It's Not an Accident ... It's Policy

Government Is Largely Responsible for Soaring Inequality

by George Washington

America is experiencing unprecedented inequality. And a who's who of prominent economists (and investors) say that inequality is hurting the economy.

Defenders of the status quo pretend that this inequality is something outside of our control ... like a force of nature. They argue that it's due to globalization, technological innovation or something else outside of policy-makers' control.

In reality, inequality is rising due to the government policy.

The chairman of the Department of Economics at George Mason University says that it is inaccurate to call politicians prostitutes. Specifically, he says that they are more correct to call them “pimps”, since they are pimping out the American people to the financial giants.

The government has saved the big banks at taxpayer expense, chosen the banks over the little guy, and said no to helping Main Street ... while continuing to throw trillions at the giant banks.

Crony capitalism has gotten even worse under Obama than under Bush.

Obama is prosecuting fewer financial crimes than Bush, or his father, or Ronald Reagan.

Moreover, not only is the cop not cracking down on crime ... he's on the take, and helping carry out and cover up the crimes.

No wonder:

All of the monetary and economic policy of the last 3 years has helped the wealthiest and penalized everyone else. See this, this and this.

***

Economist Steve Keen says:

“This is the biggest transfer of wealth in history”, as the giant banks have handed their toxic debts from fraudulent activities to the countries and their people.

Stiglitz said in 2009 that Geithner’s toxic asset plan “amounts to robbery of the American people”.

And economist Dean Baker said in 2009 that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”.

Without the government’s creation of the too big to fail banks (they’ve gotten much bigger under Obama), the Fed’s intervention in interest rates and the markets (most of the quantitative easinghas occurred under Obama), and government-created moral hazard emboldening casino-style speculation (there’s now more moral hazard than ever before) … things wouldn’t have gotten nearly as bad.

As I noted in March 2009:

The bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:

·         Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes

·         A lot of the bailout money is going to the failing companies’ shareholders

Interesting Facts About Health Care in US

Half Of US Population Accounts For Only 2.9% Of Healthcare Spending; 1% Responsible For 21.4% Of Expenditures

By Tyler Durden

With the topic of peak class polarization once again permeating the airwaves and clogging up NSA servers, and terms like 1% this or that being thrown around for political punchlines and other talking points, one aspect where social inequality has gotten less prominence, yet where the spread between the "1%" and everyone else is perhaps most substantial is in realm of healthcare spending: perhaps the biggest threat to the long-term sustainability of the US debt picture and economy in general. The numbers are stunning.

According to the latest data compiled by the Agency for Healthcare Research and Quality, in 2010, just 1% of the population accounted for a whopping 21.4% of total health care expenditures with an annual mean expenditure of $87,570. Just below them, 5% of the population accounted for nearly 50% of all healthcare spending. Just as stunning is the "other" side: the lower 50 percent of the population ranked by their expenditures accounted for only 2.8% of the total for 2009 and 2010 respectively. Perhaps in addition to bashing the "1%" of wealth holders, a relatively straightforward and justified exercise in the current political climate, it is time for public attention to also turn to the chronic 1% (and 5%)-ers who are the primary issue when it comes to the debt-funding needed to preserve the US welfare state.

The spending distribution in chart format:

Broken down by age - While the elderly represented 13.3 percent of the overall population, they represented 47.9 percent of those individuals who remained in the top decile of spenders:

Chaos Theory as Applied to Economics

Motives and purposes are in the heart and brain of man, consequences are in the world of fact

BY JR NYQUIST

In March 1988 Murray Rothbard wrote a fascinating piece titled "Chaos Theory: Destroying Mathematical Economics from Within?" He observed that chaos theory had very “radical” implications. For those unfamiliar with chaos theory, it is a mathematical discovery which has implications for meteorology, physics, biology and economics. According to chaos theory, volatile dynamic systems are highly sensitive to small differences in initial conditions. Rothbard explained it as follows: “Two decades ago, Edward Lorenz, a meteorologist at MIT stumbled onto chaos theory by making the discovery that ever so tiny changes in climate could bring about enormous and volatile changes in weather. Calling it the Butterfly Effect, he pointed out that if a butterfly flapped its wings in Brazil, it could produce a tornado in Texas.”

