The Only “Fundamental Injustice of the Modern American Economy” is Government Interference

In my post of 9/26/15 I cited a New Jersey Star-Ledger article titled Obama is to blame for income inequality? Puleez. The editorial labeled the GOP as hypocritical for criticizing income inequality while sticking to its agenda of tax, regulatory, and social welfare cuts in government. In conclusion, the Star-Ledger drives the hypocrisy point home, highlighting the corner the GOP is painting itself into:

By now, everyone has a favorite statistic to reveal the fundamental injustice of the modern American economy. Ours is this: The richest 1 percent has captured 95 percent of the income gains since the Great Recession. So even when our economy grows, most people are losing ground.

Republicans can see the growing unrest over this, and know that politics demands some response. We can only hope that they offer more than platitudes about the virtues of trickle-down economics and the dangers of "punishing success" by asking the wealthy to share more of their gains.

If they want to join the fight for economic justice, then let's see the meat on the bones.

The Republicans opened themselves up to this frontal assault on their free market agenda, such as it is. The sad part is, income inequality is not even a source of anything approaching widespread popular “unrest.” As I pointed out in my Objective Standard piece, The Left’s Pragmatic Shift in Marketing is a Good Sign, the Democrats themselves are backing away from income inequality in their political messaging, because their own polling showed that Americans are interested in lifting their own income, not driving other people’s incomes down. Most Americans still revere the principles of the Declaration of Independence; and consequently still admire, without envy, economic success. Envy doesn’t sell in America, and never has.

So, not only is it hypocritical to play the Left’s income inequality game, it is politically unnecessary, as I explained in my 9/26/15 post. Even more importantly, the GOP could capture the moral high ground by championing income inequality as a sign of a just society. They’d have the majority of Americans on their side. If Republicans are to sound credible in calling for free market policies, even the watered-down version they typically advocate, they’re going to have to stop letting the Left define the terms on income inequality.

I left these comments:

What does the Left's description of free market economics as "trickle-down" say about its view of average people? In essence, that the average person is a helpless, envious incompetent waiting greedily for freebies to be handed down either as a trickle from the rich or as a larger, redistributed handout from the government.

But nothing can be further from the truth. The middle class emerged in a much freer economy with much less government regulation and welfare, and is now struggling thanks to increasing “help” from government. Since government started financing college, the cost of college has become far less affordable even as student loan debt has skyrocketed; the government’s “affordable housing” policies led to a Great Recession; the government’s alleged fix for the housing bust it caused—quantitative easing and easy money—has redistributed money up the income scale by financing financial speculation; middle class “entitlements” reduce savings, threaten to bankrupt the nation, and suck up the 15.3% of the earnings of struggling young people; myriad welfare programs keep people trapped in poverty and discourage upward mobility, which even the Star-Ledger acknowledged is “a problem liberals need to face squarely.” Everywhere one looks, one finds government “helping” turning more and more of the middle class into a welfare class—which is actually the point. It is no coincidence that, as government has grown to unprecedented size and intrusiveness over the past 15 years, the middle class is said to be shrinking.

The problem is not income inequality or the rich (except for the kind “captured” by government favor). Successful capitalists have done more good for average people than any trickle-down government “helpers” could ever conceive. Success is built on trade, the mutually beneficial exchange of value for value, in which no one gets something for nothing. People make money by creating value for others, and people who make a lot of money do so by creating a lot of value for a lot of others. Look around, and ask yourself from where the myriad products and services consumers buy come from. They didn’t originate from workers, who have always been around. They didn’t come from governments, which have always been around. They originate from creative, fortune-building entrepreneurs, who have only been around in the era of limited government, free market capitalism. Where do the jobs that consumers' income depends on come from? Where does the tax money that supports the public sector come from? All of it is generated by successful business activity. It is in every rational person's economic self-interest, especially the poor, to remove the tax disincentives and regulatory roadblocks to success and fortune-building. We should cheer the productive rich, and hope for many more of them.

