Defending Capitalism from Inequality Hokum

In a recent Financial Times op-ed ("Charity Needs Capitalism to Solve the World's Problems"), former President Bill Clinton makes a murky, mealy-mouthed case for capitalism where he basically argues that while we need some capitalism to solve our current socio-economic problems, he questions how much capitalism is a good thing.

Clinton writes:

"While our global economic system has brought benefits to many it has also exacerbated inequalities, both within and among countries. Too much inequality not only hurts the poor and stifles the dreams of the middle-class, it also hinders productivity and growth."

With all due respect to the former President, he sounds awfully similar to the current crop of class warfare fomenting politicians. For starters, he fails to address how and why such inequality occurs. At best, his argument is a broad generalization that misses the mark; at worst, it is pure leftist propaganda.

Inequality happens. It is inevitable in a political system such as ours. The "division of labor" inherently reflects different desires and different outcomes in earnings. Free people are precisely that-and they are free to choose their profession. While some people seek greater leisure, and some work for love of what they do, with little regard for pay, others are in it for the money. And of course, each individual has their own particular education, training, and abilities.

Now in a communist country like Cuba, or North Korea, there is virtually perfect equality among the citizenry. Except of course for the ruling class, politburo or dictator who are the rich in their respective countries. Why? Because the government essentially chooses a citizen's work for them. As a result, they all get paid virtually the same amount.

Unfortunately, there has been much misguided rhetoric recently about "rich people" paying their "fair share." So, what exactly is a "fair share?" No answer has been clearly offered. Perhaps that is by design? Political dogma is always more effective when left vague and subjective. Voters frustrated by a moribund economy like ours can then vent their frustrations on paying their "fair share," while the faceless, evil "rich" refuse to pay theirs.

Clinton also seems to suggest that capitalism is capable of hurting the poor. Huh? How can some people being wealthier than others hurt them? This argument can only make sense if you assume a fixed economic output-a static "pie" that is divided up. No sane economist or rational person makes this case because no such thing exists.

Clinton also writes of "stifling the dreams of the middle class." This is so convoluted it is hard to decipher. The dreams of the middle class? These dreams are based on creating a better life for themselves and for their children. Capitalism promotes wealth for all groups. The fact that hardworking people with a good idea can get rich and advance in the classical tradition of the United States is why immigrants still flock to our shores.

As for Clinton's canard that "[capitalism] also hinders productivity and growth"-now that is a real whopper. Capitalism is what causes "growth and productivity!" Low tax rates result in more investments, because an investor gets a higher rate of (net) return and this increases the risk reward ratio in the investors favor. How can free markets hurt growth and productivity?

Capitalism is not to blame for holding wages steady at the median income level for years. The real culprit? Government. To be precise: government manipulation of bank credit, interest rates, and the money supply. Add to this onerous and ubiquitous regulations and shifting taxes corporations used to pay to individuals. Since 1971, (after the U.S. went off the international gold standard) inflation has officially compounded at 4.25% annually. Who is to blame? The Fed.

In addition, raising costs on small business via health care, threats of higher taxes, and huge layers of new regulations is what hurts lower income people the most. It limits new hiring and start-ups. The real answer to helping low income groups is to increase growth and productivity. This increases employment; nothing else.

Let's be clear: the left's incessant hand-wringing over "income inequality" is just another straw man used to further the illusion that government is the solution, rather than the problem. When the fog is lifted, hardworking Americans are truly concerned with what they earn, and how much of it they get to keep in their own pocket, instead of handing it over to faceless, spendthrift bureaucrats.

Unfortunately, class envy, scare tactics and vilification of "the rich" is an easy way to convince voters that they are victims of a great injustice. The aim of course is to make these voters believe that only a larger and more intrusive government can protect and save them. Apparently Mr. Clinton thinks that mixing in a bit of the truth (capitalism) will make this Grimm's Fairy Tale more believable. I hope people are smart enough to see the Emperor-again-has no clothes.