie is growing, focusing solely on inequality, like the Economist’s video does, makes little sense. Most of us would rather have a relatively small slice of a gigantic pie than the biggest slice of a microscopic pie.

In other words, most of us would rather be wealthier in absolute terms, regardless of our relative position. This is why many of us, if given the choice, would choose to be an ordinary person today, instead of a member of the upper crust a century ago or a 17th century king.

Cross-posted from HumanProgress.org.

Chelsea GermanChelsea German

Chelsea German works at the Cato Institute as a Researcher and Managing Editor of HumanProgress.org.

Why We Need to Make Mistakes: Innovation Is Better than Efficiency by Sandy Ikeda

“I think it is only because capitalism has proved so enormously more efficient than alternative methods that is has survived at all,” Milton Friedman told economist Randall E. Parker for Parker’s 2002 book, Reflections on the Great Depression.

But I think innovation, not efficiency, is capitalism’s greatest strength. I’m not saying that the free market can’t be both efficient and innovative, but it does offer people a strong incentive to abandon the pursuit of efficiency in favor of innovation.

What Is Efficiency?

In its simplest form, economic efficiency is about given ends and given means. Economic efficiency requires that you know what end, among all possible ends, is the most worthwhile for you to pursue and what means to use, among all available means, to attain that end. You’re being efficient when you’re getting the highest possible benefit from an activity at the lowest possible cost. That’s a pretty heavy requirement.

Being inefficient, then, implies that for a given end, the benefit you get from that end is less than the cost of the means you use to achieve it. Or, as my great professor, Israel Kirzner, puts it, If you want to go uptown, don’t take the downtown train.

What Is Innovation?

Innovation means doing something significantly novel. It could be doing an existing process in a brand new way, such as being the first to use a GPS tracking system in your fleet of taxis. Or, innovation could mean doing something that no one has ever done before, such as using smartphone technology to match car owners with spare time to carless people who need to get somewhere in a hurry, à la Uber.

Innovation, unlike efficiency, entails discovering novel means to achieve a given end, or discovering an entirely new end. And unlike efficiency, in which you already know about all possible ends and means, innovation takes place onlywhen you lack knowledge of all means, all ends, or both.

Sometimes we mistakenly say someone is efficient when she discovers a new way to get from home to work. But that’s not efficiency; that’s innovation. And a person who copies her in order to reduce his commute time is not an innovator — but he is being efficient. The difference hinges on whether you’re creating new knowledge.

Where’s the Conflict?

Starting a business that hasn’t been tried before involves a lot of trial and error. Most of the time the trials, no matter how well thought out, turn out to contain errors. The errors may lie in the means you use or in the particular end you’re pursuing.

In most cases, it takes quite a few trials and many, many errors before you hit on an outcome that has a high enough value and low enough costs to make the enterprise profitable.) Is that process of trial and error, of experimentation, an example of economic efficiency? It is not.

If you begin with an accurate idea both of the value of an end and of all the possible ways of achieving that end, then you don’t need to experiment. Spending resources on trial and error would be wasteful. It’s then a matter of execution, which isn’t easy, but the real heavy lifting in the market process, both from the suppliers’ and the consumers’ sides, is done by trying out new things — and often failing.

Experimentation is messy and apparently wasteful, whether in science or in business. You do it precisely because you’re not sure how to answer a particular question, or because you’re not even sure what the right question is. There are so many failures. But in a world where our knowledge is imperfect, which is the world we actually live in, most of what we have to do in everyday life is to innovate — to discover things we didn’t know we didn’t know — rather than trying to be efficient. Being willing to suffer failure is the only way to make discoveries and to introduce innovations into the world.

Strictly speaking, then, if you want to innovate, being messy is unavoidable, and messiness is not efficient. Yet, if you want to increase efficiency, you can’t be messy. Innovation and efficiency usually trade off for each other because if you’re focused on doing the same thing better and better, you’re taking time and energy away from trying to do something new.

Dynamic Efficiency?

Some have tried to describe this process of innovation as “dynamic efficiency.” It may be quibbling over words, but I think trying to salvage the concept of efficiency in this way confuses more than it clarifies. To combine efficiency and innovation is to misunderstand the essential meanings of those words.

What would it mean to innovate efficiently? I suppose it would mean something like “innovating at least cost.” But how is it possible to know, before you’ve actually created a successful innovation, whether you’ve done it at least cost? You might look back and say, “Gee, I wouldn’t have run experiments A, B, and C if only I’d known that D would give me the answer!” But the only way to know that D is the right answer is to first discover, through experimentation and failure, that A, B, and C are the wrong answers.

Both efficiency and innovation best take place in a free market. But the greatest rewards to buyers and sellers come not from efficiency, but from innovation.

Sandy IkedaSandy Ikeda

Sandy Ikeda is a professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism. He is a member of the FEE Faculty Network.

