Wealth taxes have become an increasingly popular policy in recent years, though there is some confusion among their advocates. On the one hand are those, like the economist Thomas Piketty, who propose wealth taxes with the goal of eliminating concentrations of wealth. He has argued for a graduated wealth tax of 5% on those worth 2 million euros or more and up to 90% on those worth more than 2 billion euros so that “there won’t be billionaires anymore.” To Piketty, the wealth tax will have succeeded if nobody is rich enough to be liable to pay it and revenue is $0. On the other hand are those, like Senator Elizabeth Warren, who believe a wealth tax could fund vastly increased government spending. Her proposed ‘Ultra-Millionaire Tax’ would levy: …an annual 2% tax on every dollar of net worth above $50 million and a 6% tax on every dollar of net worth above $1 billion…this small tax on roughly 75,000 households will bring in $3.75 trillion in revenue over a ten-year period. Yet despite this increased prominence, wealth taxes have become less common. In 1996, twelve OECD members collected revenue from net wealth taxes: by 2020, just five did. Even Piketty’s native France ditched its wealth tax in 2017. Britain’s failed attempt to impose a wealth tax indicates why. In February 1974, the Labour party was elected promising to “fundamentally redistribute income and wealth”. They proposed increased pensions, a new child benefit, and reductions in public housing rents. Their manifesto pledged “an annual Wealth Tax on the rich” to help pay for this. The Inland Revenue was initially positive, reporting that: “…although there will of course be many problems to be resolved we see no reason why a wealth tax should not be introduced reasonably quickly” But they did not believe it would raise much revenue. This had been the experience of Britain’s inheritance tax, raised to 75% in 1949 but generating revenues of just 0.6% of total personal wealth by the mid-1960s as people quite legally avoided paying it, mostly by giving it away. While this might reduce wealth inequality – Piketty’s goal – it would not raise the revenues Labour needed to fund its new spending plans – Warren’s goal. The Select Committee which examined the proposal was much more skeptical of the practicalities than the Inland Revenue. Countries with wealth taxes had imposed them at low rates when most wealth was held in the form of land; neither was the case with Labour’s proposal for mid-1970s Britain. As Howard Glennerster notes: “The several thousand civil servants needed, depending on the valuation level at which the tax began, the numerous regional offices required and the process of regular valuation that might fall on individuals came as a surprise to the politicians and, indeed, to the Treasury when it got to think about the question properly.” But if Labour’s wealth tax wouldn’t have achieved the Warren revenue goal, it would have helped achieve the Piketty goal of equalized wealth. The Treasury concluded that the wealth tax: “1. Will lead people to seek non resident status, result in a considerable outflow of funds in the form of dividends and interest. Since it will apply to all wealth held world wide foreign employees in foreign companies resident here would be subject to tax. This would result in a big movement of banks, insurance and shipping business moving out of the UK. Assets held here would be affected. This would reduce the level of business in UK.” They had good reason to think this. Britain imposed a top income tax rate of 83% and 98% on investment income. This was the era of the Tax Exile, which The Rolling Stones acknowledged with their LP Exile on Main Street, partly recorded in the south of France in 1971-1972. Their guitarist, Keith Richards, explained: “The whole business thing is predicated a lot on the tax laws…It’s why we rehearse in Canada and not in the U.S. A lot of our astute moves have been basically keeping up with tax laws, where to go, where not to put it. Whether to sit on it or not. We left England because we’d be paying 98 cents on the dollar. We left, and they lost out. No taxes at all.” Britain’s punitive tax rates did help reduce wealth inequality just as Piketty would hope, but they did so by pushing the wealthy – and their wealth – out of the country. In November 1976, Labour abandoned their plans for a wealth tax. Denis Healy, then Chancellor of the Exchequer, wrote: “We had committed ourselves to a Wealth Tax: but in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.” So has everybody else. Richard Fulmer worked as a mechanical engineer and a systems analyst in industry. He is now retired and does free-lance writing. He has published some fifty articles and book reviews in free market magazines and blogs. With Robert L. Bradley Jr., Richard wrote the book, Energy: The Master Resource. (0 COMMENTS)