Imagine the implications for international finance. A small perturbation might produce a completely unexpected turning of the entire global economy. The result would not only be unexpected, it would be virtually unpredictable (due to the complexity of the interactions of all the related small-fry phenomena). The Stanford Encyclopedia of Philosophy article on “Chaos” tells us that chaos theory postulates sensitive dependence (on initial conditions) within a system that is deterministic and nonlinear. The Stanford article points out that Aristotle “was already aware of something like what we now call sensitive dependence.” But Aristotle’s understanding of this was epistemological rather than metaphysical. On this matter the ancient philosopher wrote, “the least initial deviation from truth is multiplied later a thousandfold.” In other words, a small lie at the beginning may lead to a complete break with reality somewhere down the line – an epistemological corollary of chaos theory. (We will return to this idea later.)

Getting to the heart of the matter Rothbard wrote, “The upshot of chaos theory is not that the real world is chaotic or in principle unpredictable or undetermined, but that in practice much of it is unpredictable.” For if we find within a dynamic system (both mathematically precise and deterministic) that prediction is effectively impossible, our math suddenly ceases to serve any purpose. According to Rothbard, chaos theory has “subversive implications … for orthodox mathematical economics. For if rational expectations theory violates the real world, then so too does general equilibrium … and all the rest of the neoclassical apparatus.”

Rothbard was not, of course, endorsing chaos theory. He was having fun by using mathematical conclusions to confound mathematical methods applied to economics. Here the errors of the economists are many, and serious. To be sure, economists intend to present a realistic picture of economic activity, but in fact the falsification of their science is palpable. The sociologist William Graham Sumner published an essay in 1902 titled “Purposes and Consequences” in which he offered a distinction between facts and intentions; namely, that the former is real while the latter is irrelevant to the outcome. This distinction has great significance for what Ludwig von Mises called “human action.” As human beings we live in a world of purposive action and factual outcomes. The most important thing to understand about economics is not merely that we are mathematically unable to arrive at precise predictions, but that (according to Sumner) “ideals like perfect liberty, justice, or equality ... can never furnish rational or scientific motives of actions or starting points for rational effort.” Yet everything within today’s crumbling civilization comes down to this sort of thing, on a mass scale. Here we find the “human action” corollary of chaos theory. A small [financial] mistake at the beginning may lead to total breakdown at the end. The official economic policy of the United States may be characterized thus. It is at the mercy of moralistic slogans which have no bearing on economic fact (or financial math). Here is something beyond the chaos of numbers. It is the chaos of the human heart.

Republicans for Obamacare?

Ruling Parties

by Angelo M. Codevilla    

All Republicans say they oppose Obamacare and vie to call it bad names. But while some will not vote for any bill that appropriates money for it, the Republican Establishment’s leaders in Congress are poised to vote to save its funding. They call the Republicans committed to de-funding Obamacare worse names than they call Obamacare itself, as do The Wall Street Journal and Fox News. They couch their animus in the pretense that withholding funds from Obamacare is impossible. Not so. The Constitution requires that the House of Representatives, the Senate, and the President agree on identical versions of each and every appropriation. Otherwise, zero money. So, if Congress ends up appropriating money to enable Obamacare, it will be because Republicans made that happen. Period. That is a fact, not an opinion.

Republican Establishmentarians dislike Republicans who are resisting Obamacare more than they dislike that law because the resisters are forcing them to choose which they value more, their standing in the ruling class or their standing with their voters. Since these Establishmentarians have lived by pretending to represent those voters against big government, forcing them to reveal their true political identity portends a major reorganization of American public life.

The more that the Republican Establishment vilifies the Obamacare resisters, however, the more it clarifies its identity.