The Average American Today Is Richer than John D. Rockefeller by Donald J. Boudreaux

This Atlantic story reveals how Americans lived 100 years ago. By the standards of a middle-class American today, that lifestyle was poor, inconvenient, dreary, and dangerous. (Only a few years later — in 1924 — the 16-year-old son of a sitting US president would die of an infected blister that the boy got on his toe while playing tennis on the White House grounds.)

So here’s a question that I’ve asked in one form or another on earlier occasions, but that is so probing that I ask it again: What is the minimum amount of money that you would demand in exchange for your going back to live even as John D. Rockefeller lived in 1916?

21.7 million 2016 dollars (which are about one million 1916 dollars)? Would that do it? What about a billion 2016 — or 1916 — dollars? Would this sizable sum of dollars be enough to enable you to purchase a quantity of high-quality 1916 goods and services that would at least make you indifferent between living in 1916 America and living (on your current income) in 2016 America?

Think about it. Hard. Carefully.

If you were a 1916 American billionaire you could, of course, afford prime real-estate. You could afford a home on 5th Avenue or one overlooking the Pacific Ocean or one on your own tropical island somewhere (or all three). But when you traveled from your Manhattan digs to your west-coast palace, it would take a few days, and if you made that trip during the summer months, you’d likely not have air-conditioning in your private railroad car.

And while you might have air-conditioning in your New York home, many of the friends’ homes that you visit — as well as restaurants and business offices that you frequent — were not air-conditioned. In the winter, many were also poorly heated by today’s standards.

To travel to Europe took you several days. To get to foreign lands beyond Europe took you even longer.

Might you want to deliver a package or letter overnight from New York City to someone in Los Angeles? Sorry. Impossible.

You could neither listen to radio (the first commercial radio broadcast occurred in 1920) nor watch television. You could, however, afford the state-of-the-art phonograph of the era. (It wasn’t stereo, though. And — I feel certain — even today’s vinylphiles would prefer listening to music played off of a modern compact disc to listening to music played off of a 1916 phonograph record.) Obviously, you could not download music.

There really wasn’t very much in the way of movies for you to watch, even though you could afford to build your own home movie theater.

Your telephone was attached to a wall. You could not use it to Skype.

Your luxury limo was far more likely to break down while you were being chauffeured about town than is your car today to break down while you are driving yourself to your yoga class. While broken down and waiting patiently in the back seat for your chauffeur to finish fixing your limo, you could not telephone anyone to inform that person that you’ll be late for your meeting.

Even when in residence at your Manhattan home, if you had a hankering for some Thai red curry or Vindaloo chicken or Vietnamese Pho or a falafel, you were out of luck: even in the unlikely event that you even knew of such exquisite dishes, your chef likely had no idea how to prepare them, and New York’s restaurant scene had yet to feature such exotic fare. And while you might have had the money in 1916 to afford to supply yourself with a daily bowlful of blueberries at your New York home in January, even for mighty-rich you the expense was likely not worthwhile.

Your wi-fi connection was painfully slow — oh, wait, right: it didn’t exist. No matter, because you had neither computer nor access to the Internet. (My gosh, there weren’t even any blogs for you to read!)

Even the best medical care back then was horrid by today’s standards: it was much more painful and much less effective. (Remember young Coolidge.) Antibiotics weren’t available. Erectile dysfunction? Bipolar disorder? Live with ailments such as these. That was your only option.

You (if you are a woman) or (if you are a man) your wife and, in either case, your daughter and your sister had a much higher chance of dying as a result of giving birth than is the case today. The child herself or himself was much less likely to survive infancy than is the typical American newborn today.

Dental care wasn’t any better. Your money didn’t buy you a toothbrush with vibrating bristles. (You could, however, afford the very finest dentures.)

Despite your vanity, you couldn’t have purchased contact lenses, reliable hair restoration, or modern, safe breast augmentation. And forget about liposuction to vacuum away the results of your having dined on far too many cream-sauce-covered terrapin.

Birth control was primitive: it was less reliable and far more disruptive of pleasure than are any of the many inexpensive and widely available birth-control methods of today.

Of course, you adore precious-weacious little Rover, but your riches probably could not buy for Rover veterinary care of the sort that is routine in every burgh throughout the land today.

You were completely cut off from the cultural richness that globalization has spawned over the past century. There was no American-inspired, British-generated rock’n’roll played on electric guitars. And no reggae. Jazz was still a toddler, with only few recordings of it.

You could afford to buy the finest Swiss watches and clocks, but even they couldn’t keep time as accurately as does a cheap Timex today (not to mention the accuracy of the time kept by your smartphone).

Honestly, I wouldn’t be remotely tempted to quit the 2016 me so that I could be a one-billion-dollar-richer me in 1916. This fact means that, by 1916 standards, I am today more than a billionaire. It means, at least given my preferences, I am today materially richer than was John D. Rockefeller in 1916. And if, as I think is true, my preferences here are not unusual, then nearly every middle-class American today is richer than was America’s richest man a mere 100 years ago.

This post first appeared at Cafe Hayek.