Populist rulers face a dilemma. Since they embody “the people” and realize “the will of the people,” they cannot lose elections. The people cannot vote against itself. My Independent Review article on “The Impossibility of Populism” explained this in more details. But here is a current illustration. Jair Bolsonaro, the Brazilian president, faces the same dilemma as Donald Trump did: there is a good probability that he will lose the forthcoming presidential election in October. So what does he do? Something similar to what Trump did in both 2016 and 2020: he warns his followers in advance that if he loses, it will mean that the election was rigged. The Economist explains (“Might Jair Bolsonaro Try to Steal Brazil’s Election?” July 14, 2022): [Mr. Bolsonaro] is also sowing doubt about the electoral process. He tells supporters he can only be defeated if the contest is rigged. This suggests he may dispute the result if he loses. … On July 7th Mr Bolsonaro insinuated that Mr Fachin [the president of the electoral court] “already knows” the outcome of the election. He peddles such twaddle while insisting that Brazil’s electronic-voting system is susceptible to fraud. The system has been used in Brazil since 1996 with no evidence of irregularities. … His opponents fear that if the vote is close, he may claim he was robbed of victory and try to cling on by foul means. Supporters of Brazilian President Jair Bolsonaro during a Labor Day protest in Natal. May 2, 2022, Natal, Rio Grande do Norte, Brazil Credit: Jose Aldenir/Thenews2 (Foto: Jose Aldenir/TheNews2/Deposit Photos) (0 COMMENTS)

Eric Hoffer was born 120 years today. Or 124: as Tom Bethell argued in his biography of Hoffer, the latter’s youth was kind of a mystery. He was parsimonious with information and often self-contradictory. He famously maintained that he was blind for a number of years and that later such blindness went away, as suddenly as it came. But what it is clear a from Hoffer’s biography is that he was a most interesting and rare case among 20th century intellectuals. He had little formal education, if any. He was always a manual worker and, after trying unsuccessfully to join the Army after Pearl Harbour, he landed a job as a longshoreman in San Francisco. He loved to read and one day picked up in a library Michel de Montaigne’s Essays. As many before and after him, he was enchanted by the beauty of Montaigne’s prose and by his ability to look into himself. That planted the seed which would blossom in his own determination to become a writer. Such a determination was pursued casually, until he sent a long letter to the magazine Common Ground. The piece was rejected, but Margaret Anderson encouraged his talent and forwarded his essay to an editor at Harper Brothers. Ultimately they published his great book, The True Believer: Thoughts on the nature of Mass Movements. Dwight Eisenhower allegedly considered The True Believer  his favourite. The book also prompted Lyndon Johnson to call Hoffer to the White House. Ronald Reagan awarded him the Presidential Medal of Freedom. It caused quite a sensation  and was favourably commented upon by many of the heavyweights of the time. It is a great book which digs into the “demand side” of political mass movements. Hoffer quoted Hitler saying “the petit bourgeois social-democrat and the trade-union boss will never make a National Socialist, but the Communist will.” He looked at great, all-embracing mass movements as sources of meaning for the individuals who became “true believers.” It is one of the Hofferian themes: “blind faith is no substitute for lost faith in ourselves.” The True Believer is still a very famous book and pops up routinely, when a new political movement needs to be scrutinised and its followers became a subject of interest to the press. It has been mentioned in connection with Jihadism and with populism. Google “Eric Hoffer and Donald Trump” and you’ll stumble upon very different ways to use Hoffer to read Trumpism. I am relatively new to Hoffer, but tremendously impressed by him. His other works, beginning with his aphorisms and with The Ordeal of Change deserve to be better known. The latter is a truly thought-provoking read. A few years ago, Thomas Sowell wrote this beautiful appreciation of Hoffer. Now, Sowell on Hoffer: that’s the Dictionary definition of self-recommending. Sowell reminds us of a key point in Hoffer’s thought: Hoffer’s strongest words were for the intellectuals — or rather, against the intellectuals. “Intellectuals,” he said, “cannot operate at room temperature.” Hype, moral melodrama, and sweeping visions were the way that intellectuals approached the problems of the world. But that was not the way progress was usually achieved in America. “Nothing so offends the doctrinaire intellectual as our ability to achieve the momentous in a matter-of-fact way, unblessed by words.” Since the American economy and society advanced with little or no role for the intelligentsia, it is hardly surprising that anti-Americanism flourishes among intellectuals. “Nowhere at present is there such a measureless loathing of their country by educated people as in America,” Eric Hoffer said.” Hoffer’s insights on the hubris of professional intellectuals is as profound as his reading of mass movements. Actually, the two are connected. “Mass movements do not usually rise until the prevailing order has been discredited. The discrediting is not an automatic