The House, which has a Republican majority, can fund Obamacare only if Republicans join the Democrats in voting for it. In the Senate, an appropriation for Obamacare can be voted on only if enough Republicans join Democrats in a sixty-vote majority to cut off debate. But the Republican Establishment, which seems committed to providing those crucial votes, argues that since Obamacare’s proposed appropriation is part of an omnibus “Continuing Resolution” that funds the entire government, Republicans can refuse to fund Obamacare only by refusing to fund the entire government, thus “shutting it down.” They profess certainty that the American people would punish the Republican Party for that.

Employer-Based Health Insurance Is Becoming An Endangered Species

Where do we sign up?

by Michael Snyder

Barack Obama promised to fundamentally transform America, and when it comes to health care he has definitely kept his promise.  Thanks to Obamacare, health care spending is up, health insurance premiums are up, the number of hours Americans are working is down and employer-based health insurance is becoming an endangered species.  Of course employer-based health insurance will not disappear completely any time soon, but it has been steadily shrinking for over a decade, and Obamacare will greatly accelerate that decline. 

If you go back to 1999, 64.1 percent of all Americans were covered by employment-based health insurance.  That was pretty good.  Today, only 54.9 percent of all Americans are covered by employment-based health insurance, and now thousands upon thousands of U.S. employers are considering reducing the scope of the health plans they offer to employees or eliminating them altogether due to Obamacare.  If you are thinking that this sounds like a potential nightmare for millions of Americans families, you would be exactly right.

There have already been widespread reports of companies dropping health insurance, but nobody knows for sure how widespread the carnage will be.  According to Businessweek, the surveys that have been done up to this point have come up with widely varying results...

A Deloitte study last year suggested 10 percent of employers would stop offering group health plans. A widely criticized McKinsey report from 2011 put the number as high as one-third. The Congressional Budget Office’s latest projections suggest 8 million fewer people will be covered by employer plans five years from now under the ACA than without it. Many of them will get policies through health insurance exchanges instead.

But what everyone does agree on is that employer-based health coverage will continue to diminish.

And we are already watching this happen right in front of our eyes.  Just this week, the Wall Street Journal reported that the largest security guard firm in the United States is dropping health coverage for 55,000 employees...

UNICEF’s Chemical Weapon

Intention and effect are not always quite the same

by Theodore Dalrymple

Yesterday I was on a flight on an airline that claimed to be deeply anxious to preserve the environment, though not quite anxious enough, obviously, to go out of business. This kind of self-righteous sanctimony, a commercial reflection in the mirror of political correctness, ever more prevalent, irritates me greatly, and would irritate me just as much if the claimed virtue were real rather than false. Save the world by all means, but please do so in private.

Worse was to come. A short while before we came into land the chief steward announced over the public address system that the airline was making a charity collection and that this month’s charity was UNICEF. A small contribution—about 60 cents US—was enough to immunize a child against a disease that might otherwise kill it. And to prove that this was true, a recording of a celebrity (of whom, naturally, I had never heard) was played that relayed exactly the same message. How could what a celebrity said be wrong?

Those who would once have been called stewards and stewardesses passed up and down the aircraft aisle to the jingle of allegedly life-saving contributions. It was like passing the plate at the end of a religious service. The passenger next to me gave generously, and for a moment I felt morally intimidated into doing likewise, but in the end I was able to resist. I kept my hands in my pockets.

“Save the world by all means, but please do so in private.”

Quite apart from the fact that there are few countries that really could not save their children’s lives for 60 cents if they really wanted to (rather than, say, have their ambassadors riding chauffeur-driven around the capitals of Europe in black Mercedes limousines), I am not an unequivocal admirer of UNICEF. This is not just because their Christmas cards are in doubtful taste. I simply do not believe that if I gave it 60 cents it would use it to save the life of a child. Like most charities these days, it has other priorities that it was set up to serve.