Donald J. BoudreauxDonald J. Boudreaux

Donald Boudreaux is asenior fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University, a Mercatus Center Board Member, a professor of economics and former economics-department chair at George Mason University and, a former FEE president.

What Are Your Odds of Making It to the 1%? by Chelsea German

Your odds of “making it to the top” might be better than you think, although it’s tough to stay on top once you get there.

According to research from Cornell University, over 50 percent of Americans find themselves among the top 10 percent of income-earners for at least one year during their working lives. Over 11 percent of Americans will be counted among the top 1 percent of income-earners (i.e., people making at minimum $332,000) for at least one year.

How is this possible? Simple: the rate of turnover in these groups is extremely high.

Just how high? Some 94 percent of Americans who reach “top 1 percent” income status will enjoy it for only a single year. Approximately 99 percent will lose their “top 1 percent” status within a decade.

Now consider the top 400 U.S. income-earners — a far more exclusive club than the top 1 percent. Between 1992 and 2013, 72 percent of the top 400 retained that title for no more than a year. Over 97 percent retained it for no more than a decade.

HumanProgress.org advisory board member Mark Perry put it well in his recent blog post on this subject:

Whenever we hear commentary about the top or bottom income quintiles, or the top or bottom X% of Americans by income (or the Top 400 taxpayers), a common assumption is that those are static, closed, private clubs with very little dynamic turnover. …

But economic reality is very different — people move up and down the income quintiles and percentile groups throughout their careers and lives.

What if we look at economic mobility in terms of accumulated wealth, instead of just annual income (as the latter tends to fluctuate more)?

The Forbes 400 lists the wealthiest Americans by total estimated net worth, regardless of their income during any given year. Over 71 percent of Forbes 400 listees — and their heirs — lost their top 400 status between 1982 and 2014.

So, the next time you find yourself discussing the very richest Americans, whether by wealth or income, keep in mind the extraordinarily high rate of turnover among them.

And even if you never become one of the 11.1 percent of Americans who fleetingly find themselves in the “top 1 percent” of US income-earners, you’re still quite possibly part of the global top 1 percent.

Cross-posted from HumanProgress.org.

Chelsea German

Chelsea German

Chelsea German works at the Cato Institute as a Researcher and Managing Editor of HumanProgress.org.

Busting Myths about Income Inequality by Chelsea German

Politicians speak often about income inequality. But that doesn’t mean they are well-informed. Indeed, they propagate four myths about the issue.

  1. Most often, those vying for elected office describe income inequality as static — as though the people who make up each income group do not change.
    The “top 1 percent” or the “top 10 percent” of income-earners are portrayed as exclusive clubs that seldom accept new members or see old and current members leave. No fluidity, no change.
  2. Political figures also have a tendency only to blame income inequality on factors like trade, immigration, an insufficiently high minimum wage, inadequate taxes on the wealthy, or the vague concept of “greed.”
  3. They typically ignore the sizeable role of choices under an individual’s control.
  4. They downplay the role of regressive government regulations.

Reality is much more interesting than soundbites.

Americans often move between different income brackets over the course of their lives. Indeed, over 50 percent of Americans find themselves among the top 10 percent of income-earners for at least one year during their working lives, and over 11 percent of Americans will be counted among the top 1 percent of income-earners for at least one year.

Fortunately, a great deal of what explains this income mobility are choices that are largely within an individual’s control. While people tend to earn more in their “prime earning years” than in their youth or old age, other key factors that explain income differences are education level, marital status, and number of earners per household. As AEI’s Mark Perry recently wrote:

The good news is that the key demographic factors that explain differences in household income are not fixed over our lifetimes and are largely under our control (e.g. staying in school and graduating, getting and staying married, etc.), which means that individuals and households are not destined to remain in a single income quintile forever.

According to the U.S. economist Thomas Sowell, whom Perry cites, “Most working Americans, who were initially in the bottom 20 percent of income-earners, rise out of that bottom 20 percent. More of them end up in the top 20 percent than remain in the bottom 20 percent.”

While people move between income groups over their lifetime, many worry that income inequality between different income groups is increasing. The growing income inequality is real, but its causes are more complex than the demagogues make them out to be.

Consider, for example, the effect of “power couples,” or people with high levels of education marrying one another and forming dual-earner households. In a free society, people can marry whoever they want, even if it does contribute to widening income disparities.

Or consider the effects of regressive government regulations on exacerbating income inequality. These include barriers to entry that protect incumbent businesses and stifle competition. To name one extreme example, Louisiana recently required a government-issued license to become a florist. Lifting more of these regressive regulations would aid income mobility and help to reduce income inequality, while also furthering economic growth.

If our elections were more about the substance of serious public policy issues, rather than demagoguery and soundbites, achieving reasonable solutions could move from the land of make-believe to our complex, dynamic reality.

This article first appeared at CapX.

Chelsea GermanChelsea German

Chelsea German works at the Cato Institute as a Researcher and Managing Editor of HumanProgress.org.