“Economic justice” as it is used here is a euphemism for injustice. Real justice means less intrusive, more rights-respecting government. Reducing the tax and regulatory burden on the most productive harms no one other than big government power-lusters,  do-gooder phonies, and the sensibilities of the envious. The benefits to all levels of society provided by the fortune-builders, in contrast, are all around us. But the benefits shared by average people are not “sharing” in the sense of “trickle-down” handouts or forced redistribution. They are earned through work and trade. We average people don’t need handouts. We have nothing to gain by hampering economic success. We are perfectly capable of supporting ourselves. We just need economic policies that allow us to keep and use more of our earnings, with fewer government regulatory impediments, and less government borrowing and spending financed with our wealth—i.e., less trickle down from government.

Related Reading:

"Trickle-Down Economics": Anti-Capitalists' Insulting Portrayal of the "Common Man"

Obama's Corrupt "Equality" Campaign and the 99/1 Premise

GOP Should Not Concede the Democrats’ Anti-Income Inequality Premise

Three Cheers for "Trickle-Down!"

Money vs. Wealth: Which is the Cart, and Which is the Horse? Ask Gilligan

If you want to see the mental corruption that is the legacy of Keynesian economics, read the letter Trickle-down economics is a ruse by Charlie Hagel. Hagel sees money exchanged for a car, computer, or hot dog, and concludes that money is the economy's driver. Put enough money in consumers' hands, and material goods, services, and jobs will miraculously materialize. Like an animal or infant, Hagel's (and many, many highly influential people's) mental activity stops at this perception.

Hence, this astounding statement:

"Businesses have never created a job — consumer demand for goods and services creates jobs."


This statement wouldn't be worth a second of my time, except that the premise is the basis for the destructive economic policies of most governments.

I left these comments:

This is one of the most bizarre statements ever uttered. Try tying that premise to reality. How do you consume before producing? Try eating a loaf of bread before you bake it.

As any rational person knows, you (or somebody) have to earn money by productive work before you go to the store to spend it. For that, you need a job. Businesses create jobs. Jobs create consumer demand. Production precedes consumer demand. No production, no consumer demand. And if there are no entrepreneurs to organize the factors of production toward the creation of goods and services—create businesses—there is no consumer demand because there are no products and services for your money to buy and no jobs for which to earn the money that stands for your productive contribution.

Henry Ford didn't pay higher wages so his workers could afford to buy cars. He paid higher wages to attract the best qualified people, and he was able to pay higher wages because he increased the productivity of his workers through his productive genius. And why did he increase his workers' productivity? So he could lower the price of his cars and thus expand consumer demand for cars to the average person. Only increased productivity can increase wages, lower prices, and create demand. That is the province of the businessman, not the consumer. Henry Ford, not consumers, was the ultimate source of the consumer demand for his cars (and a lot of other products by other businesses).

And the source of productivity is human brain-power. If that weren't so, then stronger animals like gorillas and mules would be far more prosperous than humans. They aren't, because they don't have the brainpower—reason—to guide their muscle power. Only humans do. Business is the application of human brainpower to human labor, and thus the driving force of our prosperity. Trickle down? The benefits of successful businesses—the "one-percenters"—is a flood, not a trickle, that lifts the boats that carry the rest of us.

How does taxing (i.e., stealing) money from those who earned it and handing it over to a non-worker add to consumer demand? It doesn't. It just redistributes consumer demand. Only working creates consumer demand. How does forcing higher wages by legal fiat increase productivity? It doesn't. It just throws people out of work and kills entry-level jobs.

The businessman is the unsung hero of the advanced, middle class industrial economy. Meddling government is the enemy.