In fact, UNICEF is the greatest mass poisoner of children in world history. It employed the comparatively old-fashioned poison of arsenic that practically no poisoner uses nowadays. The last mass poisoning by arsenic that I know of, though I am no expert, was in Manchester, England, in about 1900, when arsenic-tainted sulfuric acid was used in the manufacture of beer and about 6,000 people suffered arsenic poisoning. Forty years before that, not far away in Bradford, a confectioner adulterated his peppermints with white arsenic (which was cheaper, apparently, than peppermint cream) and sixty children died.

These were trifling affairs by comparison with UNICEF’s great effort, greater than that of the Manchester brewery by at least a thousand times. Like the brewer and the confectioner, UNICEF had no malicious intent, but as we all know intention and effect are not always quite the same. Indeed, they are often opposite.

In Bangladesh, UNICEF correctly observed that diarrheal diseases were killing a lot of children. In all poor countries diarrheal diseases caused by a contaminated water supply are among the most prolific killers of children, and UNICEF decided to give Bangladesh clean water. It sank millions of tube wells so that Bangladeshis should henceforth drink clean groundwater.

The Greatest Thinker You've Never Read: Ludwig von Mises

The greatest social thinker of the twentieth century

“The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built. It rests with men whether they will make the proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race.”

                                                                         - Human Action
By Art Carden

Had he not passed away at the tender age of 92 in 1973, Ludwig von Mises would have turned 131 years old today. In my humble opinion, he was the greatest social thinker of the twentieth century. In a series of breakthrough contributions like The Theory of Money and Credit, Socialism: An Economic And Sociological Analysis, Human Action (his magnum opus), and Theory and History–to say nothing of a series of smaller and no-less-insightful works like Bureaucracy and Omnipotent Government–Mises developed theories of economic growth and business cycles that are relevant today. One of the wonders of the modern world is that his major contributions are available to be perused or downloaded from the institute bearing his name or from the Liberty Fund. Today, anyone with access to an internet connection can access his works with little or no trouble. Anyone with a USB drive can carry his greatest works on a keychain.

The progress that made this possible wasn’t an accident, and it wasn’t random. Indeed, this brings us to Mises’s greatest contribution: his demonstration that socialism cannot function as a rational economic system and that private ownership of the means of production is necessary if value is going to be maximized and waste is going to be minimized in the production process.

Mises started–and in my humble opinion, ended–the debate over whether an economic system based on common or social ownership of the means of production could function with his essay “Economic Calculation in the Socialist Commonwealth.” He demonstrated that it was impossible to know whether a particular production process was wise (resource-optimizing) or unwise (resource-wasting) in the absence of prices for the means of production. His socialist critics accepted this, and Oskar Lange suggested that a statue of Mises be given a place of honor by the socialist Central Planning Board (here is Murray Rothbard with more).

Mises carried his argument step further, though: he argued that these prices cannot emerge without exchange, and exchange in turn cannot happen without private ownership of the means of production. Many economists laud the market for its efficiency properties as free markets generally direct resources to their highest-valued ends while minimizing costs of production. In the Misesian tradition, however, the market plays a much more essential role. It is not merely one of a number of possible allocative mechanisms. Exchange in a free market is an information- and knowledge-generating process. To adapt the title of one of Hayek’s essays, competition in the free market is “a discovery procedure.” This emphasis on the coordinating and knowledge-generating properties of exchange in a free market with secure private property rights is one of the distinctive features of the modern Misesian tradition, which is discussed in a three-part series by my occasional co-author Steven Horwitz (1,2, 3).

Mises’s arguments, and the arguments of those who have followed him, do not merely undermine arguments for pure, global socialism. They also undermine arguments for interventionism more generally. Economists take a lot of heat for focusing on market exchange and material prosperity, and it is fashionable in some circles to say that “there is more to life than economic efficiency” as if that decides an argument in favor of intervention. Not so: people respond to incentives, even when you don’t want them to, and the knowledge-destroying and incentive-distorting effects of interventionism all too often bring with them unintended consequences that not only reduce economic efficiency but also harm precisely the intended beneficiaries of the intervention.