What Can the Rich Afford that Average Americans Can’t? by Donald J. Boudreaux

Raffi Melkonian asks — as relayed by my colleague Tyler Cowen — “When can median income consumers afford the very best?”

Tyler offers a list of some of the items in the modern, market-oriented world that are as high-quality as such items get and yet are easily affordable to ordinary people. This list includes iPhones, books, and rutabagas. Indeed, this list includes nearly all foods for use in preparing home snacks and meals. I doubt very much that Bill Gates and Larry Ellison munch at home on foods — such as carrots, blueberries, peanuts, and scrambled eggs — that an ordinary American cannot easily afford to enjoy at home.

This list includes also non-prescription pain relievers, most other first-aid medicines and devices such as Band-Aids, and personal-hygiene products such as toothpaste, dental floss, and toilet paper. (I once saw a billionaire take two Bayer aspirin — the identical pain reliever that I use.) This list includes also gasoline and diesel. Probably also contact lenses.

A slightly different list can be drawn up in response to this question: When can median-income consumers afford products that, while not as high-quality as those versions that are bought by the super-rich, are nevertheless virtually indistinguishable — because they are quite close in quality — to the naked eye from those versions bought by the super-rich?

On this list would be most clothing. For example, an ordinary American man can today afford a suit that, while it’s neither tailor-made nor of a fabric as fine as are suits that I suspect are worn by most billionaires, is nevertheless close enough in fit and fabric quality to be indistinguishable by the naked eye from expensive suits worn by billionaires. (I suspect that the same is true for women’s clothing, but I’m less expert on that topic.)

Ditto for shoes, underwear, haircuts, corrective eye-wear, collars for dogs and cats, pet food, household bath towels and “linens,” tableware and cutlery, automobile tires, hand tools, most household furniture, and wristwatches.

(You’d have to get physically very close to someone wearing a Patek Philippe — and you’d have to know what a Patek Philippe is — in order to determine that that person’s wristwatch is one that you, an ordinary American, can’t afford. And you could stare at that Patek Philippe for months without detecting any superiority that it might have over your quartz-powered Timex at keeping time.)

Coffee. Tea. Beer. Wine. (There is available today a large selection of very good wines at affordable prices. These wines almost never rise to the quality of Chateau Petrus, d’yquem, or the best Montrachets, but the differences are often quite small and barely distinguishable save by true connoisseurs.)

Indeed, the more one ponders this question relayed by Tyler, the more one suspects that the shorter list would be one drawn up in response to this question: When can high-income consumers afford what median-income consumers cannot?

Such a list, of course, would be far from empty. It would include private air travel, beachfront homes, regular vacations in Tahiti and Davos, private suites at sports arenas, luxury automobiles, rooms at the Ritz, original Picassos and Warhols. (It would, by the way, include also invitations to White House dinners and private lunches with rent-creating senators, governors, and mayors.)

But I’ll bet that this latter list would be shorter than one made up in response to the question relayed by Tyler combined with one drawn up in response to the question that I pose above in the third paragraph (call this list “the combined list”).

And whether shorter or not, what other germane characteristics might distinguish the items on this last list from the combined list?

A version of this post first appeared at Cafe Hayek.

Donald J. BoudreauxDonald J. Boudreaux

Donald Boudreaux is asenior fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University, a Mercatus Center Board Member, a professor of economics and former economics-department chair at George Mason University and, a former FEE president.

“We All Declare for Liberty, But We Do Not All Mean the Same Thing” by Eugene Volokh

A comment on my freedom and hypocrisy post reminded me of one of my favorite quotes, from Abraham Lincoln, in his Address at a Sanitary Fair, Baltimore, Apr. 18, 1864:

The world has never had a good definition of liberty, and the American people, just now, are much in need of one. We all declare for liberty; but in using the same word we do not all mean the same thing.

With some the word liberty may mean for each man to do as he pleases with himself, and the product of his labor; while with others the same word may mean for some men to do as they please with other men, and the product of other men’s labor. Here are two, not only different, but incompatible things, called by the same name — liberty. And it follows that each of the things is, by the respective parties, called by two different and incompatible names — liberty and tyranny.

The shepherd drives the wolf from the sheep’s throat, for which the sheep thanks the shepherd as a liberator, while the wolf denounces him for the same act as the destroyer of liberty, especially as the sheep was a black one. Plainly the sheep and the wolf are not agreed upon a definition of the word liberty; and precisely the same difference prevails today among us human creatures, even in the North, and all professing to love liberty. Hence we behold the processes by which thousands are daily passing from under the yoke of bondage, hailed by some as the advance of liberty, and bewailed by others as the destruction of all liberty.

I’ve long found this to be a thought-provoking piece, and a useful reminder that “liberty” in the abstract is not self-defining. Most rhetoric that simply refers to “liberty” — whether in the context of slavery, where Lincoln said this, or abortion rights, or national sovereignty, and so on — rests on the assertion about the proper definition of people’s or institutions’ rights; and it’s that definition that should often be at the heart of the debate.