result of the blunders and abuses of those in power, but the deliberate work of men of words with a grievance.” This impatience for wordsmiths went together with a profound appreciation of the common person and of that society built by “unheroic” people that Hoffer understood the America of his years to be. “What is the uppermost problem which confronts the leadership in a Communist regime?”, he asked himself. His answer was: “how to make people work.” Communism wasn’t capable of nurturing that “readiness to work” and that “practical sense” that, for Hoffer, came naturally being in the American capitalist society. This was at least in part due to a wrong reading of people’s motivations and desires: I remember how scornful I felt when I first Marx’s description of the worker’s attitude toward work in a capitalist society. The worker, he said, feels physically and orally debated by his work. He is like an exile in his place of work and feels at home only when away from is job. Marx never did a day’s work in his life, and never took the trouble to find out how a worker reply feels when on the job. He naturally assumed that works were a lesser breed of intellectuals. Having a job, being a productive part of society, wasn’t “the meaning of life” for Hoffer, but he believed it gave people “a sense of usefulness and worth”. If people need “certificates of value”, it is way better if a society awards such certificates to them for things they make, rather than for slaughtering enemies. In Hoffer, you find enlightening pages on the trade; “trading is a form of self-assertion congenial to common people – a sort of subversive activity; undoctrinaire, unheroic and uncoordinated, yet ceaselessly undermining and frustrating totalitarian domination”. You also find surprising and thought-provoking observations: “the business atmosphere of the workshop is more favourable for the awakening and unfolding of the creative talents of the masses than the precious atmosphere of artistic cliques”. I wish I read Hoffer earlier; I look forward to reading and pondering his works as much as I can. (0 COMMENTS)

Justin Smith has an excellent article in Harpers, discussing how and why we are moving toward a surveillance state: When I say the regime, I do not mean the French government or the U.S. government or any particular government or organization. I mean the global order that has emerged over the past, say, fifteen years, for which COVID-19 served more as the great leap forward than as the revolution itself. The new regime is as much a technological regime as it is a pandemic regime. It has as much to do with apps and trackers, and governmental and corporate interests in controlling them, as it does with viruses and aerosols and nasal swabs. Fluids and microbes combined with touchscreens and lithium batteries to form a vast apparatus of control, which will almost certainly survive beyond the end date of any epidemiological rationale for the state of exception that began in early 2020. The last great regime change happened after September 11, 2001, when terrorism and the pretext of its prevention began to reshape the contours of our public life. Of course, terrorism really does happen, yet the complex system of shoe removal, carry-on liquid rules, and all the other practices of twenty-first-century air travel long ago took on a reality of its own, sustaining itself quite apart from its efficacy in deterring attacks in the form of a massive jobs program for TSA agents and a gold mine of new entrepreneurial opportunities for vendors of travel-size toothpaste and antacids. The new regime might appropriately be imagined as an echo of the state of emergency that became permanent after 9/11, but now extended to the entirety of our social lives, rather than simply airports and other targets of potential terrorist interest. My wife recently told me a story about someone she knows who lives in China.  This woman had a toothache and went to the pharmacy to buy a painkiller.  A few hours later she got a call from a government official asking for the purpose of her visit.  She explained the purpose, and the caller seemed satisfied.  (Presumably the official was suspicious that she might be buying medication for Covid.) To most Americans, this story sounds rather creepy.  But how far behind China are we? Even tyrants would be foolish to pass down an iron law when a low-key change of norms would lead to the same results. And there is no question that changes of norms in Western countries since the beginning of the pandemic have given rise to a form of life plainly convergent with the Chinese model. Again, it might take more time to get there, and when we arrive, we might find that a subset of people are still enjoying themselves in a way they take to be an expression of freedom. But all this is spin, and what is occurring in both cases, the liberal-democratic and the overtly authoritarian alike, is the same: a transition to digitally and algorithmically calculated social credit, and the demise of most forms of community life outside the lens of the state and its corporate subcontractors. It’s a cliche to suggest that people “read the whole thing”, but in this case it’s true.  Indeed Justin Smith’s relatively long piece in Harpers contains material that is even more interesting than the three paragraphs I cited.  He is one of our most insightful intellectuals.      (0 COMMENTS)

