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  • Setting the Right Priorities - Affluence vs Equality

    The evidence is clear. We can make everyone more affluent, or we can make everyone more equal. But we shouldn’t expect to do both. A failure to understand this principle has greatly intensified stress along seven of the fifteen major cultural and political fault lines which were highlighted in trend #2 this month. Those seven fault lines are:







    Given the fact that capitalism and self-reliance have produced so much affluence and happiness, while socialism has produced Venezuela, the USSR, and Zimbabwe, why is it that many Americans fail to embrace capitalism and free markets?

    One reason is that some of them simply don’t care about the well-being of individuals. Those people are motivated first and foremost by an ideological desire for bigger government or by an ideological desire to hurt the rich.

    Consider the thinking underlying the massive 2022 edition of the World Inequality Report. Its editors are demonstrably upset that the richest people in the richest countries earn a lot more than the poorest people, and they obviously want people to view these numbers as scandalous and maybe even racist.

    If the economy really was a fixed pie, maybe there would be something scandalous in this data, but that’s not the case. What we’re really seeing in these numbers is that some nations in the 1800s got much richer thanks to capitalism, and that meant their citizens enjoyed much higher levels of income.

    But what about the rest of the world? Scott Winship of the American Enterprise Institute recently called attention to a statistic that deserves far more attention than anything in the World Inequality Report. He shows that the proportion of humans living in extreme poverty has plunged from nearly 90% to under 10% over the past two centuries as economic growth has improved almost everyone’s quality of life.

    Objectively speaking, every decent and good person should celebrate the reality expressed in Winship’s chart shown in the printable issue. Unfortunately, those who obsess over inequality are almost never in favor of the free market policies that are needed to help poor nations converge with rich ones.

    That’s because they either believe more government is always the answer, they naively believe the economy is a fixed pie, or both. For the fixed pie crowd, when someone like Jeff Bezos or Elon Musk gets rich-er, they believe this means other people get poorer. This is not only demonstrably untrue, but as we’ve shown in prior issues, the vast proportion of wealth created by entrepreneurial innovators accrues to the broader populace, rather than to the innovators themselves.

    Furthermore, there is a wealth of data showing how free market policies create more prosperity for al-most everyone.

    Looking specifically at the United States, we’re much richer today than we were in the past. And that’s true whether you go back 200 years or if you simply compared today’s economy with where America was right after World War II. And significantly, the same pattern exists in every other market-based economy.

    Amazingly, when this evidence is presented to most left-leaning Americans, they seem to have some sort of mental block that prevents them from reaching the obvious conclusion. A few of them will acknowledge that broad-based growth happens, but they’ll argue that growth is unaffected by policy. In other words, they try to argue that nations can become more prosperous whether government is big or government is small.

    Fortunately, there’s also a wealth of data showing that this isn’t true.

    At this point, honest and intelligent people on the left will explicitly or implicitly embrace the argument that it’s okay to have less growth if there’s more equality.

    That’s when it’s crucial to point out that even small differences in growth make a big difference to income levels over just a few decades. That means poor people ultimately will be richer if there’s more economic liberty. So if they really care about the well-being of the less fortunate, they should be the biggest advocates of free markets and limited government.

    What’s the bottom line?

    For many people, today’s policy battles take on an ideological or even religious significance. That’s because the old American consensus regarding what is right and wrong or good and bad has disintegrated. Concepts like private property, individual rights and the common good are under attack.

    For better or worse we’ve reached a crucial tipping point where one set of priorities will prevail and the other become marginalized. Until we’ve passed this tipping point, the debate will only intensify. While todays turning point is far more dramatic and consequential, the turmoil of the late 1960s provides the best model for understanding the present conflict and its likely resolution.

    Given this trend, we offer the following forecasts for your consideration.

    First, capitalism will emerge stronger than ever.

    Just as in the 70s, the younger generation of the 2020s will join the mainstream economy and socialism will lose much of its appeal.

    Second, private sector primacy will be restored.

    The recent strength of the public sector has been fueled by the emergence of Millennials who have had limited experience comparing the relative competence of business and government. Just like the Boomers 40 years earlier, they will soon realize that private solutions are almost always better, faster and cheaper than public ones.

    Third, meritocracy will be confirmed.

    Penalizing more productive skills, motivations and priorities in the interest of “fairness,” simply makes a country poorer. Failure to recognize this and act on it, kicks the day-of-reckoning down the road. Expect the soft prejudice of low expectations to join socialism on the ash heap of history.

    Fourth, small government will prevail, but it’s likely that government’s role will increasingly reflect populist priorities.

    As Thomas Jefferson said, “Government is best which governs least.” Government must perform the delicate balancing act of protecting private property rights including individual capital and ensuring that private business does not abuse the rights granted to it. Today, the big tech platforms appear to have abused the latitude afforded by being neither publishers nor common carriers. Expect the government to eliminate this advantage and rein in Silicon Valley’s power.

    Fifth, self-reliance will prevail.

    As millennials mature and transition away from urban centers, they will recognize that they can provide better solutions for themselves than what the public sector can offers.

    Sixth, personal responsibility will re-emerge.

    The current surge in crime and civil unrest will create a major backlash resembling what we saw in the 70s and 80s. Expect to hear the phrases “law and order” and “self-reliance” much more frequently in the days ahead.

    Seventh, individual freedom will triumph.

    People are already rejecting our oppressive, politically correct culture. This will only accelerate as Americans become more aware of the freedoms they’ve given up. And increasingly, they will sort themselves into competing jurisdictions based on their own value priorities. And,

    Eighth, there will be a new interest in accelerated economic growth and widespread affluence.

    “Equity” as used by the left will increasingly become the punch line of jokes, much like “Let’s go Brandon!”

    Resource List
    1. Townhall.com Daniel J. Mitchell. December 9, 2021. Crushing The Inequality Narrative.

    2. International Liberty. July 21, 2021. Dan Mitchell. The Economics of Inequality.

    3. International Liberty. October 9, 2019. Dan Mitchell. The Real Motive for Class-Warfare Taxation.

    4. AEI.org. December 15, 2021. James Pethokoukis. Why socialist economies fail.

    5. Center for Freedom and Prosperity. December 21, 2020. Dan Mitchell. Part I: Poverty Is a Problem, not Inequality.

    6. June 28, 2021. James Pethokoukis. The 21st-century degrowth movement makes the same mistake about human nature as 20th-century socialists.