TGIF: Who Cares about Inequality?

What accounts for the preoccupation with income and wealth inequality? We hear about it every day. Isn't our absolute living standard what matters and whether it is improving or deteriorating? I'll bet that's what regular people care about. However, the professional grievance mongers see things differently, They want you to resent those who are richer.

To start with the basics, we are not talking about inequality. We're talking about income and wealth differences. Substitution of the term inequality is an appeal to emotion, a cashing in on other senses of the word. "You oppose equality? Don't you believe that 'all men are created equal'?" That's demagoguery not argument.

In a market-oriented economy, most income is not distributed. There's no distribution to describe as equal or unequal, fair or unfair. (What the government does is another story.) As Ludwig von Mises, wrote 102 years ago in Socialism: An Economic and Sociological Analysis, "Under Capitalism incomes emerge as a result of market transactions which are indissolubly linked up with production." That's not distribution or allocation.

Mises continued:

We do not first produce things and afterwards distribute them. When products are supplied for use and consumption, incomes for the greater part have already been determined, since they arise during the process of production and are indeed derived from it. Workers, landowners, and capitalists and a large number of the entrepreneurs contributing to production have already received their share before the product is ready for consumption.

"[T]he concept of distribution is only figurative," Mises added. What people call "the income distribution" is not the outcome of a grand allocation plan. It's a snapshot of a dynamic, decentralized series of exchanges and is always subject to change.

People transact, trade, only when they expect to gain. Otherwise, they wouldn't bother. That's true for both parties to a transaction. It's win-win. Among the things people trade are labor services for money and vice versa. That people have to work so they can eat is not the fault of employers, who also have bosses to satisfy; they're called consumers. That's the nature of reality. But in a free and competitive market economy, few people are dependent on only one buyer or one seller. They are free to choose.

If no distribution occurs in a market economy, then no redistribution is possible. When the government taxes our incomes and gives the money to others—be they low-income people or military contractors—that's plain old distribution. And it's illegitimate.

Taxation and other forms of political manipulation are objectionable even if large-scale wealth and income differences do not result. So that cannot be the primary objection. Political manipulation is objectionable because it aggresses against nonaggressors and disrupts the process that best serves consumers. It would be odd to say, "I see inequality, so I wonder what government manipulation has brought that about." It would be reasonable to say instead, "I see government manipulation, so I wonder if, on top of all the other bad consequences, it also has disrupted the wealth-creation process."

Economic differences among individuals and groups are to be expected among free people and ought not to arouse suspicions of illegitimacy. To expect economic equality as the default is to commit the fallacy Thomas Sowell has exposed concerning all sorts of disparities among groups. Uniformity is found nowhere in the world.

Everyone knows that people's contributions to productive activities vary widely, with a relatively few people at the top and bottom and most in the middle. No mystery here. Individuals differ in intelligence, age, ability, disposition, upbringing, energy, alertness, patience, ambition, education, work habits, culture, risk tolerance, entrepreneurship, and much more. No one should be surprised that their contributions to wealth creation also differ vastly or that they change over time. Thus vast differences in income and wealth are to be expected. I couldn't have done what Bill Gates, Steve Jobs, Serge Brin, or Jeff Bezos, did—and, appropriately, my income reflects that.

Despite the seeming paradox, the huge economic differences that can result from innovation benefit everyone. Much would be lost without that possibility. Incentives matter. Moreover, the innovators' gains are minuscule compared to the total gains to consumers. A system designed to prevent or stamp out those rewards to innovation would impoverish us all. It would also put us on what F. A. Hayek called "the road to serfdom."

It should also be noted that the price system, of which income levels are a part, signals to producers what consumers want most. It's our way of telling producers where to put their efforts and scarce resources.

What indicates progress or regress in society is not the latest dubious measure of a gap between rich and nonrich, but how easily people of determination can climb the income ladder. If the government stays out of the way, the obstacles are minimized. Gaps don't matter. Think of an elevator that can expand like an accordion: the floor can rise even if the distance to the ceiling increases.

Most people don't envy wealthy innovators. They admire them. But anti-freedom politicians, intellectuals, and activists think you should resent anyone who is considerably wealthier. They're running a scam designed to obtain power. We need to call them out.

If you like gaps, check out the shrinking consumption gap, the product of the growing availability of resources worldwide thanks to the spread of economic liberalization and the liberation of human ingenuity and entrepreneurship.

 

TGIF: "We Are All Social Engineers Now"

I don't know if anyone has actually said, "We are all social engineers now," but someone might as well have. (The variation "We are all Keynesians now" was declared a long time ago, even by Milton Friedman, although see this.)