It is for this reason that I urge my students to consider the consequences of different interventionist schemes–to count the cost, as it were. In his introduction to the new edition of Socialism from Laissez-Faire Books, Peter J. Boettke makes an important point:

“Critics of economics say that economists know the price of everything but the value of nothing. Nothing, perhaps, is so dangerous intellectually in the policy sciences as an economist who knows only economics, except, I would add, a moral philosopher who knows no economics at all.”

Ludwig von Mises can no longer teach us economics in person. His astounding intellectual contributions live on, though, in his writings and in the passion for truth that shines through almost every word. Unfortunately, the people who most need to read Mises probably won’t. In this light, I can close with nothing better than the sober warning Mises offers in the last few sentences of Human Action:

“The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built. It rests with men whether they will make the proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race.”

Venezuela food shortages: 'No one can explain why a rich country has no food'

No one? Really?

Venezuelans queue for food at a state-run market in Caracas. Photograph: Reuters

By Virginia Lopez, The Guardian

"Toilet paper, rice and coffee have long been missing from stores, as Venezuelan president blames CIA plot for chronic shortages"

It's the rainy season in Venezuela and Pedro Rodríguez has had to battle upturned manhole lids, flooded avenues and infernal traffic jams in his quest for sugar, oil and milk in Caracas.

His daily battle to find food is not new, but it's getting worse. "There is something about finally having enough to make ends meet and being unable to buy what I need because it's gone missing. It leaves me feeling indignant," says Rodríguez, a 55-year-old removal man who makes an average of £500 a month. "I haven't lost hope that things will get better, but sometimes the end seems nowhere in sight."

Venezuelans have faced shortages before, so rehashing old strategies such as substituting rice for manioc or going to informal street vendors who re-sell oil, milk or flour at a higher price, comes easy. For many here, finding food is not the problem – it is the lengths one has to go to that are hard to reconcile.

In Avenida Victoria, a low-income sector of Caracas, Zeneida Caballero complains about waiting in endless queues for a sack of low-quality rice. "It fills me with rage to have to spend the one free day I have wasting my time for a bag of rice," she says. "I end up paying more at the re-sellers. In the end, all these price controls proved useless."

In 2008, when there was another serious wave of food scarcity, most people blamed shop owners for hoarding food as a mechanism to exert pressure on the government's price controls, a measure that former president Hugo Chávez adopted as part of his self-styled socialist revolution.

This time, however, food shortages have gone on for almost a year and certain items long gone from the shelves are hitting a particular nerve with Venezuelans. Toilet paper, rice, coffee, and cornflour, used to make arepas, Venezuela's national dish, have become emblematic of more than just an economic crisis.

"We used to produce rice and we had excellent coffee; now we produce nothing. With the situation here people abandoned the fields," says Jesús López, in reference to government-seized land that sits idle. "Empty shelves and no one to explain why a rich country has no food. It's unacceptable," adds the 90-year-old farmer from San Cristóbal, on the western state of Táchira, bordering Colombia.

For Asdrubal Oliveros, an economist at Ecoanalítica, one of the country's leading consulting firms, this recent bout of food shortages is the result of a series of elements coming to a head. From an over-reliance on imports to price controls and, quite simply, a lack of funds, food shortages in Venezuela have not only peaked but they have lasted longer than ever.

"Other than oil, we produce close to nothing, and even oil production has decreased. There is a lack of hard currency, and, in a country that imports everything, this becomes more evident with food scarcity," says Oliveros.

Neville Chamberlain Was Right

The maligned British prime minister did what we would want any responsible leader to do

By Nick Baumann

Seventy-five years ago, on Sept. 30, 1938, British Prime Minister Neville Chamberlain signed the Munich Pact, handing portions of Czechoslovakia to Adolf Hitler's Germany. Chamberlain returned to Britain to popular acclaim, declaring that he had secured "peace for our time." Today the prime minister is generally portrayed as a foolish man who was wrong to try to "appease" Hitler—a cautionary tale for any leader silly enough to prefer negotiation to confrontation.