Of course, this analysis doesn’t itself tell us what the proper result is in any debate (such as the debate about abortion). But it should remind us that many questions can’t be resolved by just talking about “liberty” in the abstract, or “not imposing one’s beliefs on others” in the abstract.

If liberty means freedom to do things that don’t violate the rights of others, the important questions are (1) what constitutes those “rights,” (2) what counts as violation, and (3) in some contexts (e.g., abortion, animal rights, slavery), who counts as “others.”

This post first appeared at the Volokh Conspiracy.

Eugene VolokhEugene Volokh

Eugene Volokh teaches free speech law, religious freedom law, church-state relations law, a First Amendment Amicus Brief Clinic, and tort law, at UCLA School of Law, where he has also often taught copyright law, criminal law, and a seminar on firearms regulation policy.

Adam Smith’s Wealth of Nations and the FairTax by Rep. Dave Brat (VA-7)

Adam Smith, the father of economics, published An Inquiry into the Nature and Causes of the Wealth of Nations nearly 240 years ago[i]. Soon after, an extraordinary flourishing of innovation and human well-being took off and transformed the globe. According to economist Deirdre McCloskey, the average American today is roughly 30 to 100 times better off than our ancestors in 1800[ii], the point when humanity began to escape crushing poverty. Notwithstanding modern prosperity, however, human nature hasn’t changed much. Smith’s insights remain relevant.

The Wealth of Nations considers taxation in Book V, Chapter 2: “Of the Sources of the General or Public Revenue of the Society.” In the prior chapter, “Of the Expenses of the Sovereign or Commonwealth,” he describes the primary functions of the national government. Some—like defense—need to be paid for by general revenue, while others—like transportation infrastructure—can be built and maintained with fees paid by users.

Revenue policy should fund the necessary expenses of the government. Not to benefit this or that industry. Not to advance social objectives. Certainly not to suppress political speech.

Smith set out four goals for evaluating tax options. First, tax contributions should be proportionate to abilities. Second, the rules should be certain and not arbitrary. Third, taxes should be levied when and how its payment is most convenient. Fourth, collection should minimize administrative overhead.

He then evaluated possible tax bases using those principles: rents of land and houses, profits, wealth, wages, head taxes, and consumption. He concluded that the ideal tax bases are residential property and consumption, particularly on luxury goods.

What does Adam Smith have to do with the FairTax? Everything. Setting aside property taxes—a state and local issue—consider how his principles relate to a consumption tax like the FairTax.

Is it proportionate to abilities? Yes. Those who earn more also consume more, thus contributing proportionately more to the general revenue. Savings—which our current tax system discourages but the FairTax would not—provide no current consumption benefits. They are deferred consumption, which in the meantime enables others to borrow to finance education, infrastructure, factories, and much more while also reducing the trade deficit.

Is the FairTax certain and not arbitrary? Yes. Everyone pays the same, known rate on consumption.

Is it convenient to pay? Yes. Merchants include the tax in the prices of final goods and services, which consumers pay all at once. Businesses simply remit the revenue to the government from time to time.

The FairTax also minimizes administrative overhead. The U.S. has around six million businesses.[iii] Not all would collect revenue under the FairTax, since many don’t sell directly to consumers. Current tax law requires the processing of six million business returns, 150 million individual and household tax returns[iv] (some overlap), and various trust, foundation, and other returns that are processed today, all under a complex, burdensome, and unFairTax code.

A broad-based consumption tax like the FairTax has other benefits. It eliminates the bureaucratic discretion that enabled the illegal and corrupt targeting of political speech, as the Richmond Tea Party experienced first-hand. Less taxation on productive activities yields greater physical and human capital investment by businesses and individuals, which makes workers more productive, boosting their compensation and standards of living while also increasing returns to saving.

It eliminates a major source of favor trading between Congress and big businesses. The concentrated interests of businesses associations create enormous pressure for Congress to provide tax preferences. The FairTax dramatically reduces the ability of political insiders to manipulate the tax system.

After nearly a decade of poor economic performance, we need comprehensive, pro-growth, simplifying tax reform like the FairTax. That’s why I’m a proud cosponsor of H.R. 25. To fully restore the American Dream, however, we must also pursue major regulatory and spending reforms.

We can have even more of the market-tested innovations that improve our lives and that would have astounded Adam Smith and our ancestors. Smart policy reforms—like the FairTax—can clear the path.

[i] http://www.econlib.org/library/Smith/smWN.html

[ii] https://www.aei.org/publication/perhaps-the-most-powerful-defense-of-market-capitalism-you-will-ever-read/

[iii] http://www.census.gov/content/dam/Census/library/publications/2015/econ/g12-susb.pdf, Appendix Table 1, pp. 7.