When one studies a reported “shortage,” one usually discovers that there is no shortage at all. This is to be expected in a free economy with no price control and no widespread misguided altruism. Take the case of Dijon mustard (“real mustard,” as I tell my wife), which requires a special kind of brown mustard seeds. A French producer of the mustard, Luc Vandermaesen, is quoted in the Financial Times (“France’s Great Dijon Mustard Crisis,” July 12, 2022): We didn’t think we would have such a shortage. Except in this quote, the Financial Times does not use the word “shortage.” There is indeed no shortage. The price of the special seeds have doubled and the price of the mustard has increased by 10% or more but, at these prices, a buyer can find as much as he is willing to pay. Many other newspapers, less economically literate, fell (again!) in the trap of confusing shortage and high prices, including the New York Times, USA Today, et cetera. It’s like if they said “plethora” to describe a price decrease! Reminder: a shortage in the economic sense is a situation where something is unavailable at any price on the (legal) market. Temporary local shortages (if we want to call them “shortages”) can happen, usually signaled by longer delivery delays, but freedom to trade should rapidly arbitrage the disequilibrium. Looking at Amazon.fr (the French Amazon) yesterday, I found that many brands are indeed out of stock, but some are available for delivery in about two weeks. On Amazon.com, from which anybody in the world can order if one pays transportation and possibly local customs tariff, many brands of Dijon mustard are available now, but the price of well-known French brand Maille is more than 25% higher than two and a half months ago. (Note that “antitrust” threats and government bullying are often more intense in Europe, as a Wall Street Journal article on Amazon suggests this morning.) Price adjustments, when they are not forbidden by government (and perhaps sometimes by misplaced altruism or commercial virtue-signaling), is why shortages don’t happen. More generally, so-called problems of the “supply chain,” the current buzzword, cannot be seriously analyzed without factoring in prices. In the Summer issue of Regulation, my article “Dispelling Supply Chaim Myths” reviews the issue with many current examples and a dip in basic microeconomic theory (complete with graphs). The most famous (real) shortage in recent history is probably the one that affected cars for ordinary individuals in the Soviet Union (apparatchiks had privileges). A peek at my article: An oft‐cited example concerns the former Soviet Union and its Eastern European satellites, where not enough cars were produced given demand at the state‐determined prices. Like for most goods, the car shortage was endemic: it took about 10 years for an ordinary citizen to get the car he ordered, with a deposit that could reach 50%. I note that on free markets, supply chain problems are solved if consumers are ready to pay for solving them. Otherwise, if consumers are unwilling, there is no supply chain problem. (0 COMMENTS)

For my summer cottage reading, the first non-fiction book I’m reading is The Mayor of Castro Street by Randy Shilts. It’s about Harvey Milk. (Incidentally, I saw Milk speak in a downtown church in San Francisco in May or June 1978 at an event held by BACABI, the Bay Area Coalition Against the Briggs Initiative.) Here are 4 interesting highlights from the first third of the book. Harvey Milk’s early political views A staunch conservative, Milk was then looking forward to Barry Goldwater’s getting the 1964 Republican presidential nomination. That could get the true conservative message out to the nation, he thought. His fiercest argument with Rodwell was not about gay equality, but [about] President Kennedy’s move against the steel companies. The raw use of federal power in the economy made Harvey’s blood boil. DRH note: I remember reading in the late 1960s about JFK’s 1962 attack on steel companies for raising prices. Ayn Rand wrote about it at the time also, and Wabash College economics professor Ben Rogge talked about it in a talk in early 1969 at the University of Winnipeg that my Libertarian club sponsored. It was a big deal to us. Destruction of a Vital Part of San Francisco The Latino Mission district’s businesses had never recovered from the digging up of the central shopping strip for the Bay Area Rapid Transit. DRH note: After I graduated from the University of Winnipeg in May 1970, I set out in June to hitchhike from Winnipeg to Vancouver and from Vancouver to Los Angeles, stopping at various places on the way. I stayed at a cheap, divy hotel in San Francisco (I think it was about $5 a night) and explored San Francisco. I remember the chaos created by the building of the BART at the time. I had to walk over boards in various parts of the city and it was