When I say "all," of course, I don't mean all. If you look hard enough, you'll find a few opponents of social engineering. But if you throw a dart into a crowd—don't try that at home—you'll most likely hit a social engineer. Most people think the government should do more than apprehend, try, and punish real criminals; maintain courts for peaceful dispute resolution; and keep a small defense force in the unlikely event of a military invasion. (The free market would most likely do those things better without coercion.) Today the government, to much public applause, goes far beyond Adam Smith's vision of "peace, easy taxes, and a tolerable administration of justice."

Large constituencies favor government management of Americans' education, trade with each other and the rest of the world, immigration, housing construction, land use, business, occupations and professions, industrial organization, finance, energy, medical services, income and wealth "distribution," product quality and safety, and culture itself, to name just a few. Did you hear a public outcry when the Republican presidential candidate promised to force the taxpayers and insurance companies to pay for in vitro fertilization? Money comes with strings.

What are the taxpayers not on the hook for these days?

Social engineering in recent years has notoriously been extended to matters involving speech and the written word. Disinformation, misinformation, and malinformation are the newest hobgoblins. Expression about climate change, COVID-19, and even elections has been targeted. We can be grateful this has been countered with a rousing defense of free speech, but caution is in order. Most advocates of free speech support social engineering in myriad other matters, ignoring that government managers will always look askance at expression that might undermine the consensus believed necessary to successful social engineering.

If you support social engineering in one area, what grounds do you have to oppose it in others? A politician who ran for high office promising to strip the national or state government of the power to manage society would surely be buried by his opponent on election day. People are addicted to government management.

That's the world we inhabit. What is the cost of living in such a world? I don't mean the dollar cost. It's easy to find the numbers corresponding to the budget, the deficit, the debt, the shrinking of purchasing power because of central-bank money creation, and so on.

I'm thinking of cost in a different way. What must we forgo because politicians and bureaucrats—no matter which major party is in office—manage so much of our lives? Social engineering is government planning. It may not be total central planning, though some may wish for that, but it does entail a significant degree of it. Many people think the president of the United States runs the country, not merely the executive branch of the government. He or she is regarded as the public's commander-in-chief and not merely the commander of the military, theoretically subordinate to Congress's constitutional war-declaration power. (That's not been a real thing since the 1950s.) No, the president is widely thought to be in charge of almost everything. Executive orders are more common than legislation, which is bad enough. The two major parties have a few differences over what the government should manage, but taken together, their programs encompass pretty much the whole kit and kaboodle.

Social engineering is a fancy term for politicians and bureaucrats telling us what we must and must not do. As Ludwig von Mises wrote: "Planning other peoples’ actions means to prevent them from planning for themselves, means to deprive them of their essentially human quality, means enslaving them."

So don't let it be said that our choice is between government planning and chaos. Wrong. It is between would-be dictators pushing us around and individual self-direction coordinated in the free market. It is between coercive bureaucracy and social cooperation—largely but not exclusively among strangers—guided by private property, contract, market prices, and entrepreneurship.

The 19th-century French liberal economists strove to explain how "Paris gets fed." Every day the shops offered meat, bread, eggs, milk, etc., yet no one ran things overall. Many people coordinated freely without commands. Those economists did not ask, "Does undesigned order exist?" They could see it. Rather, they asked, "How does it happen?" And they proceeded to explain the division of labor, enterprise, trade, market prices, and supply and demand.

That's what we lose to the extent the government interferes with social cooperation. Because of that interference, we've lost a lot since 1789. When the draft constitution was announced back then, many thoughtful people warned that it allowed too much power to the central government, which could be expected to grow from that baseline. Who would disagree with them today?

 

Foreign Interference

People are being told to be alarmed about alleged foreign interference in the upcoming presidential election. Maybe they should be understanding rather than alarmed. The U.S. government conducts a wide-ranging interventionist foreign policy, which can substantially affect other countries. That has included frequent interference in elections and other political operations. So why wouldn't the governments there not only take an interest in U.S. elections but also perhaps attempt to exercise some influence over the voters? Much is at stake militarily and economically.

American  politicians used to say, "Politics stops at the water's edge." However, after America had turned into an empire, Felix Morley, the classical liberal critic of U.S. foreign intervention, commented that politics stops at the water's edge only when policy stops at the water's edge, which it no longer did. 

If we want foreign countries to ignore American elections, the U.S. government should go back to ignoring foreign countries. End the foreign entanglements! Americans should be free to trade with anyone, but the government should pull back to the water's edge—and much further.