[iv] https://www.irs.gov/uac/SOI-Tax-Stats—Individual-Statistical-Tables-by-Size-of-Adjusted-Gross-Income, “All Returns: Selected Income and Tax Items: 2013”

ABOUT CONGRESSMAN DAVE BRAT

Congressman Dave Brat represents Virginia’s 7th congressional district, serving since 2014 when he won a special election. Brat is a member of the House Budget Committee, Education and the Workforce Committee, and Small Business Committee. He has a Ph.D. in economics, formerly was a professor of economics and chairman of the economics department at Randolph Macon College, and previously worked for the World Bank and Arthur Andersen.

EDITORS NOTE: To learn more about the FairTax please click here.

3 Ways to Destroy American Prosperity

If you absolutely had to draw up a set of policy proposals to dislodge the United States from its position as the most prosperous country in the world, how would you do it?

Your first step would be to pinpoint which factors have produced levels of prosperity unseen in human history and which exist here in the United States. Step two would be to convince impressionable citizens that their eyes and ears are deceiving them, and that the policies that have produced our unprecedented prosperity are failures. Your third step would be to get those same impressionable people to become advocates for legislation which will ensure that the deterioration of the United States occurs slowly, so the contrast between a less prosperous today and a more prosperous yesterday is less noticeable; the regression of prosperity becomes accepted as the norm. Your fourth step is to laser-focus all blame for this regression on your ideological opponents.

Understandably this is an extremely touchy subject, so in this piece I’m going to avoid speculation about the motives of any particular individual or individuals, as I feel conjecture may obscure the seriousness of our subject matter.

With that caveat, here are a set of policy proposals which will ensure the destruction of prosperity.

POLICY OF DESTRUCTION PROPOSAL #1

The first policy priority would be to separate Americans from their money and to convince them that bureaucrats and elected officials can spend their money—for them—better than they can spend it on themselves.

After all, you cannot have both vibrant economic and political liberty and expect to implement your anti-prosperity platform at the same time. Separating people from their own hard-earned money is not easy and requires some slick marketing. Here’s how to do it: Find a charismatic speaker, with no qualms about bending the truth, and ensure he or she depersonalizes and demonizes hard-working taxpayers.

Very few Americans, when asked about specific people (i.e. their neighbors, family members, or friends) want to confiscate their money for their own personal use, but when the charismatic speaker engages in a full blown class-warfare campaign and avoids specifics, using terms such as “the rich,” “pay your fair-share,” and “big business,” it becomes easier to convince others that they are entitled to the earnings of fellow citizens. What many of these people fail to understand, when they buy into the big lie about income confiscation and redistribution, is that their own prosperity is next.

POLICY OF DESTRUCTION PROPOSAL #2

The second policy priority would be to separate Americans from control of their health and medical care.

You cannot destroy American prosperity while allowing people to freely choose when and where they seek medical care, whether acute or chronic. There are only two ways to organize a healthcare distribution system. Healthcare can either be rationed by those in power or priced through free-markets; there is no other way. Medicine, a hospital bed, and a doctor or nurse’s time are resources that can only be allocated by rationing or pricing. In dismantling the pricing signals of healthcare by inserting the government as a third-party payer of healthcare services, and disconnecting the patient from his or her own healthcare provider, you can convince the public that the inevitable exploding health care costs are the fault of greedy boogeymen. This will allow the government to come in and save the day, even after having caused the problem in the first place.

Once this step is achieved, grab your charismatic leader again, and encourage him to demonize “profits” in healthcare—despite the fact that he or she doesn’t work for free—and you’re on the road to government rationing of healthcare and the destruction of your health and prosperity.

Policy of Destruction Proposal #3

The third and final step is to expand the government bureaucracy and ensure it has maximum discretion in the implementation of regulations.

You cannot destroy American prosperity with a Constitution and laws that limit government power and maximize individual freedom. The way around this dilemma is to expand and empower the government bureaucracy and write a series of regulations that mimic laws by giving the bureaucrats power to interpret what the regulations say.

Go get your charismatic leader again and ask him or her to give a series of apocalyptic speeches about our future and man’s role in the inevitable destruction of the planet, and while giving the speeches, be sure to demonize any opposition as “deniers.” This will pave the road to establishing an unchecked government bureaucracy with the power to take your private property, your business, and your bank account. It will most certainly destroy the path to prosperity.

Ask yourself: Who are these charismatic leaders?

EDITORS NOTE: This column originally appeared in the Conservative Review. The featured image is by Robert F. Bukaty | AP Photo.

Four Fallacies that Fracktivists Use to Scare You

To make intelligent decisions about the future of energy, we need to think big-picture—to look carefully at the benefits and costs to human life of every course of action. Unfortunately, in today’s energy debate we are taught, with politically incorrect forms of energy such as fossil fuels, to only look at the negative picture—often highly exaggerated or taken out of context.

How do we identify and counter this cultural bias against fossil fuels? That’s the topic of my latest Forbes column:

There are at least four common fallacies used to discourage big-picture thinking and breed opposition to fossil fuels. These are things to be on the lookout for when you follow the cultural debate; they are everywhere, and all four are used to attack what might be the most important technology of our generation: shale energy aka “fracking.”