But among historians, that view changed in the late 1950s, when the British government began making Chamberlain-era records available to researchers. "The result of this was the discovery of all sorts of factors that narrowed the options of the British government in general and narrowed the options of Neville Chamberlain in particular," explains David Dutton, a British historian who wrote a recent biographyof the prime minister. "The evidence was so overwhelming," he says, that many historians came to believe that Chamberlain "couldn't do anything other than what he did" at Munich. Over time, Dutton says, "the weight of the historiography began to shift to a much more sympathetic appreciation" of Chamberlain.

First, a look at the military situation. Most historians agree that the British army was not ready for war with Germany in September 1938. If war had broken out over the Czechoslovak crisis, Britain would only have been able to send two divisions to the continent—and ill-equipped divisions, at that. Between 1919 and March 1932, Britain had based its military planning on a “10-year rule,” which assumed Britain would face no major war in the next decade. Rearmament only began in 1934—and only on a limited basis. The British army, as it existed in September 1938, was simply not intended for continental warfare. Nor was the rearmament of the Navy or the Royal Air Force complete. British naval rearmament had recommenced in 1936 as part of a five-year program. And although Hitler’s Luftwaffe had repeatedly doubled in size in the late 1930s, it wasn't until April 1938 that the British government decided that its air force could purchase as many aircraft as could be produced.

The Boxed In Fed

Narayana Havenstein is for turning

by Pater Tenebrarum

Exit, shmexit…as our readers know, we have always been among those who have argued that the Federal Reserve will never truly 'exit' from its 'unconventional policies'. At least not for any appreciable period of time – which is to say, we have occasionally held that it might try to reduce or stop 'QE' or similar programs due to a misguided impression that the recovery has become 'self-sustaining' (we are using all these quote marks because we think the entire mainstream phraseology in this context either makes no sense or is slightly Orwellian). However, it would then immediately be forced to reinstate the policy again, as the long-delayed liquidation of malinvested capital would undoubtedly commence with little delay. This continues to be the situation, so we were only moderately surprised that 'QE to Infinity' was not even 'tapered'.

We sometimes discuss individual Fed board members in these pages, as there is a variety of views represented, especially among the district presidents. Of course the money printers have a huge majority, so that the handful of doubters regularly gets outvoted when it is their turn to have a vote. In addition it should be noted that their protests are usually of a token nature: they may dissent once or twice, and then they become quiet again. The sole exceptions to this rule are currently Jeffrey Lacker and Esther George, whereby Lacker is holding views that make one wonder why he even wants to be part of this abominable central planning organization. Over the past decade or so he seems to have gradually realized what enormous economic damage it is doing.

One of the regional presidents we once held in comparatively higher regard is Narayana Kocherlakota. It may be recalled that Kocherlakota once was among those dissenting with the Fed's incessant money printing due to his analysis of the labor market. We commented favorably on his views at the time – contrary to most of his colleagues he seemed to have realized that there is no such thing as 'the labor market', i.e., he acknowledged that labor isn't a homogeneous blob.

He was quite correct of course: when a major bubble unwinds, very particular problems will emerge while the economy restructures to better reflect the actual state of consumer demand and the available pool of real savings. Many workers will lose their jobs and it will be found that there are numerous mismatches between the types of labor actually demanded in the market and the skill sets on offer. Obviously, following the collapse housing bubble, all sorts of labor connected to the building industry, the mortgage credit industry, real estate agent services and so forth were surplus to requirements. In the meantime however, demand for specific labor in other sectors of the economy could not be met (for instance, railway equipment makers could not find enough skilled welders for a time). Kocherlakota concluded that money printing could do nothing about this skills mismatch. It simply takes time for these imbalances to be absorbed.

However, it did not take long for him to make a complete U-turn. We have never understood what made him change his mind, but he moved from being a 'token hawk' to becoming the most vocal supporter of more money printing.

