Socialist rhetoric vs. economic logic

Posted on May 31, 2013 in Equality Debates – FP/Comment
13/05/31.   Peter Foster

Those with an interest — and strong enough stomachs — will have listened to Thursday night’s Munk debate: “Be it resolved, tax the rich (more)…”

As I write this, I must admit that I’m not sure if my own stomach is strong enough to take both Nobel savage Paul Krugman and George Papandreou, who presided as socialist Prime Minister over the implosion of Greece, making the case for soaking the wealthy.

If economic logic means anything, then their opponents, Arthur Laffer, guru of supply side economics, and Newt Gingrich, former Republican Speaker of the House of Representatives, should be a shoo in. The problem is that economic logic is a rarity. Thus the prevalence of incomprehension about the workings, morality and results of a system that has made everybody in our society “rich” by any objective historical standards.

That a leftist politician thinks — or rather fails to think — this way is hardly surprising. That a Nobel economist concurs raises pertinent questions about the state of economics.

Messrs. Krugman and Papandreou’s position was clearly to be based on demonization. That was obvious from capsules of their arguments appearing in Thursday’s Globe and Mail.

There is a reflexive tendency on the liberal left to condemn inequality as inherently immoral. This is inextricably linked to their failure to separate (or their desire to conflate) the economic and the political, to assume that wealth is the fruit of illegitimate power and/or refusal to pay your “fair share” (so that Greek public sector workers can sit on their duffs).

They love the bail-out of Wall Street bankers because it fits so neatly into the narrative, but government bail-outs are not examples of “crony capitalism,” as Mr. Papandreou suggests, but of crony statism. They are the antithesis of the capitalist free-market ideal. Moreover, Wall Street bankers represent a small proportion of the 1%, or more appropriately the 0.01%. To suggest that all those who have earned themselves rich should be punished because the government bailed out Wall Street makes no sense.

Still, if the rich didn’t get that way by being crooked they are just, according to Professor Krugman, a “lucky elite.” You could impose income taxes of up to 80% and the rich’s greed would just keep them beavering away without thought of closing down, leaving the country, or employing even better tax lawyers.

As Arthur Laffer notes, this claim has no basis in either economics or history. Reducing top rate taxes goes with booms. Raising them goes with busts. Moreover, as tax rates have come down on “the rich,” their contributions have soared.

To the left, which is inclined to see the economy as a thing rather than a process — as a “pie” to be divided, or a carcass to be hacked up — this is utterly counterintuitive. They fantasize that you can start carving slices off the goose without affecting its egg-laying capacity.

If they happen to be economists, such as Professor Krugman, they can simply ignore economic history, which is to say, economics, and retreat to the position that more equality is simply “a good thing in itself.” Then claim “You don’t have to be a leftist to acknowledge that extreme inequality of income and wealth has a corrosive effect on democracy.” But the word “extreme” prejudges the alleged corrosiveness.

C for rhetoric. F for logic.

One might note that wailing about inequality comes not from ordinary people, who generally don’t buy into the notion that dinging the rich will improve their own prospects, but from those who would presume to be the redistributors, either as politicians or policy wonks, or their media echo chambers.

The reluctance of the left to examine the psychological roots of its attitudes is hardly surprising. Well-meaning sophisticates are inevitably reluctant to hear that they are possessed by (or exploiting) the unevolved assumptions of hunter-gatherers.

For all of prehistory, and indeed most of history, exceptional wealth was indeed attached to political oppression. The idea that anybody could start from scratch and become the richest man in the world without picking up a weapon is thus understandably counterintuitive, if not inconceivable.

When Honore de Balzac said, in the early nineteenth century, that “behind every great fortune lies a great crime,” there was still a good deal of truth to the allegation. Now, when 70% of those on the Forbes 400 built their fortunes from scratch, the fortune/crime link is as ridiculous, as is Mr. Papandreou’s suggestion that rising inequality (which is in fact marginal after taxes and benefits) represents a “transfer” from the 99% to the 1%. Meanwhile anybody who compares today’s inequality with that of the Great Depression without looking at the actual state of “the poor” between those two periods either has a very warped perspective, an agenda, or is simply a parrot.

The conundrum posed here before is that if inequality is indeed fundamentally bad, then the world would be a better place if Bill Gates had never been born. We should also celebrate the stumbling of Research in Motion and the failure of the Facebook IPO. After all, they reduced “the gap.”

When confronted with this reduction ad absurdum, inequality-phobes retreat into “studies” that suggest that inequality somehow breeds crime, lowers life expectancy, and destroys social cohesion. And it makes people unhappy. Thus base envy, market demonization and power lust are elevated as moral principles, and, bizarrely, supported by posturing capitalists such as Warren Buffett, whom Mr. Laffer righty castigates for his hypocrisy.

If economic logic and moral clarity have anything to do with it, Messrs. Laffer and Gingrich should have triumphed at Roy Thomson Hall last night, but economics and morality make for uneasy bedfellows. Now there’s a topic for a Munk debate.

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