By Isiah Smith | Jan. 18, 2020
Economic equality is a good, if essentially elusive, goal. It has become fashionable in some political circles to blame capitalism for Americans’ economic inequality. But are we to believe equality can only be achieved if capitalism dies? Can we have capitalism andeconomic equality?
Those pitching their tents on the extreme left bank of the political landscape don’t think so. Blinded by the light of an idealistic glow and dismayed by the status quo, they argue that capitalism has created grossly unfair economic inequality in America.
Who among us rejects the desire for equality? Equality is a good thing, right? It is among the cherished ideals upon which this great nation was supposedly found. The extreme left — let’s call them the neo-socialists, because that’s what they are — believe that economic equality can only be obtained through wealth redistribution.
The neo-socialists do not expressly claim wealth redistribution as their aim; they know that an open war against free markets would spark massive revolts. So they present their hidden agenda in language that would cause a 1970s social worker to blush.
There’s nothing new under the sun that hasn’t already been done at least once. (Probably more.) Mid-18th century thinkers, such as Voltaire and David Hume, considered free markets a boon to society. Free markets, they thought, promoted prosperity, intellectual vigor, and social peace and tranquility.
Jean-Jacques Rousseau, on the other hand, insisted that humans passionately guard their social status, but because competition for social status made people generally unhappy, it was a zero-sum game (i.e., I win, you lose; you win, I lose). It’s doubtful that you would find anyone who would voluntarily exchange their high status for lower status; it’d be inconsistent with human nature.
Not everyone is happy with the results of a free market. That is because market gains will always be distributed unequally, create differences between people, and make some people better off — and happier — than others. Rousseau thought the rich would “gorge themselves with riches while the vast majority of society lacked bare necessities and therefore starve.”
Adam Smith rejected Rousseau’s philosophy, arguing that competitive markets created “universal opulence” and higher standards of living for everyone. In his first book, "The Theory of Moral Sentiments," Smith wrote that an invisible hand — the tendency of free markets to regulate themselves by means of competition, supply and demand, and self-interest — controlled the markets. Most famous for his 1776 book, "An Inquiry into the Nature and Causes of the Wealth of Nations,” Smith presumably knew a thing or two about wealth and its creation.
The analysis above tracks the writings of Jerry Z. Muller, professor of history at the Catholic University in Washington, D.C. Muller writes that the neo-socialists are Rousseau’s descendants.
In “The Neo-socialist Delusion,” published in the Jan./Feb. 2020 issue of Foreign Affairs, Muller argues that the neo-socialists concentrate less on wealth creation than on wealth redistribution. They seem to care more about lowering those at the top than raising those at the bottom. Can we eliminate economic disparities through government fiat? Recent history suggests we cannot.
A “wealth tax” forms the core of the neo-socialists’ worldview. Muller thinks wealth taxes (an added tax, which in Elizabeth Warren’s formulation would levy an additional 2 percent on households worth more than $50 million and a 3 percent tax on billionaires) would negatively influence the economy. He thinks it would discourage wealthy individuals from creating assets subject to the tax. It would curtail private investment and cause innovators to avoid funding new projects and expanding economic activity. Why innovate and create if the resulting wealth is “redistributed” to others?
One might disagree with Muller’s argument but appreciate his intellectual rigor. He has taken the question seriously, offering thoughtful analysis.
Neo-socialists, however, seem to operate in the irrational domain of emotions. In their dystopian dreams, successful individuals and companies are engaged in nefarious dealings precisely because they have become so successful. Since they have done “something” wrong by becoming so successful, they must repent by surrendering a portion of their bounty to the government to be redistributed to the rest of society.
What the neo-socialists fail to understand, Muller argues, is all of society profits from the successful companies and individuals like Bill Gates and Jeff Bezos. Their innovations improve lives. Bill Gates puts his wealth to work in diseased, plagued areas in Africa by bringing clean water and modern toilets where once there were none.
Individuals and companies are driven primarily by self-interest. This primary, primal drive forms the impetus for creative innovation, risk taking, and the imaginative leaps of faith that have produced groundbreaking advances in personal computers and smart phones. Individuals at all economic levels today have access to advanced technologies our ancestors would consider magical.
Those who preach the gospel of wealth redistribution should demonstrate how their plan makes everyone better off and how wealth redistribution helps humanity meet future challenges. Does turning off the fountain of innovation and responsible investment make us all better off? These questions merit serious discussion.
The better solution would be revamping the tax code and close unfair loopholes so that no future self-styled billionaire presidential candidate can be heard to declare, “I pay no taxes; that makes me smart.”
No, it doesn’t. Real Americans pay their fair share.
Isiah Smith Jr. is a retired government attorney.