TGIF: The Russians Are Coming? The Russians Are Coming?

Civilization, in fact, grows more and more maudlin and hysterical; especially under democracy it tends to degenerate into a mere combat of crazes; the whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by an endless series of hobgoblins, most of them imaginary.

―H. L. Mencken, In Defense of Women

It is in Mencken's spirit that I would size up this announcement from the U.S. Justice Department, titled "Justice Department Disrupts Covert Russian Government-Sponsored Foreign Malign Influence Operation Targeting Audiences in the United States and Elsewhere":

The Justice Department today announced the ongoing seizure of 32 internet domains used in Russian government-directed foreign malign influence campaigns colloquially referred to as “Doppelganger,” in violation of U.S. money laundering and criminal trademark laws. As alleged in an unsealed affidavit, ... Russian companies..., operating under the direction and control of the Russian Presidential Administration, ... used these domains, among others, to covertly spread Russian government propaganda with the aim of reducing international support for Ukraine, bolstering pro-Russian policies and interests, and influencing voters in U.S. and foreign elections, including the U.S. 2024 Presidential Election.

The release quoted FBI Director Christopher Wray: “Companies operating at the direction of the Russian government created websites to trick Americans into unwittingly consuming Russian propaganda. By seizing these websites, the FBI is making clear to the world what they are, Russian attempts to interfere in our elections and influence our society."

So once again a foreign power—usually Russia—is allegedly trying to manipulate the American people with disinformation as a presidential election is coming on. How dare the Russians do this? Political manipulation is allowed only to certain anointed Americans. It's a position of privilege. So the government will protect us from "consuming" Russian propaganda without knowing it. We're too stupid to check claims out for ourselves when they sound fishy—even when they come from so-called legitimate" sources. (Point of information: are Russians incapable of saying anything accurate worth hearing? Just asking.)

Before we get all primed for nuclear war, let's take a deep breath. Maybe it would help to picture a scene that may or may not have occurred in the Kremlin.

Picture President Vladimir Putin (not a guy I'd ever hang with) summoning a top aide to his office. "Sergei, I have a great idea," he might say this trusted aid. "Here's $10 million. I want you to launder it, then have some American-looking company pass the money to big-time American internet influencers. But make sure the money goes to people who are already saying what we want them to say. No sense wasting it on people who don't like us. Pay these friendly guys to post propaganda favorable videos."

Putin might have gone on: "What we want to do is capitalize—pardon expression, comrade—on the American sport of arguing about politics and culture. Muhahahahahaha! Yes, I know, America is severely divided over more issues than I can name. But it's not divided nearly enough for our purposes! We can do better, da? This will help us in many ways, primarily by disillusioning Americans about Ukraine. That would be good, nyet?"

After hearing Putin, Sergei might have laughed under his breath and agreed to oversee the project. Why might he have laughed? Because he might have been thinking, "Do we need to pay even a ruble on polarizing America? What a waste of money! America is doing just fine polarizing itself. They don't need our help. And $10 million? Is he kidding? That's a drop in the bucket compared to what Americans spend bitterly promoting their views on public issues. Is this the Putin who's cracked up to be so foxy? Sheesh! Maybe I should be president."

According to the government's indictment:

Many of the videos published by U.S. Company-I contain commentary on events and issues in the United States, such as immigration, inflation, and other topics related to domestic and foreign policy While the views expressed in the videos are not uniform, the subject matter and content of the videos are often consistent with the Government of Russia's interest in amplifying U.S. domestic divisions in order to weaken U.S. opposition to core Government of Russia interests, such as its ongoing war in Ukraine. [Emphasis added.]

Immigration, inflation, and other topics related to domestic and foreign policy? Are we to believe that Russian officials think they need to amplify divisions in America? How much more amplified can they get? And what about the Justice Department's acknowledgment that "the views expressed in the videos are not uniform"? What are we being asked to get upset about?

J. D. Tuccille writing at Reason points out:

Translated Russian documents [provided by the Justice Department] outlining a "guerilla media campaign in the United States" caution their intended audience that "in the United States there are no pro-Russian and/or pro-Putin mainstream politicians or sufficiently large numbers of influencers and voters. There is no point of justifying Russia and no one to justify it to." [Emphasis added—SR] The campaign was meant to exploit "the high level of polarization of American society" by paying commentators to say things they were already saying.

It's not clear they got a lot of mileage from that program.