The largest fossil fuel controversy today, besides the broader climate change issue, is fracking—shorthand for hydraulic fracturing—one of several key technologies for getting oil and gas out of dense shale rock, resources that exist in enormous quantities but had previously been inaccessible at low cost.

Fracking has gotten attention, not primarily because of the productivity revolution it has created, but because of concerns about groundwater contamination. The leading source of this view is celebrity filmmaker Josh Fox’s Gasland (so-called) documentaries on HBO. Looking at how these movies have affected public opinion is an instructive exercise.

Pope Francis’s Graph of the Day by Ian Vásquez

As the Argentine Pope, ever critical of capitalism, visits the United States, my colleagues at HumanProgress.org have posted this graph.

pope graph

It shows that in 1896, income per person in the United States and Argentina, two of the richest countries in the world, was about identical. Argentina subsequently eschewed the free market, replacing it with trade protectionism and other corporatist policies intended to help the poor by redistributing wealth. By 2010, Argentine income was a third of that of the United States.

Perhaps Pope Francis doesn’t endorse Argentine economic policies, but having just arrived from Cuba, he missed an opportunity to denounce the lack of freedoms that have kept that island and other Latin American countries poor and repressed. He met with none of the many admirable Cuban dissidents, in or out of prison, who have been peacefully advocating basic rights. Nor did he mention the plight of the Cuban people they represent, even as authorities arrested or detained 250 Cuban activists during his visit.

The Cuban Forum for Rights and Liberties (Foro por los Derechos y Libertades), an independent group of dissidents in Cuba, summed up how it felt about, and experienced, the Pope’s visit. It read, in part:

We human rights activists, regime opponents and independent journalists have experienced days full of threats, harassment, telephone connections being cut off, homes besieged by the authorities, and violent, arbitrary arrests.

The behavior of the regime was expected. However, the position of the church has been surprising.

The exaggerated and repeated shows of approval of the dictatorship, the silence toward its excesses, and the refusal to hear dissident voices have created broad discontent among Cuban believers and non-believers both within and outside of the island.

The group might have added that the disappointment has spread more widely in the Americas.

This post first appeared at Cato.org.

Ian Vásquez

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The Speech Pope Francis Should Have Given by Lawrence W. Reed

Pope Francis, Address to the United States Congress — September 24, 2015:

Members of the U.S. Congress and the American people:

I come before you in glowing admiration for the historic accomplishments of your spirit of enterprise. In the pursuit of personal gain — the desire to improve your lives while serving others in the process — you Americans have fed, clothed and housed more people at higher levels than all the combined efforts of humanitarians worldwide throughout history.

In my profession, we speak of “collecting” money. Americans practically coined the phrase, “making money.” After 36 hours in the United States, I now realize that we can’t collect it until you first make it, and while both activities are motivated at least in part by a shared desire to “do good,” the one that your risk-taking, visionary entrepreneurs, investors, builders, inventors and job creators do so well is by far the bigger challenge.

I’ve said some things lately that gave you reason to think I was hostile to the dynamic spirit of enterprise that made this country a beacon for the world and the most generous society in history. I’ve spoken about excessive greed in the capitalist system, but now I realize that no variant of socialism ever does away with greed. It simply ensures that the only way a person can satisfy it is by using his political connections to steal what he wants, to pillage hapless value-creators while condemning the poor to a life of politicized dependency. I’m a little ashamed now that I fell for such nonsense, but I am happy to be here to begin my education in economics and politics in earnest.

One of the beautiful things about your country is the intellectual diversity. One example is my conversations with American Christians who have spent much time in thought and prayer on the question of Jesus’s views on property and politics. In my conversations, we have discussed how Jesus, the man whose teachings I regard as sacred and divine, never once argued for redistribution of income by political power.

While he disdained the worship of money, he never disparaged the crucial role of money as a medium of exchange or as a wealth-creating motivator. I had apparently forgotten Jesus’s advice (in the Book of Luke) to a man who asked him to redistribute some wealth. “Who made me a judge or divider over you?” he asked. I think as legislators, you should ask that very question of yourselves.

So rather than read a stock speech of clichés and finger-wagging, I’m simply going to implore you to keep learning, as I have dedicated my life to doing. And before any of us are quick to jump to policy prescriptions on things about which we know so little, let’s all remember what the Austrian economist Murray Rothbard advised:

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

Thank you.

Unfortunately, this was not the speech the Pope delivered to Congress today.

The good news is that you don’t have to wait for the Pope’s next encyclical to benefit from the insights on property, economics, and Jesus’s teachings on them that the Pope is no doubt gleaning on his American tour.

You can order a copy of Rendering Unto Caesar: Was Jesus a Socialist?yourself. In fact, you can even order multiple copies, get a bulk discount, and start informing others of the important principles the pamphlet champions! What are you waiting for?

Lawrence W. Reed
Lawrence W. Reed

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s.