By the correspondent's own premises, his statement is self-refuting and proves my point. If consumption creates jobs, then the products that the consumers consume could not even exist for consumers to consume, because the jobs (and businesses) that produce the consumer goods haven't come into existence yet, being dependent for their creation on the consumer to begin with. A "consumer" with noting to consume is a logical absurdity. But that is precisely what the correspondent say creates jobs—consumers with nothing to consume. Got it?

But, let's go back to basics.

In a primitive, barter economy, the process is obvious. You exchange a good for a good—e.g., a loaf of bread for a dozen eggs. If you do not have that loaf, your barter partner doesn't hand you the eggs; the trade doesn't take place. Money facilitates trade and makes possible the division of labor economy. Money enables you to produce a good for one productive person, and, in exchange, receive a good from another, different productive person in a completely different transaction. How? Money is the medium of exchange that makes this possible. You hand your work product to the first person in exchange for money, which you then exchange for the work product of the second person. Multiply this type of trade by millions and billions, and you've replaced the primitive barter economy with an advanced industrial economy. 

But beneath it all, every single one of those untold numbers of transactions is just as much a trade of actual goods for actual goods as the bread-for-eggs barter transaction. The whole process begins with production. It has to. Otherwise, there is no need for money because, like the barter example, there is no trade.

If the egg producer accepts money in exchange for his eggs, it is only with the assurance that the bread (or someone else's work product) will be there for him to exchange his money for. Money not backed by work product is worthless, and the egg producer would have no reason to exchange his eggs for money. Without production, there's no money, because production, not money, is consumer demand. In my barter example, the baker's bread is his demand for the eggs, and the farmer's eggs are his demand for the bread. When you talk about "consumer demand", you're talking about a producer's work product, whether money is involved or not. Money represents your unconsumed wealth production (consumer demand). It is not, in and of itself, consumer demand.

But, according to the Keynesians, money comes before wealth, as if you could exchange nothing for something—a something that doesn't yet exist. Another correspondent asks me, "what is production of goods and services if no one can pay for goods and services? You have the cart in front of the horse." Production of goods and services is the only thing that can pay for goods and services.

The Keynesians can learn a thing or two from the rag-tag gang living on Gilligan's Island.

Related Reading:

The Howell's Check is in the Mail

OBushonomics vs. Gilliganomics

Three Cheers for "Trickle-Down!"

Yaron Brook on "Trickle-Down"—the Leonard Peikoff Show

"Trickle-Down Economics": Anti-Capitalists' Insulting Portrayal of the "Common Man"

"Trickle-down economics" is a pejorative term that allegedly describes the workings of a free market or free market policies. The modern version of trickle down theory emerged as the Left's reaction to Reaganomics tax cutting. 

The idea of "trickle-down" peddled by the Left is that if you leave "the rich" free or freer—cut taxes and regulations—some minimal benefits will trickle down to everyone else. Free markets thus leave everyone else with little more than crumbs of prosperity, while "the rich" hog more and more of the economy's benefits. Therefore, say the Leftists, the government must seize and redistribute a larger portion of the wealth and income of the rich through taxes, as well as shackle them with heavy regulations, so that the average person can better "share" in the economy's riches.

This, of course, is not how a free economy works. Wealth is not a static quantity that must be divided up, with the big issue being how to do it. Nor is one person's productive success achieved at the expense of others. The basic economic activities are individual production followed by trade among productive individuals. Trade is mutually beneficial, so there are no losers in a free economy.

But, what does the Left's description of free market economics as "trickle-down" say about its view of average people? In essence, that the average person is a helpless incompetent who unable to take responsibility for his own life, must wait greedily for freebies to be handed down either as a trickle from the rich or as a larger, redistributed "slice of the pie" from "hand-me-down" government. Average people, as the Left portrays them, are like ducks on a pond, waiting for chunks of bread to be thrown to them. There is no room in the Left's vision for the self-supporting, productive individual. We are all essentially freeloaders, dependent for our economic well-being on handouts either from the rich or the government.