That's an understatement, I'd say. But Putin's objective (if he was behind this) might simply have been to upset American officials and the public. Here's a suggestion: let's not get upset. Read the rest of Tuccille's article for more particulars about the effectiveness of meddling and about the U.S. government's own sorry decades-long record of manipulating other countries' political systems. Then remember the advice about stones and glass houses.

"So, take reports of Russian interference in American elections with a grain of salt," Tuccille advises, "knowing that Putin is paying Americans to say what they already believe, and the U.S. does the same in other countries. Importantly, none of that interference prevents you from making your own decisions."

I have plenty of criticism of democracy, as readers know, but I wonder: is America so fragile? Or is this one of Mencken's hobgoblins? If so, who benefits?

TGIF: What Government Has Wrought

Imagine two candidates for president, and ask yourself who is more likely to win.

Candidate A observes that people are facing generally rising prices. Their total at the supermarket checkout is higher than last year. Filling up the car at the gas station takes a bigger bite out of the budget. Everything the kids need seems costlier. Besides all that, the prospect of buying a home or moving to a larger apartment looks grim—too expensive.

Responding to this situation, Candidate A launches a campaign promising to defend the middle class and other working people against "corporate greed." Specifically, he proposes an expanded child tax credit, a crackdown on "price gouging," and down-payment subsidies to first-time home buyers. Targeted tax credits to homebuilders and small businesses are among the promises. (These and other tax credits are called "refundable," which means qualifying people who pay little or no taxes have their nonexistent tax payments refunded to them—a logical impossibility.)

Candidate B, not your typical frontman for a mass-marketing campaign, sees the same hardships as Candidate A, but he has a different message. He pledges to move heaven and earth to repeal taxes on savings, investment, and business, including the capital-gains tax and the corporate income tax. He explains that taxes on savings, investments, and enterprises are dishonest because businesses don't pay taxes; they collect them—from workers, customers, and corporate shareholders. Such taxes constitute double and even triple taxation. (See Roy Cordato's "Corporations Should Pay Higher Taxes?" and "Taxing Investment." ) He also promises to work to abolish regulation on business, which raises production costs, hikes prices, and reduces the supply and variety of consumer products.

The candidate unabashedly promotes his plan in the name of economic growth and prosperity for everyone. He does so because he believes that the only way for everyone to get rich(er) is for production to expand, for labor to become more productive, and for real prices to fall through increased supplies. That requires saving and investment, that is, deferred consumption. Anything that discourages savings is bad, he says. He favors prosperity, he says, over income equality, which is a recipe for poverty.

The candidate proposes to accommodate the lost revenue by pushing Congress to cut spending all through the budget. He also calls on the governors, county executives, and mayors to eliminate the barriers to home and apartment construction, including zoning, because, he notes, high housing prices are caused by politically restricted supply. This is especially egregious where some of the most lucrative jobs are. However, since housing is artificially scarce, many people can't move to where the best jobs are because they're priced out of the housing market. He also promises to get rid of any federal regulations that keep the housing supply from meeting the demand.

In general, Candidate B explains to voters that increased consumption requires increased production (not vice versa) and that bureaucracy discourages savings and raises costs and prices. The government is not good at creating real wealth; it is a consumer and engine of transfer, not a producer.

Who's likely to win the election? The one who promises direct help to middle- and working-class consumers or the one who promises to help them indirectly by freeing up entrepreneurship and free enterprise?

Does anyone doubt who, other things equal, would prevail? Candidate A would be widely portrayed as a champion of the people, a hero bursting with compassion and courage to take on special interests. Candidate B would be portrayed as a shill for Big Business and Wall Street, who favors having all the wealth go to the top 20 or even 1 percent, while the rest of America gets poorer and poorer. (Although that is the opposite of what's been happening for many decades.)

In other words, the candidate who understands how the free-enterprise system tends to work when left unmolested by politicians and bureaucrats will be scorned as an enemy of progress. Meanwhile, the candidate who either is ignorant of economics or engages in demagoguery will be lifted on people's shoulders and carried into the White House.

That's what a representative democratic republic produces. The result is a total national debt—$35 trillion and change—larger than GDP—almost $29 trillion—not counting the unfunded liabilities of the so-called entitlement programs. Interest paid on the debt will be about $900 billion this fiscal year, which ends September 30. Annual budget deficits have hit $2 trillion, which the government covers by selling bonds, which in turn the Fed (short for Federal Inflation Generator) buys up, creating money out of thin electrons. Inflating the money supply then raises prices generally as more dollars chase the same amount of goods, imposing hardship on regular people. A fiscal crisis looms.

If this tale of two candidates does not make you question the utility of government, what would?