The Lunatics Take Over the Asylum

Yesterday, Kocherlakota once again made his new views known and this time he went completely overboard. It is quite ironic that the political left – the people who allegedly speak for the working class, the poor and the downtrodden – immediately came out judging Kocherlakota's call for massive additional monetary inflation 'brilliant'.

Of course the people that continue to be hurt the most by the Fed's crazy inflationism are precisely those the political left purportedly speaks for. It is testament to the fact that decades of propaganda have put erroneous economic theories almost beyond the pale of debate – it is simply taken for granted that central planning and inflationism will 'work'.

What is so amazing about this is that even if one has little idea of the theoretical debate, the people making these assumptions are completely unswayed by the evidence to the contrary that has amassed after decades of ever greater boom-bust cycles. After all, they have have finally landed us in the 'worst economic environment since the Great Depression'. Do they believe this situation just fell from the sky, unbidden? Why are they unable to  recognize the glaringly obvious: namely that it is the end result of the very interventionism they are pining for?

How to Enrich or Impoverish a Nation

Without creation, there can be no distribution.

by Selwyn Duke

What has lifted more people out of poverty, charity or economic freedom? It’s not even close.

Charity is wonderful, and I’ll be the first to say we have an obligation to share our gifts, be they material, intellectual or talent oriented. Yet whether our redistributionist endeavor is charity — and charity is voluntary redistribution — or the less noble, coercive, outsourcing of charity known as government programs, there first must be wealth to redistribute. But where does wealth come from?

If we go back to biblical times and beyond, a man might be considered wealthy if he had 70 goats. In point of fact, the standard for wealth was so different that the US’s average middle-class person today — with his car, TVs, computer, refrigerator and many other luxuries — would have been considered wealthy for most of history. And our average “poor” man, who also usually has an old car and various creature comforts, likewise has a material lifestyle that would have been the envy of our forebears. The reason for this is simple: there is far, far more wealth in the world now than in ages past.

The first lesson this teaches is that wealth can be created. This happens when people find more efficient ways of raising livestock (so 70 goats becomes small potatoes) and growing crops, and when they extract raw materials from the Earth and use them to create the manifold necessities and luxuries we enjoy. In a word, it happens when people produce, which is why economists and businessmen will measure productivity. And how will people be encouraged to produce?

They must have an incentive, and this is where the profit motive comes into play. Ah, the much maligned profit motive. Let’s talk about that.

There are two extremes with respect to the profit motive. One is typified by some libertarian Ayn Rand acolytes who seem to treat it as the highest motivation; the other is far more prevalent today and is represented by another brand of “libs,” people who behave as if profit is something dirty (at least other people’s profit, anyway). But the balanced view is a bit different.

There is another kind of incentive. In America’s early Christian communes, for instance, residents’ belief that they were doing God’s will — and perhaps winning His favor — served as a great incentive to be productive; thus did the communal Oneida Colony create renowned flatware. And, truth be known, there’d be no need for profit if we lived in a sinless world, for there would be neither covetousness nor laziness. If there was an unfulfilled need — paper products, for example — people would readily volunteer to create them simply to serve others, and no one would be wasteful or undermine the system by taking more of anything than he needed. But in a sinless world we wouldn’t need a military, police or prisons, either.

Sane people live in the real world, however, where different rules apply. One of them is that since the spiritual/moral motive is the highest reason to serve your fellow man, it is also the rarest. And because of this, it cannot be relied upon to motivate people at the level of population. Enter the profit motive. To paraphrase economist Walter Williams, profit encourages your fellow man to serve you even if he doesn’t give a darn about you. After all, Domino’s didn’t start making pizza to relieve hunger; Ivory doesn’t make soap because “Cleanliness is next to godliness.” To have your needs and wants satisfied, would you rather rely on the charity of your fellow man or his profit-driven self-interest? For the answer, just look at all the wonders of science and medicine, all the luxuries around you, and ponder what percentage of them were created based on charitable motives versus the profit motive. Again, charity is wonderful — but it’s also relatively rare.