Video: No correlation between free markets and income inequality

| January 4 2014
Christopher Cook

There is no doubt that in a market economy, people can get fabulously wealthy. They do it all the time. And there will always be some people at the bottom.

But it is also the case that in a command economy, certain people get fabulously wealthy—usually the dictator and his cronies, connected families or industries, members of the praetorian guard, etc. Most of the rest of the people are held down by force and lack of opportunity.

No matter what the economic system, there will always be income inequality. The amount of force required to equalize all incomes requires totalitarian government . . . and even there, as we have seen in the USSR and elsewhere, there are still some people—a small elite—who become wealthy, enjoy more conveniences, etc.

Beginning at :59 in the video below, you see a chart that demonstrates the lack of correlation between economic freedom (free markets) and income inequality. There is no trendline—no increase in inequality as we move towards greater freedom. Barack Obama and the Democrats are planning a big push in 2014 to fight something that doesn’t exist.

As the narrator of the video states, the real question is not income inequality, it’s income mobility. How easily can you rise above your current circumstances and gain higher income for yourself and your family? When each of us looks at our own circumstances, that is a far more important question. We don’t need to know, “How many people are doing better than I am?” We need to know, “How can I do better?” The former answer does nothing to improve our lives. It just carries the risk of creating feelings of envy. The latter answer is the key to improving our own circumstances.

In that, the record is more clear. Economic mobility IS correlated to economic freedom. No one can go anywhere in totalitarian countries. Everyone waits in the same line for a bag of sugar (I actually did this with a Russian girlfriend while on a trip to Moscow in 1991). Similarly, no one can go anywhere in a dictatorship. Unless you’re connected, opportunities for mobility in highly controlled economies are limited. By contrast, in the 19th century, the rise of free markets showed just how powerful economic liberty is. More people rose out of poverty as a result of this rise than any other force in human history.

Unfortunately, we are now moving in the wrong direction. Crony capitalism (a perverse corruption of truly free market capitalism), licensure rules, and government regulations all redound to the benefit of bigger companies and restrain entry into the market of the little guy. Sure, we’re not totalitarian, but even when economic freedom is reduced by a small degree, economic mobility is reduced and the people nearer the bottom suffer the most.

The left famously claims the mantle of compassion for the little guy—as they are surely going to do again here in 2014. But their policies make things worse for the little guy. They accuse Republicans of not caring, but it is they who appear not to care, as they keep pushing for the same damaging policies again and again. If it were up to them, the poor would suffer more.

It is time for the GOP and people on the right to stop playing defense. Ask the Democrats why they are so keen to hurt people on the bottom of the economic ladder. Ask them in so many words. Then offer a counter-agenda to the left’s “income inequality” agenda: INCOME MOBILITY.