Saturday, November 23, 2013

Quit Thinking of Inequality as Something Bad

We live in an era of a leftward movement of the government. Our government and the governments of Europe seemingly move toward ever more collectivism of businesses and social services. The impetus for this kind of administrative agency-driven organization in the beginning was reasonable. But now…we must look at this movement critically; because it may not be the wisest policy conceivable.

One may look at the “American experiment” as one that during the 20th Century strove to increase the gross domestic product and to distribute it evenly. That seemed to be the trend early in the Century. Now, however, the gap between the rich and the poor is obviously widening; and many observers have agreed that widening of the gap is rampant.

The late 19th Century saw the weakness and danger of unbridled capitalism. Huge strikes became violent. Farmers went out of business because of opportunistic entrepreneurs who managed the markets to their advantage. Human suffering was immense. Railroads took advantage their monopoly of the money supply to buy up large tracts of land, which they sold at exorbitant profit. Society was shaken by the blatant inequality in our society. Socialism and anarchy were in the air among our people.

But…is it time to throw out the old, tried and true entrepreneurial system? Liberals are very upset at the growing inequalities in our culture.  They want EQUALITY! But…the liberal view of equality is equality of outcomes. Everyone must be equal, i.e., equal incomes, equal education, equal health care, etc., etc. Conservatives, also, long for equality; but they want equality of opportunity, not necessarily equality of outcomes. The conservative belief is that everyone should have an opportunity to better himself, to work for the profit of himself and for his family.

It is a biological fact that not everyone is born equal. We each have characteristics that outshine or that do not match up with the characteristics of others. Those differences are the things that make for social inequality in outcome. Founding Father James Madison asserted in Federalist Paper #10 that one of the most important functions of governments was to protect individuals’ unequal ability to acquire property. He saw inequality as a desirable feature of society. Inequality has allowed businesses and other enterprises to outperform other enterprises and produce better things. This has been done by the mechanism of free competition.

We have before us, bright examples of the equality-inequality argument. Since the Reagan-Thatcher administrations in the late 1970’s and early 1980’s inequality has been one of the top agenda items pursued by market-oriented policy makers and has been seen in the privatization of state-owned enterprises. This has been done in the name of economic efficiency. That effort has been fiercely resisted by the Left and is still being done by the Obama administration in its money redistribution activities. The final result of this administrative monetary/financial activity has been mixed. It seems to help our American lifestyle, e.g., in pulling our poorest out of their poverty; but sometimes, it does not help. 

The examples we have seen of failures of collectivization and redistribution attempts are very scary.  In the former USSR and China, the governments forced millions of unrelated peasants into collective farms. By breaking the link between individual effort and reward, collectivization undermined the incentives to work, leading to mass famines in Russia and China, and severely reduced agricultural productivity. In the former USSR, the 4% of land that remained privately owned accounted for almost one-quarter of total agricultural output. In China, beginning in 1978, collective farms were disbanded; and agricultural output doubled in the  space of just four years. Traditional English villages of the 18th and early 19th Centuries practiced communal ownership of grazing land in which the grazing land was shared by the members of the village. This system worked so badly that overgrazing and poor land management practically destroyed efficient farming. The solution was to privatize the grazing land; and with that change, farmers worked to care for the pastures and keep overgrazing down—production increased apace.
Excessive government regulation and taxation are driving our American system of free enterprise and competitive business into the ground. We need a government that will allow the free exercise of business, medicine, banking, etc. with less regulation. Our faltering economy and the growing numbers of Americans absent from the work force testify that an over-powerful central government is not doing a good job. Sure, we need some regulation in business, banking, and other things; but we have reached and passed the point where big government is beneficial.

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