Saturday, September 26, 2015

Free Market Champions Must Defend Economic Inequality

Economic inequality—whether framed as income inequality, a wealth gap, or whatever—has become a defining political issue of our time, and will continue to be through the 2016 presidential election campaign and beyond. Almost everybody thinks it’s a problem that requires a “solution”—even leading Republicans.


As Catherine Rampell observes for the Washington Post:


Republicans have taken the Senate and expanded their fiefdom in the House, but the Democrats seem to have won the intellectual narrative nonetheless. The GOP, inexplicably, is having its Thomas Piketty moment.


Seriously, guys: Republicans have suddenly started caring about inequality.


Rampell quotes GOP presidential candidate Ted Cruz:


“We’re facing right now a divided America when it comes to the economy. It is true that the top 1 percent are doing great under Barack Obama. Today, the top 1 percent earn a higher share of our national income than any year since 1928,” he said.


Rampell follows up with similar quotes from Mitt Romney, Jeb Bush, and Rand Paul.


What are these Republicans thinking? The idea that economic inequality as such is a problem is consistent with an egalitarian statist agenda, not a free market, limited government vision—the very ideas that Republicans are supposed to stand for. Economic inequality is tailor made for the Democrats and the Left, so why are key Republicans raising a white flag on the issue?


By conceding the Democrats’ premises that economic inequality is fundamentally wrong, the GOP has opened the door to predictable, and justifiable, charges of hypocrisy. For example, the New Jersey Star-Ledger ridiculed the GOP:


[Republicans’] hypocrisy is staggering, even by the standards of American politics. This is the same party that is blocking an increase in the minimum wage, and fighting relentlessly to impose deep cuts in safety net programs like food stamps and Medicaid, and even college scholarships.


On the other end of the spectrum, Republicans have fought to protect the most outrageous tax benefits for the wealthiest among us, to dismantle reasonable regulations of Wall Street, and to kill consumer protections in finances.


Likewise, Thomas Piketty—author of the anti-capitalist Capital in the Twenty-First Century that calls for a massive global redistribution of wealth to diminish income inequality—attacked Jeb Bush. Bush’s Right to Rise PAC states, “We believe the income gap is real, but that only conservative principles can solve it.” Among those principles; “transforming our education system through school choice . . .”


In an MSNBC interview covered by Salon’s Luke Brinker, Piketty slammed Jeb Bush’s school choice reforms. As Brinker observes, quoting Piketty:


“From what I can see, [Bush] doesn’t want to invest more resources into education. He just wants more competition…”


Conservatives’ proposals, Piketty concludes, are fundamentally at odds with the goal of creating a more egalitarian society.


“So I think there’s a lot of hypocrisy in this conservative rhetoric about the skill gap and education gap [which Bush blames for economic inequality]. If they are really serious about the skill gap and the education gap, then they cannot at the same time cut tax on the rich,” he says.


“Invest” is the Left’s euphemism for higher taxes and more government spending on education. “Conservative”—rightly or wrongly—equates in peoples’ minds to free market policies and “smaller” government. Bush’s approach is to focus on school choice initiatives like charter schools, vouchers, and education tax credits, rather than tax-and-spend. While not all school choice reforms are good—i.e., advance toward individual rights in education longer term—the principle of parental school choice is consistent with free market reforms.


By framing his school choice reforms as a fix for economic inequality, rather than on the grounds of parents’ individual rights, Bush opened the door to Piketty’s attack. After all, if economic inequality is the problem, why not just “invest more resources into education” as Piketty suggests?


Piketty is right that conservative proposals—if by “conservative” one means free market—“are fundamentally at odds with the goal of creating a more egalitarian society.” Any agenda that moves the needle even a bit toward individual rights, freer markets, and less government, such as cutting taxes, regulations, and redistributionist spending, doesn't jibe with egalitarian handwringing over economic inequality. Why? Because economic inequality is a natural consequence of free markets.


But that’s not a flaw of free markets. Far from it. Economic inequality is a consequence of the moral virtue of free markets, because free markets are integral to a just society. A just society recognizes that humans are unequal in talent, ambition, personal value choices, life circumstances, and myriad other ways. It follows that, in a just society, the government protects equally the freedom of each individual to rise as far as one’s uniqueness will carry him—along with the right to keep and use whatever economic rewards one earns—regardless of how those rewards stack up against others’ economic standing. Consequently, individual achievement will vary widely in a free market. (This is why advocating free market reforms like school choice as a solution to economic inequality is unconvincing and counter-productive.)


Rather than frame the issue according to the Left’s narrative, Republicans should stand up for economic inequality. In doing so, however, there is one aspect of economic inequality that Republicans must address. We don’t have a free market. We have a mixed economy. A mixed economy features a volatile conglomeration of economic freedom and government interference and control. The result: Not all income is created equal, and so not all economic inequality is just.


In our mixed economy, some people get rich through political connections and government favors, such as subsidies, special tax provisions not enjoyed by others, or regulations that hamper competitors. Today, a major source of unjust wealth inequality is the Federal Reserve, which, through its monetary policy, has engineered a huge wealth transfer from the lower to the upper income scale.


Defending economic inequality must carry the qualifier that not all income or wealth gains are just, and that the cause of that injustice is government. Only market-based income—income earned through private production and voluntary trade—is just. Republicans can and must oppose economic advancement gained through political cronyism. Such a stand integrates seamlessly into a pro-free market agenda, because free market policies reduce political cronyism by reducing government favoritism and interference into the economy.


Once Republicans draw the sharp moral distinction between market-earned income and wealth (the good) and politically-appropriated income and wealth (the bad), Republicans can and should argue that economic inequality is good because it is a natural consequence of a just society.


With economic inequality properly defined and understood, Republicans can non-contradictorily advocate free market-leaning policies that remove the political impediments to economic success and upward mobility. For example, Bush’s “Right to Rise” values “celebrate success and risk-taking, protect liberty, [and] cherish free enterprise.” Examples of reforms that could fulfil those values could include—but not be limited to—eliminating employment-stifling mandates (minimum wage and paid sick leave laws), reigning in occupational licensure, breaking down the domineering public school establishment through policies like properly structured school choice reforms, instituting a flat tax, lowering the overall tax burden across the board, reducing income redistribution and government spending generally, and reductions in regulations on business and trade.


Confronted with charges that such policies would not “work” to reduce economic inequality, Republicans could counter that, well, that’s the point. Though there is no actual right to rise—prosper economically—there is a right to the freedom to rise by one’s own efforts; or, as Bush says, “to move up the income ladder based on merit, hard work and earned success [as] the central moral promise of American economic life.” Since one person’s success is not achieved at the expense of others but by mutually advantageous voluntary trade, the only relevant factor is that you are free to succeed and keep the rewards of your success, not how your success measures up against others.


Proponents of free markets, individual achievement, and such have no justification and no political need to grovel for votes by playing the Left’s egalitarian politics of envy and class warfare. They can and must challenge the Left’s narrative. The issue for individual Americans is not how much more the next guy is making, nor how much government should take from high achievers and give to lower achievers. The issue is the freedom of the individual to make the most of his own economic life. Proponents of free markets must get their message right, which is, essentially: Economic inequality as such is not the problem; statist government policies that restrict the economic freedom to succeed are the problem.


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