Nothing can be further from the truth or from reality. The rich make money by producing value and then trading value for value in the market—and so does every other person who works for money, on any economic level. From the corporate CEO who is paid millions to the lowest wage worker, the individual productively performs a service in exchange for money. The value-for-value transaction that is trade, in fact, enriches both traders and harms neither. To the extent that a person earns money through production and trade, he is not receiving something for nothing from anyone, nor gaining wealth at others' expense. He is being self-reliant and self-supporting, neither taking nor giving something for nothing. This is true whether a person's labor is primarily manual or primarily mental.

Of course, the amounts of money earned varies greatly, depending upon the individual's contribution to the productive process he is a part of. CEOs and successful entrepreneurs make vastly more money than the janitors or assembly-line workers, because they contribute that much more. This is only fair, so long as force isn't involved (such as government subsidies or bailouts). So long as all associations are voluntary, there is nothing inherently unfair about the income inequality between the CEO and the janitor. Both had to acquire the appropriate level of knowledge and skill their respective jobs required; both had to actually perform the work satisfactorily and competently, with all of the personal virtues that that implies; and both are paid accordingly.

Furthermore, in a genuine free market—which we are far from having today—the road to economic advancement is wide open for everyone willing to expend the effort. Every individual from the lowest paid worker on up is capable of learning and acquiring the knowledge, skills, and virtues of character that can make his labor more marketable, so he can climb the income ladder as far as his natural attributes and ambition will carry him. No one need wait for "trickles": Anyone willing to try has wide latitude to control his own economic destiny, so long as he is free to do so.

Of course, the leading producers—the highest types of workers; the intellectual laborers such as inventors, entrepreneurs, businessmen, CEOs—do shower vast benefits on everyone else, in the form of opportunities. These prime movers conceive of the products and services that enriches our lives, create and run the business enterprises that coordinate the factors of production that bring products and services into existence and to the market, and, in the process, generate the jobs that we all need to earn the money to buy them. To the extent that this entrepreneurial process isn't hampered by government taxes, regulations, and redistribution schemes, prosperity spreads to all levels of society, and to all people willing to learn skills and work. But those benefits must be earned by the average person, which he is perfectly capable of doing, to the extent of his ability, ambition, and personal choice.

The benefits that flow from "the 1%" to the "99%"—to use today's jargon—are not a trickle, but a flood; but also, importantly, not handouts emanating from altruistic motives, but opportunities for all industrious individuals to trade labor for money, in order to trade their earned money for goods, in order to pursue a flourishing personal life. 

And it is not true, as the Left's "trickle-down" myth insinuates, that the rich hold all of the cards. The productive process spearheaded by those who rise to the top economic echelon requires talented individuals at all levels, where free market competition for labor fosters higher pay for higher productiveness. This allows workers to share in the rising productivity of their labor provided by entrepreneurs. 

The Left is wrong. "Trickle-down economics" is actually a perfect description, not of free market economics, but of socialism and welfare statism. Leaving aside the relatively few people who are physically or mentally incapacitated and thus sometimes may have to rely on voluntary charity, average people are capable of taking care of themselves and/or their families, of moving ahead in life on their own efforts, without handouts from either "the rich" or from the regulatory welfare state. The evidence is all around us.

Free market capitalism is poison to power-lusting statists and their parasitical supporters, whose real goal is trickle-down government handouts for, and thus control, all. But economic freedom—lower taxes, less regulation, reduced government spending, coupled with less redistribution and economic cronyism—is the only path to a prosperous life for any honorable person willing to work for it.

Related Reading:

It's Time to Bury the "Trickle-Down" Myth


Capitalism: The Unknown Ideal—Ayn Rand

Three Cheers for "Trickle-Down!"

It's Time to Bury the "Trickle-Down" Myth

A letter titled The trickle-down myth appeared in the NJ Star-Ledger in December 2013. The letter asserts that "more jobs won’t be created until more buyers gain their fair share of American wealth and can afford to buy more," as if all wealth belongs to "America" rather than those who earn it.

