Despite failing to prove his thesis that capitalism generates inequality (addressed in Part 1), the author closes by outlining the policy proposals he’d enact to reduce inequality. This proposal includes:
“…a large cash grant to all citizens when they reach the age of majority, around the benchmark cost of taking a bachelor’s degree at private university in the United States. This grant would be repaid into the national treasury at death.”
“…an annual wealth tax of two percent on a person’s net worth above a threshold of $80,000.”
The first part of his proposal needs some unpacking. He essentially says that every person, on their 18th birthday, should be given a grant of $48,000. Upon death, every individual would pay back that grant.
Besides the complete arbitrariness of the proposal, there is no effort to look for possible negatives that would come from its implementation. First, there is no way of knowing what an 18 year old would do if handed a free $48,000. While some will surely use it wisely and invest in their futures, others are just as likely to blow it while binging on cocaine and hookers.
And what’s to guarantee that every individual pays back the grant? Certainly there will be at least some people who die with something less than $48,000 worth of accumulated wealth. The author doesn’t address this objection, but perhaps his answer will be that any accumulated wealth up to $48,000 will be “repaid to the national treasury” (a.k.a. appropriated by the state). But this creates negative incentives which would lead to ever more numbers of people “repaying” $0. As the number of people who “repay” nothing grows, this program would quickly move toward fiscal insolvency. Imagine a person nearing the end of their life. Every incentive would exist to liquidate whatever wealth they have and distribute it to their family and loved ones before they die.
And what of the wealth tax?
Imagine a middle class family that owns a $300,000 house, and two cars valued at $20,000 each. Technically, this family has a “wealth” of $340,000. This means that every year, they will owe a $6,800 wealth tax (on top of the numerous income, property, sales, and other taxes that the author would no doubt see continued). What happens when the annual wealth tax comes around and this family does not have $6,800 available with which to pay? They will be forced to sell a car, at least – and let’s assume that the car was necessary to travel to and from work. Now the job is lost, as well, and this family is suddenly on a downward spiral caused solely by artificial economic intervention, as proposed by this author.
Let’s go one step more and look at an individual further down the economic ladder. Imagine a man who has only earned meager wages over the course of his life. Despite his economic disadvantage, he has been frugal and saved his earnings for years. Eventually, he has saved enough to purchase a modest house. The house is worth $85,000. All of a sudden, this man – who is still only earning meager wages – owes an annual $1,700 because he has been thrifty in his own personal finances. He is no longer able to save any where near what he had been saving before, and his upward mobility stagnates. The result of this type of policy is to grease the economic ladder and make it more difficult to climb.
Just the arbitrariness of the proposals is enough to give concern. A person worth $79,000 is nearly the economic equal of a person worth $81,000. But, for some reason, the latter person is forced to hand over some of his wealth in the name of alleviating inequality while the former is free from such force.
And what is the logic behind punishing wealth accumulation?
In the market, exchanges occur voluntarily when the parties involved benefit. Business owners and entrepreneurs find success only through effectively serving their fellow man and meeting their consumer demands. When a business owner or entrepreneur becomes very wealthy, this is not because he has taken advantage of others. Rather, success and wealth – in the market – come from having found a way to best satisfy the needs of others. Success and wealth are the rewards to be reaped either when one has found a way to provide a good or a service better and/or cheaper than it was provided in the past, or when one has developed a new product that meets needs of consumers which had not before been met.
There is only one common link between all individuals with regards to economics: everyone is a consumer. Therefore, when an entrepreneurial individual achieves success, improving the lives of the consumers they serve, that person should be lauded, not envied. The author shows at least a partial understanding of this point when he says:
“Markets involve voluntary exchange, where both parties to an exchange expect benefits.”
One would not enter into an exchange if they did not feel they were going to benefit. Voluntary exchange, therefore, is virtually always a net benefit to all individuals involved, and yields an improved standard of living. People who achieve success have rightfully earned it because they have improved the lives of the people they’ve served.
Granted, in some exchanges, the expected benefits may be unrealized by a particular party. The beauty of voluntary market exchange is the key word voluntary. In the instance where a party to an exchange is afterwards unsatisfied, they never again have to engage in it. Knowledge accumulates over time, and the benefits of exchange increase accordingly.
There is only one case in which wealth accumulation by an individual should be considered unjust. These individuals can best be differentiated from market entrepreneurs by labeling them political entrepreneurs. Herein lies the only example of true, unjust inequality.
The rigors of market competition can be too much for some ambitious people. The state provides these people with an opportunity to purchase political power and use that power to protect their profits. Today, this practice is known as lobbying and campaign funding. In the past, the same practice was known as bribery. Political entrepreneurs guarantee themselves a certain level of income by gaining state contracts. They free themselves from the dangers of competition by ensuring that the state creates artificial barriers to enter within their sector of the market. They do not have to satisfy the demands of consumers in the same way that their market-based counterparts do, because their revenue comes from an institution that has an unlimited supply of money through their power to tax and inflate the money supply.
While the author would argue that the state is necessary in order to curb the power of successful and wealthy market entrepreneurs, the proper argument would be that the necessary course of action would be to scale back and eliminate the power of the state.
For intervention, appropriation, and redistribution to be claimed as the proper course of action, one must prove that the results are preferable to the alternative of free markets and free will. The author fails at this. As interventionists are wont to do, the objections I have raised will be dismissed, and the legitimate concerns will be addressed through more laws and more regulations. The result is a cycle which leads only in the direction of tyranny.