Inequality: The Rhetoric and Reality by James A. Dorn

The publication of Thomas Piketty’s bestseller Capital in the Twenty-First Century has led to widespread attention on the rising gap between rich and poor, and to populist calls for government to redistribute income and wealth.

Purveyors of that rhetoric, however, overlook the reality that when the state plays a major role in leveling differences in income and wealth, economic freedom is eroded. The problem is, economic freedom is the true engine of progress for all people.

Income and wealth are created in the process of discovering and expanding new markets. Innovation and entrepreneurship extend the range of choices open to people. And yet not everyone is equal in their contribution to this process. There are differences among people in their abilities, motivations, and entrepreneurial talent, not to mention their life circumstances.

Those differences are the basis of comparative advantage and the gains from voluntary exchanges on private free markets. Both rich and poor gain from free markets; trade is not a zero- or negative-sum game.

Attacking the rich, as if they are guilty of some crime, and calling for state action to bring about a “fairer” distribution of income and wealth leads to an ethos of envy — certainly not one that supports the foundations of abundance: private property, personal responsibility, and freedom.

In an open market system, people who create new products and services prosper, as do consumers. Entrepreneurs create wealth and choices. The role of the state should be to safeguard rights to property and let markets flourish. When state power trumps free markets, choices are narrowed and opportunities for wealth creation are lost.

Throughout history, governments have discriminated against the rich, ultimately harming the poor. Central planning should have taught us that replacing private entrepreneurs with government bureaucrats merely politicizes economic life and concentrates power; it does not widen choices or increase income mobility.

Peter Bauer, a pioneer in development economics, recognized early on that “in a modern open society, the accumulation of wealth, especially great wealth, normally results from activities which extend the choices of others.”

Government has the power to coerce, but private entrepreneurs must persuade consumers to buy their products and convince investors to support their vision. The process of “creative destruction,” as described by Joseph Schumpeter, means that dynastic wealth is often short-lived.

Bauer preferred to use the term “economic differences” rather than “economic inequality.” He did so because he thought the former would convey more meaning than the latter. The rhetoric of inequality fosters populism and even extremism in the quest for egalitarian outcomes. In contrast, speaking of differences recognizes reality and reminds us that “differences in readiness to utilize economic opportunities — willingness to innovate, to assume risk, to organize — are highly significant in explaining economic differences in open societies.”

What interested Bauer was how to increase the range of choices open to people, not how to use government to reduce differences in income and wealth. As Bauer reminded us,

Political power implies the ability of rulers forcibly to restrict the choices open to those they rule. Enforced reduction or removal of economic differences emerging from voluntary arrangements extends and intensifies the inequality of coercive power.

Equal freedom under a just rule of law and limited government doesn’t mean that everyone will be equal in their endowments, motivations, or aptitudes. Disallowing those differences, however, destroys the driving force behind wealth creation and poverty reduction. There is no better example than China.

Under Mao Zedong, private entrepreneurs were outlawed, as was private property, which is the foundation of free markets. Slogans such as “Strike hard against the slightest sign of private ownership” allowed little room for improving the plight of the poor. The establishment of communes during the “Great Leap Forward” (1958–1961) and the centralization of economic decision making led to the Great Famine, ended civil society, and imposed an iron fence around individualism while following a policy of forced egalitarianism.

In contrast, China’s paramount leader Deng Xiaoping allowed the resurgence of markets and opened China to the outside world. Now the largest trading nation in the world, China has demonstrated that economic liberalization is the best cure for broadening people’s choices and has allowed hundreds of millions of people to lift themselves out of poverty.

Deng’s slogan “To get rich is glorious” is in stark contrast to Mao’s leveling schemes. In 1978, and as recently as 2002, there were no Chinese billionaires; today there are 220. That change would not have been possible without the development of China as a trading nation.

There are now 536 billionaires in the United States and growing animosity against the “1 percent” — especially by those who were harmed by the Great Recession. Nevertheless, polls have shown that most Americans think economic growth is far more important than capping the incomes of the very rich or narrowing the income gap. Only 3 percent of those polled by CBS and the New York Times in January thought that economic inequality was the primary problem facing the nation. Most Americans are more concerned with income mobility — that is, moving up the income ladder — then with penalizing success.

Regardless, some politicians will use inflammatory rhetoric to make differences between rich and poor the focus of their campaigns in the presidential election season. In doing so, they should recognize the risks that government intervention in the creation and distribution of income and wealth pose for a free society and for all-around prosperity.

Government policies can widen the gap between rich and poor through corporate welfare, through unconventional monetary policy that penalizes savers while pumping up asset prices, and through minimum wage laws and other legislation that price low-skilled workers out of the market and thus impede income mobility.

A positive program designed to foster economic growth — and leave people free to choose — by lowering marginal tax rates on labor and capital, reducing costly regulations, slowing the growth of government, and normalizing monetary policy would be the best medicine to benefit both rich and poor.


James A. Dorn

James A. Dorn is vice president for monetary studies, editor of the Cato Journal, senior fellow, and director of Cato’s annual monetary conference.