difficult for people to get to certain businesses because the streets were so ripped up. Later I learned in George Hilton’s transportation economics class at UCLA just how badly BART failed a cost/benefit analysis test even judged by the optimistic estimates of its proponents. The Leftist Attack on Milk’s Business Some [left-wing gays] took to scolding Scott Smith [Milk’s business partner at Castro Camera], saying if Castro Camera really cared about people, the would give away free film and offer developing services gratis. DRH note: No comment necessary. John Barbagelata’s Confusion about the Economics of Discrimination [Barbagelata, who was running for mayor of San Francisco against George Moscone] would continue to oppose the law banning anti-gay bias among city contractors because the city might be forced to accept higher bids from nondiscriminating companies over the low bids of biased employers. DRH note: At the time, employers were discriminating against gay employees even in San Francisco. This presumably made gay employees a bargain for employers willing not to discriminate. So Barbagelata had it exactly backwards. He didn’t understand his Gary Becker. For the concise version of the economics of discrimination, see Linda Gorman, “Discrimination” in David R. Henderson, ed., The Concise Encyclopedia of Economics. (0 COMMENTS)

Inflation is a period during which price indices increase.  But price indices can increase for all sorts of reasons; hence it makes absolutely no sense to study the impact of “inflation” on any other variable.  That impact will always depend on what causes the inflation. David Beckworth recently directed me to a speech by Lael Brainard: While national data do not directly disaggregate the differential effects of inflation by household income groups, a variety of evidence suggests that lower-income households disproportionately feel the burden of high inflation. Lower-income families expend a greater share of their income on necessities; have smaller financial cushions; and may have less ability to switch to lower-priced alternatives. Arthur Burns noted in the late 1960s that “there can be little doubt that poor people…are the chief sufferers of inflation.” Today, inflation is very high, particularly for food and gasoline. All Americans are confronting higher prices, but the burden is particularly great for households with more limited resources. That is why getting inflation down is our most important task, while sustaining a recovery that includes everyone. This is vital to sustaining the purchasing power of American families. Brainard is right that we need to get inflation down, but the rest of the analysis makes little sense. Here it might be helpful to distinguish between two broad types of inflation, stagflation and boomflation.  Stagflation occurs when the short run aggregate supply curve shifts to the left.  This reduces real output and real income, while boosting the price level.  Boomflation occurs when aggregate demand shifts to the right, boosting real output and real income (in the short run), while increasing inflation.  The late 1960s were an example of boomflation while 1974 was an example of stagflation.  (Today we have some of each.) In the late 1960s, Arthur Burns suggested, “there can be little doubt that poor people…are the chief sufferers of inflation.”  Actually, boomflation raises real income in the short run, including the real income of the poor.  Indeed the 1960s saw one of the largest reduction in poverty rates in all of US history.  The inflation of the late 1960s was bad, and should have been prevented by tighter Fed policy.  But it wasn’t bad because it hurt the poor (in the late 1960s); it was bad because it led to greatly increased economic instability during the 1970s. In contrast, stagflation does hurt the living standards of the poor.  But the reduction in living standards is caused by the “stagnation” part of stagflation, not the “inflation” part of stagflation.  Given the existence of an adverse supply shock, a non-accommodative Fed policy that prevented any temporary increase in the overall inflation rate would hurt the poor by even more than did the stagflation.  I would add that stagflation hurts both the poor and the rich, whereas boomflation helps both the poor and the rich in the short run, and hurts both the poor and the rich in the long run.  Income inequality is not the issue here. Whenever you encounter any study of “the impact of inflation”, run for the hills.  It’s likely to be complete nonsense, an exercise in reasoning from a price change.  It would be as silly as a study evaluating the impact of high oil prices, without first ascertaining whether the price increase was caused by more oil demand or less oil supply.  In the former case, oil consumption will rise.  In the latter case, oil consumption will fall.  Or a study looking at the impact of higher interest rates, without first considering why interest rates had risen.  Tight money?  Higher inflation?  A booming economy? PS.  Notice that I had to invent a word to do this post?  (Boomflation.)  Also notice that the economic profession has no word for “NGDP growth rates”.  When a science lacks words for some of the most important concepts in their field, it’s a pretty good indication that the subject is hopelessly confused. PPS.  Shorter version of this post:  NRFPC (0 COMMENTS)