He goes on to say—correctly—that businesses seek to "keep labor costs low." He also says—again correctly—that "Creating jobs is not business leaders’ top priority today; market share, stock value and net income are"—i.e., maximum productiveness. He also states, with some validity, that "corporations prefer part-timers and temps instead of full-timers, and they look to technology to do a job whenever possible."

This last is not surprising, given the steep costs associated with jobs imposed by labor laws and other government interventions, like ObamaCare's insurance mandate. To the extent that technology is market driven, it is a good thing because increased productivity helps the business grow profits while simultaneously raising the value of the  workers' labor, which leads to higher real wages and general standard of living. But to the extent that technology is employed to avoid the artificial costs of government regulations, it is not so good.

He concludes that "The idea that wealth at the top will automatically trickle down in the form of plentiful jobs is a myth, and Americans shouldn't fall for it." 

I left these comments:

"Trickle-down" certainly is a myth. Look around, and ask yourself from where the myriad products and services consumers buy come from. Where do the jobs that consumers' income depends on come from? Where does the tax money that supports the public sector come from? All of it is generated by business activity. The rise to prominence of the businessman under capitalistic freedom over the past two centuries or so has been a boon to the average person, ending the pattern of grinding, hand-to-mouth poverty of centuries past. The "trickle" is more like an avalanche of prosperity emanating from business.

A businessman organizes the factors of production toward a single goal; to create products that consumers value and are willing and able to buy. Trading value for value is the businessman's path to riches. He virtuously figures out ways to lower the cost of production, simultaneously raising the productivity (and thus wages) of his workers, lowering the cost to consumers (leaving them more money to spend elsewhere), and thus growing his business and raising his own profits and personal wealth. By making his business more efficient, the businessman paves the way for the rise of new industries and new inventions, and thus new business, investment, and job opportunities. The more successful the businessman is, the more money he makes—and the better off workers/consumers are.

It's true that "Creating jobs is not business leaders’ top priority today." It never was. Nor should it be. A business owner's own profit is properly his top priority, just as a paycheck is properly the top priority of the worker and the best deal for the money is properly the consumers' top priority. Job creation is a consequence of business success, and if we want more job creation we should want to encourage more business success through reduced regulation, rolling back burdensome labor laws that discourage full-time job creation, and lowering taxes on all income levels.

In point of fact, wealth doesn't come down from the top, either as a trickle or an avalanche, and this view of economics is insulting to every industrious, self-supporting individual. Wealth is earned by the productive activities of individuals. What those at the "top"—the most productive, the creator, the innovator, the entrepreneur, the so-called "1 percent"—provide is the opportunity for those below them to prosper, earn, and create wealth by their own effort. Ayn Rand identified this process and dubbed it The Pyramid of Ability. She explains:

    When you live in a rational society, where men are free to trade, you receive an incalculable bonus: the material value of your work is determined not only by your effort, but by the effort of the best productive minds who exist in the world around you.
    When you work in a modern factory, you are paid, not only for your labor, but for all the productive genius which has made that factory possible: for the work of the industrialist who built it, for the work of the investor who saved the money to risk on the untried and the new, for the work of the engineer who designed the machines of which you are pushing the levers, for the work of the inventor who created the product which you spend your time on making, for the work of the scientist who discovered the laws that went into the making of that product, for the work of the philosopher who taught men how to think. . .

For a full dramatization and concretization of the Pyramid of Ability in action, and what happens when the top of the pyramid is sheered off, read Atlas Shrugged.

Related Reading:

Three Cheers for "Trickle-Down!"


Gladwell & Co.’s Monstrous Injustice Against Businessmen—Ari Armstrong

"Greed" is a Two-Way Street

Three Cheers for "Trickle-Down!"

