Those who harp about “inequality” will talk themselves hoarse over the election season to come, insisting that the gaming of our economic system is the only explanation why some grow very rich and many do not. Just like the poor, class envy will be with us always
According to “Labor’s agenda for tackling inequality,” the Growing Together report, “inequality is at a 75-year high.” Nonsense is immortal in the hands of the left. A fundamental law of capitalism which, heretofore, has received little recognition or exposure is the antidote.
I flirted with calling it Smith’s Law but if it were any good no doubt a somewhat better-known Smith, Adam, would be mis-assigned the credit. Mind you, Smith is such a commonplace name that pseudonymity would probably be suspected. Some years’ ago I got into a heated wrangle on the Liverpool FC website about the worth of the then-coach and was accused by one of my antagonists of hiding behind the obvious pen name of Peter Smith. He clearly regarded my name as akin to Joseph Blow or Donald Duck. So modesty prevails and I will just call it ‘the fundamental or inbuilt law’.
There is a heap of talk these days about rising inequality. It will no doubt be a central issue in the US elections and would be the only issue of note for socialist Bernie Sanders in the highly unlikely event he were to win the Democratic nomination. Jeremy Corbyn is on board the Bernie bandwagon as, without a shadow of doubt, is Labor’s Andrew Leigh (Battlers and Billionaires).
Thomas Piketty, Capitalism in the Twenty-First Century, gave the issue (as specious as it is) a literary boost. My review, “The Questionable Equations of Thomas Piketty” in the June, 2014, issue of Quadrant, did a fair job (British understatement) of exposing the flaws in his arguments.
Recall that the Occupy Wall Street movement began in 2011; inspired, in part, by the focus that Piketty and a colleague, Emmanuel Saez, had earlier given to the wealth and income of the so-called “one per cent”. Piketty and Saez were by no means alone. For example, Nobel laureate Joseph Stiglitz (“Of the 1%, by the1%, for the 1%”) is one among a number of prominent ‘socialist economists’ (in itself, by the way, a contradiction in terms) who gave the issue a kick-along.
Whether and to what extent inequality of income and of wealth has increased over recent decades is a matter of debate. I am not sure what has happened to wealth but it seems clear to me that income inequality has grown. Whatever the state of affairs, I don’t care and neither should you. People who do care have a socialist axe to grind or a vague feeling that the game is rigged and that they personally deserve to be better off than they are. People who don’t care believe that their financial position is a product of their own efforts, taken together with the vicissitudes of life. The last group of people are healthy; the first group suffer from varying degrees of undiagnosed paranoia.
As a preamble to the fundamental law — which I confess to having been banging on about for a while without earning plaudits — let me say that we desperately need rich people. Richer people save and invest a lot and this drives and underpins capital investment and embedded technological progress, without which life would get mean and miserable for everyone. Poorer people as workers contribute to making the prevailing pie; however they spend all or most of their earnings and therefore contribute next to nothing to growing the pie. Of course they do eat the pie.
Don’t get me wrong. Eating the pie is a necessary part of the economic equation. But as Michael Douglas in character pointedly exclaims in The War of the Roses to his wife, played by Kathleen Turner: “It’s a lot easier to spend it than it is to make it, Honeybun!”
The implication of spreading the wealth will be more spent on consumer goods and less on capital goods. Future growth and prosperity will suffer. But, many say, surely a balance is required. Nuts I say, if you mean by that redistributing income and wealth from the rich to the poor beyond providing adequate safety nets.
The distribution of income is not divorced from the generation of income. In a capitalist system — the only system capable of ensuring our growing prosperity in a finite world — people are paid according to the contributions they make to production. Disengaging reward from contribution, which is what redistribution aims to do, is not compatible with capitalism. Socialism does that — ‘each according to his needs’ — and quite predictably leads to stagnation and impoverishment.
A qualification is in order. Redistribution, via progressive taxation and the welfare state, has in fact gone beyond providing a safety net and capitalism has survived. That is true. Capitalism is resilient – to a point. But make no mistake. Prosperity has suffered. The counter argument is that the poor have benefited and would otherwise have been cruelly used by less-trammelled capitalism. Not true.
Fortunately, capitalism has an inbuilt law which absolutely prevents the richer few from harming the poorer many. To wit: capitalists, as distinct from criminals and communist commissars, only become rich when lots of people among the 99% are able to buy and enjoy the products and services supplied by the aforementioned capitalists. This is possible only if capitalists employ enough people and pay them enough so that those people are able to buy and enjoy the products that the capitalists collectively produce. Ergo, the impoverishment of the 99% is incompatible with capitalists becoming rich.
Now, with this law in mind, consider an extraordinary and fanciful observation often made by moronic leftists (not, by the way, a contradiction in terms). According to Wayne Swan, writing in The Monthly back in March, 2012, the benefits of industrialisation and technological advances in Britain and Europe in the 19th century went “overwhelmingly to the fortunate few.” As I wrote at the time (“Wayne’s Fanciful World”, QOL, 9 March), this leaves us with the ridiculous idea that the rich must have stockpiled clothing and food in vast warehouses; wrapped thousands and thousands of empty houses in barbwire estates; and kept trains, and later motorcars and cameras and all kinds of goods, in giant storage parks with armed guards around the perimeters. Ill-gotten booty denied to the populace. How they made a profit out of that only Swan knows. Incidentaly, Swan’s epistle was so steeped in class envy and paranoia, especially about Gina Rinehart, that even Media Watch took it to task.
OK, Swan is not an economist. So, take trained economist Adair Turner. Turner (his lordship) was the former Chairman of the UK’s Financial Services Authority and is now attached to the Institute of New Economic Thinking, established in 2009 by George Soros. In a lecture at The Cass Business School in March 2014, he compared the present day with the period 1830 to 1860 when “the lion’s share of rising prosperity went to capital owners not workers.” Turner is actually referring to savings of monetary wealth; to pieces of paper, not to real wealth. Swan and Turner and their fellow travellers simply don’t know what they’re talking about. They don’t know about the fundamental law.