Who do you think will win New Hampshire?

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Wednesday, December 1, 2010

The Inequality of Statism

By Francois Tremblay

Statists like to claim that they work for the equality of all. But this is an absurd claim, because statism is, by definition, inequality. It puts political power in the hands of the few. Democracy does not help this fact : it only gives it a veneer of credibility, which makes it worse. The government is not the people.

In a libertarian society, everyone is equal under the law. No one can manipulate the laws for his own advantage. No one has any interest in fighting each other for a power that does not exist. This is not a utopian goal : it's called the rule of law. It's called equality under the law. This ideal was explicit - although incompletely implemented - in the American Constitution and other constitutions.

In practice, democracy and big government has eroded a lot of the equality that we are all owed. We are all human beings, but unfortunately the statists and their ruling classes make some of us into inferiors and others into superiors.

A common criticism of capitalism is that the "rich get richer and the poor get poorer". That's almost half-right : most rich people do get richer. Due to bad decisions, some rich people lose all their fortune (I still remember a friend of my father's who went from multi-millionaire to penniless). Success is never assured.

Of course, what the statists actually mean is that capitalism breeds inequality. This assertion is, in fact, trivially true in one sense. Obviously, the more prosperous a society is, the more resources will be available, and the more resources that will be available to those who contribute the most.

Sports players, for instance, draw in millions and millions of dollars' worth of entertainment money : they give tremendous leisure resources, and thus are rewarded by the market much more than they were 10, 20 or 50 years ago. So there will always be a growing disparity between the most productive and least productive in a prosperous society, simply because of the Bell curve.

There is a more important sense in which the assertion is simply false. In most economies, including statist systems, there are two classes of citizens : the slaving class and the ruling class. There is little movement between these two classes, except the movement necessary for the ruling class to cull out its bad sheep and replenish its ranks. The only way left for people to claim what is rightly theirs is war.

As for capitalism, it is one of its prominent features in the 20th century that it gave us the "middle class" and vertical mobility. Scully (1992: 184) and Niclas Berggren (Stockholm City University), "Economic Freedom and Equality: Friends or Foes?", published in Public Choice, 1999), the more exhaustive studies made on the topic, both found that :

Income is more equally distributed within countries that are politically open, that have private property and market allocation of resources, and that are committed to the rule of law than in countries where these rights are abridged (...) The lack of rights of individuals to compete for income streams has a large and bad effect on the income distribution" (Scully)
But freedom and competition brings with it vertical mobility. It is true that inheritance and familial context dictate one's starting conditions, and that's not something I necessarily agree with. But it is a fact of economics that freer countries means more vertical mobility.
In caste-based societies, around 3 to 5% of leaders and captains of industry come from the lower classes. In freer countries like the United States, the percentage can go from 30 to 50% (Pitirim Sorokin, "Social and Cultural Mobility", 1959). John Edwards and Dennis Kucinich are two recent examples.
How important are our starting conditions, really ? Age-adjusted parental wealth, by itself, explains less than 10 percent of the variation in age-adjusted child wealth ("The Correlation of Wealth Across Generations," December 2003 Journal of Political Economy). And half of this 10% is due to similarities in financial management between parents and children (such as the affinity towards saving and investing wisely).
Contrarily to what some critics say, social mobility is not a zero-sum game. The more a society rewards its most efficient members, the more productive it becomes. And the more productive it becomes, the more resources are available to all. In a free society, more people will rise in economical status than people who will go down.
It's easy to see thousands of people being laid off because of outsourcing. But we don't see that the entire population saves billions of dollars at the grocery store, giving them more savings, and we don't see the benefits of those savings.
As such, the situation is very much like that of the Broken Window fallacy. This fallacy was first discussed by Bastiat, and points out that people see obvious benefits to destructive actions, but do not see all that has been lost. If a child breaks a windowpane with a ball, having to buy another window may seem as an economical stimulant, but in fact the money used to replace the window could have been used to more productive ends if it had not been broken.

The same is true here as well. We see the benefits of people having bad jobs in that they receive a salary, but we do not see the cost of that job on everyone else's livelihood.

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