Are you tired of hearing any policy that may benefit "the rich" derided as "trickle-down?" So am I, so I responded to a NJ Star-Ledger editorial (Sticking to the Republican Playbook) criticizing Ohio Governor' John Kasich's tax program, which included this gem:

Under Kasich’s plan, the rich save $10,000 a year. The bottom 60 percent, instead, pay more. The trickle-down temptation that Republicans cannot resist, despite its failed history.

I left these comments:

I don't know much about it, but if Kasich's plan is really to cut taxes on some, and raise them on others, then I would oppose it. He should cut taxes on everyone, in proportion to taxes paid.  
 
That aside, I have to laugh at the characterization of "tax cuts for the rich" as "trickle-down...despite its failed history." There are none so blind as the self-blinded.  
 
Anti-capitalists love to ridicule free market policies as “trickle-down,” But here’s another question: How much of what you buy with your money did you produce yourself? Look around you. Everything your money can buy is provided by someone else’s productive intellectual and physical work, investments, and pursuit of money and profit. If you think that flood of wealth is a “trickle,” then try putting your money under a mattress, stop spending, and see where your life goes without it. And while you’re at it, quit that job that someone else provided, since you’ll no longer need the money.  
 
To make money is to provide a value to someone else in a voluntary, win-win transaction called trade. Those who are the best at it provide a lot of valuable products or services to a lot of people--and earn a lot of money in the process. The money a person makes is a measure of the extent to which he enriched others' lives. Trickle-down? It's a torrent.  
 
Reducing the tax burden on the most productive harms no one other than big government apologists and the sensibilities of the envious. The benefits to all levels of society provided by the fortune-builders, in contrast, are all around us. It is in every rational person's economic self-interest, especially the poor, to remove the tax disincentives and regulatory roadblocks to fortune-building. We should cheer the productive rich, and hope for many more of them.

The Truth About "Trickle Down"

A NJ Star-Ledger letter-to-the-editor by Herb Gordon takes aim at Romney's tax rate and Bain Capital:

   Do you think it is fair that an employee pays a higher tax rate than an employer? The tax break was supposed to “trickle down” to new jobs and never did when President George W. Bush endorsed it. Now, the GOP is proposing larger tax breaks for the rich for another “trickle down.”
   When Mitt Romney was CEO at Bain Capital, people lost their jobs due to bankruptcy while he and his investors walked away with millions. 

Here are my comments:

zemack

THE TRUTH ABOUT "TRICKLE DOWN" 
 
Question for Herb Gordon: Should employees be free to quit a job to pursue better life opportunities, like a better paying job? Or should they be chained for life to the same job? If your answer is free to quit, you are a hypocrite. A business owner has a much moral right to fire an employee as the employee has to quit, and for the same reasons. Private equity firms like Bain make millions by growing good businesses, turning around struggling but sound businesses, and dissolving less viable firms and reallocating the capital to more promising businesses and technologies. Their motives are the same as the employee who quits for a better paying job elsewhere—to make more money. Successful private equity firms like Bain are economic heroes because their wise investments lead to better products and services, more jobs, and more overall prosperity. They are moral heroes because they make money by their own reasoning minds, which leads to wealth-producing, life-enhancing results. 
 
Anti-capitalists ridicule free market policies as “trickle down,” but here’s another question: How much of what you buy with your money did you produce yourself? There are none as blind as the self-blinded. Look around you. Everything your money can buy is provided by someone else’s productive intellectual and physical work, investments, and pursuit of money and profit. If you think that flood of wealth is a “trickle,” then try putting your money under a mattress, stop spending, and see where your life goes without it. And while you’re at it, quit that job that someone else provided, since you’ll no longer need the money. 
 

As to taxes; no, they are not fair. Better would be a single flat rate so that all taxable income is treated the same, and tax increases and tax cuts are shared equally by everyone regardless of total income. It’s time to end discrimination based upon income.  

Related Reading:

"Greed" is a Two-Way Street

Distorting Words for Political Gain