After the splendid book on Capitalism in America which he coauthored with Alan Greenspan, Adrian Wooldridge published a book on meritocracy and is understandably trying to rejuvenate its arguments. He is intellectually reckless enough, to use the British Tory leadership as a case in point. Boris Johnson’s resignation has opened a contest in which ten candidates are running for leadership: which means being head of the government but also presumably the face of the party when new elections come. England is supposed to be a “class society” more than most. Indeed the Etonian backgrounds of David Cameron and Boris Johnson have reinforced the idea of the Tory party as pretty much the projection of whatever is left of the British elite. The most successful Conservative politician of the second half of the 20th century, Margaret Thatcher, is the rare case of a Tory with a middle class background who was a social outsider in her own party (of course, the first woman prime minister of her country). But Thatcher, so most people think, was definitely one of a kind. Wooldridge however thinks differently: The candidates for the Conservative Party leadership are strikingly diverse. Six of the 10 declared candidates are members of ethnic minorities; three (Suella Braverman, Rishi Sunak and Sajid Javid) are the children of immigrants; two (Nadhim Zahawi and Rehman Chisti) were born abroad, in Iraq and Pakistan respectively; and one (Kemi Badenoch) was brought up in Nigeria. Four are female. Only two are White men. … The Conservative Party has done a much better job of diversifying than other parts of the British establishment, which has focused instead on the politically correct trappings of rainbow flags and diversity courses. … How did this extraordinary revolution come about? The Tories grasped the enormous power of “sponsored mobility” — that is, spotting potential superstars when they are still young and promoting them rapidly through the party ranks. The Labour Party should have far more potential ethnic minority leadership candidates than the Conservatives, given that Labour won some 62% of that demographic at the most recent election compared with the Conservatives’ 24%. But Labour relies on talent bubbling up on its own rather than being given a helping hand. The result is that many Labour minority MPs are unimpressive machine politicians and a few are self-dealers. Labour’s leader, deputy leader and shadow chancellor are all White. The Tory breakthrough came in 2005. David Cameron came up with the idea of the party’s central office nominating A-list candidates for local districts to consider. That preserved the constituencies’ much-prized sovereignty but forced them to consider people different from the White men they’d traditionally favored. It is an interesting and thought-provoking piece. Broadly speaking, as Wooldridge point out, it would be important for political parties to represent minorities without appealing to a rhetoric of victimhood. This goes together with having representatives who claim to be “success stories” in their countries, and aim to speak for those like them. I don’t know how many of these people are attracted by politics and political parties in the West at the moment. But somehow the Tory party did it. (0 COMMENTS)

Capitalism creates inequality. Nature creates inequality. Different socioeconomic systems reward different natural inequalities – intelligence, physical health, strength, and beauty – by the incentives they create. Capitalism rewards the “bourgeois values” at which the left sneers: thrift, honesty, persistence, hard work, prudence, tolerance, and civility. Socialism rewards ruthlessness. Material inequality is the inescapable result of material progress. If a new product is created, it cannot possibly be instantly and simultaneously distributed to every person on earth. So, the first time someone invented something – the stone hammer, perhaps – inequality instantly appeared in the world. To demand complete material equality is to demand an end to material progress.   Capitalism results in the concentration of wealth in the hands of the few. Wealth is more concentrated in many socialist and socialist-leaning countries (e.g., South Africa, Zimbabwe, and Nicaragua) than it is in free market countries.  Moreover, the free market automatically channels resources to those who most efficiently use them to improve the lives of consumers worldwide.  By contrast, socialism and communism have historically channeled resources to the most ruthless and murderous: Lenin, Stalin, Mao Zedong, Castro, Pol Pot, Mugabe, Ortega, Chavez, Maduro. Trade used to mean the literal exchange of one good or service for another good or service.  Today, it more often means the exchange of goods or services for paper IOUs that we call “money.”  In a free market, money is documentary proof that the bearer has provided goods and services that others valued as demonstrated by the fact that they willingly exchanged the products of their own labor for them. In other words, people with money in their pockets have benefitted others but have not yet received anything of comparable value in exchange. The idea that such people “owe society” or should “give back to society” is exactly backwards. They don’t owe, they are owed.   Unregulated markets result in wealth inequality. Regulated markets result in even more inequality. In fact, much regulation is designed to enable the “haves” to retain and increase their material advantages. The problem of “regulatory capture,” in which regulatory agencies work to benefit the industries they were intended to control is very real. First, when an agency is initially created, it needs experts on the industry it is supposed to monitor. Where can it go but to the industry itself? Second, no one has a bigger interest in lobbying the agency than do the companies being regulated. Third, if the industry were to disappear, the agency’s reason for existence would also disappear, so agency employees have a vested interest in keeping “their” industry alive, even if it’s at the expense of consumers. Finally, there is no such thing as an “unregulated” market or “unfettered” capitalism. A company’s heaviest fetters are forged by its customers and its competitors. In a free market, no company, however large, can long survive if it doesn’t satisfy its customers with products and services that are at least as those offered by its competitors.   Capitalism is a winner-takes-all game. Free market countries tend to have the largest middle and upper classes, which means that most people who “play the game” do quite well. Yes, the 1% owns the lion’s share of “symbolic” or “paper” wealth, but they don’t own most of the physical wealth and they certainly don’t own more than a tiny fraction of the country’s human capital (e.g., knowledge and experience). Jeff Bezos is a multi-billionaire, but most of his wealth is in the form of Amazon stock.  He doesn’t own a significant share of the country’s houses, cars, aircraft, computers, TVs, microwaves, dishwashers, washing machines, and so on and on. Confiscating his wealth would mean that he would have to sell his stock in Amazon, which would tank its value, causing much, if not most, of that “wealth” to vanish. Most of us are neither geniuses nor inventors, but the free market enables us to benefit from the genius and inventions of others. When someone “wins” and gets rich by producing a good or service that improves our lives, we win too.   Capitalism turns workers into wage slaves. Slavery is an economic system in which people can arbitrarily demand others’ time, labor, and produce.  Socialism is an economic system in which the politically favored can arbitrarily demand others’ time, labor, and produce. In a capitalist system, no one can enslave me or compel me to work. But by the same token, neither can I enslave others; I cannot compel them to provide me with food, clothing, and shelter. If I want those things, then I must either make them myself – in which case I will likely live in abject poverty – or I must produce goods and services that I can exchange for them.   Capitalism rewards merit and rewarding people based on merit is discrimination. Well, yes. Selecting people on merit is discrimination – that is, it’s the “recognition and understanding of the difference between one thing and another.” But if I’m faced with the necessity of choosing between candidates – whether for a job, a promotion, or for admission to a university or club – I’m forced to, well… choose. And if I have any basis at all for making the choice, then I’m looking for differences between one person and another. My responsibility to my organization requires me to discriminate on “merit” as defined by those traits that my organization deems will best help advance the goals of the organization.   Capitalism drives corruption. After the Civil War, corporations repeatedly tried and failed to form cartels to keep prices high and to prevent competitors from entering markets. Every attempt failed because none of the cartels could employ force to keep cartel members from cheating. Incentives to lower prices and grab market share were too great. The problem was “solved” during the Progressive Era, when government created cartels to prevent “ruinous” competition and created agencies like the Interstate Commerce Commission, the Federal Trade Commission, and the Federal Reserve Bank to enforce the rules. FDR’s New Deal extended cartels to agriculture and to the automotive and airline industries, while LBJ’s Great Society Medicare and Medicaid programs extended them to healthcare. In short, progressives created government-backed cartels and monopolies and now blame capitalism for the unfortunate results.     Read Part 1 here. Richard Fulmer worked as a mechanical engineer and a systems analyst in industry. He is now retired and does free-lance writing. He has published some fifty articles and book reviews in free market magazines and blogs. With Robert L. Bradley Jr., Richard wrote the book, Energy: The Master Resource. (0 COMMENTS)