The Case Against Socialism

by Rand Paul

  Chapter 7

  Under Capitalism, the 1 Percent Is Always Changing

  When the left moans about the one percenters, realize that it’s not one static group of rich people but an ever-changing group of individuals rising up the income ladder. Our liberal friends would like you to believe they are sticking it to one particular group of fat cats, but it turns out that new individuals join the ranks of the successful every year.

  In fact, the chief groaner about millionaires and billionaires, Bernie Sanders, is himself a millionaire. When Martha MacCallum asked him at a Fox town hall why he didn’t voluntarily give the government 52 percent of his wealth (as he has called for in his campaign), he responded by asking MacCallum why she didn’t donate her salary. MacCallum answered, “I didn’t suggest a wealth tax.”

  MacCallum pushed Sanders to respond. He muttered, “Come on. I paid the taxes that I owe.”

  “Do as I say, not as I do,” seems to be Sanders’s mantra.1

  Bret Baier went on to ask Sanders, “When you wrote the book and you made the money, isn’t that the definition of capitalism and the American dream?” Bernie, still red in the face from the previous question, hesitated and curtly answered, “No.” John Phelan at the Foundation for Economic Education (FEE) doesn’t let Bernie get away with this denial. Sanders, he writes, “is wrong. Having an idea, acting on it, and making a pile of money is the very definition of . . . entrepreneurial capitalism.”

  New millionaires like Bernie are proof positive that the wealthy class is not a static group.2

  Before Thomas Piketty was even a twinkle in the eye of the new socialists, Thomas Sowell was making the point that when you evaluate income percentiles, “these abstract categories do not contain the same people over time.” Moreover, sterile groupings ignore the “simple fact that people just starting out in their careers usually do not make as much money as they will later, after they have had years of experience.” So young people almost always start in the lowest income groupings and work their way up the income ladder throughout their career. The same is true of wealth. Politicians rush to help senior citizens, yet senior citizens are the wealthiest category across all countries when wealth is examined by age group.

  Ironically, the U.S. government subsidizes drug purchases for the richest group, senior citizens, and it is paid for by the poorest group—young adults.3

  A Pew study confirms this age disparity in wealth. Net wealth increases the more years you have to accumulate wealth. That’s simply common sense. Anyone who bemoans the fact that young people have less wealth needs to understand that, in every generation, as people move to middle-age and senior status, they naturally accumulate more wealth.

  Income inequality is simply a misdirection campaign, an attempt to distract the public from the very real progress enriching all levels of income and to avoid a discussion of what economic systems foster the creation of wealth. The history of the past two to three hundred years in countries with market economies has seen the remarkable elimination of extreme poverty and an increase in income inequality. Instead of inequality being a problem, the data shows that poverty declines as income disparity grows.

  Robert Carroll, a senior fellow at the Tax Foundation, studied income mobility from 1999 to 2007 and found that “60% of households in the bottom income quintile in 1999 were in a higher quintile in 2007.” As far as those one percenters, half of the folks who made a million dollars in one year achieved millionaire status only once during the study period and only “6 percent of this group were millionaires in all nine years.”4

  In fact, according to a 2008 report by the Organisation for Economic Co-operation and Development there is a 27 percent turnover rate among the top one percenters. Indeed, income mobility exists up and down the economic ladder. A study from the University of Michigan showed that 95 percent of individuals in the bottom 20 percent category moved up and 29 percent even moved all the way to the top 20 percent of earners.5

  Seems like America really is the land of opportunity and income mobility.

  If unequal incomes are based on merit and occur as a consequence of voluntary transactions, there is no basis for complaint. Instead of being inherently evil, disparate outcomes based on merit encourage more merit and better decisions. One might argue that the possibility of gaining an “unequal” amount of income is precisely the incentive that invigorates capitalism.

  When government intervenes in the name of fairness, you often get inequality of a different sort. Instead of inequality based on merit, skill, work ethic, and yes, luck, you get unequal outcomes based on party politics, nepotism, and cronyism.

  Ben Domenech describes the inequality of incomes that government creates: “The real inequality problem is that of the Two Americas: not divided between one that is rich and one that is poor, but between one that is protected by government and another that is punished by it.”

  Instead of a class war between workers and owners as Marx described, Domenech writes that the real divisions in our society run “along the lines of the unprotected vs. the protected. The protected ruling class, thanks to its friends and cronies in government, gets the most lucrative opportunities with the least amount of risk, while the unprotected working class gets the opportunity to pay, via taxes, for the bailouts, subsidies, and rigging of the rules which largely run against their interests.”6

  Chapter 8

  The Poor Are Better Off Under Capitalism

  Selwyn Duke makes an important point that socialists ignore: “The richest men hail primarily from nations providing economic freedom whereas the poorest live disproportionately in socialist countries. Even liberal NPR published a piece titled ‘What the Stat About the 8 Richest Men Doesn’t Tell Us About Inequality’ and pointed out that income inequality has declined during the last 25 years; the statistic tells us only what people own, not what they earn, and that wealth alone doesn’t determine quality of life. But then there’s what neither NPR nor anyone else tells us about inequality: It’s irrelevant.”

  Complaining about inequality is basically a variation of envy or coveting. Duke continues: “Equality tells us nothing about quality. You can have equality in poverty, equality in misery, or equality in incompetence, ignorance or stupidity.”1

  Yet, socialists like Bernie and liberals like Hillary Clinton still use equality as their measuring stick, and Scandinavia as their model. “Why can’t we be like Sweden?” they protest. “That’s the socialism America needs.”

  Economist and writer Walter Williams points out that it’s important to know what choices you give up if you want the equality of Swedish socialized medicine. Williams tells the story of a patient with multiple sclerosis, which is an incurable disease that sometimes spirals downward. New medicines are becoming available, but they are expensive. Williams tells of how a Gothenburg, Sweden, multiple sclerosis patient’s prescription for a new drug was denied because the drug was significantly more expensive than the older medicine. Not only was the patient denied government insurance payment for the drug, but he was also prevented from buying the drug himself. The Swedish equality police argued that “it would set a bad precedent and lead to unequal access to medicine.”2

  One might ask: Do high-ranking Swedish officials get the same denials?

  Socialists say they want equality, but if you ask what people really want, they’ll answer that what is important is the quality of their own standard of life.

  Even if socialists admit that our standard of living is improving, they typically fail to understand why. For the socialist, economic progress is some quirk of history perhaps related to technology, but they deny that the voluntary exchanges of capitalism have anything to do with it. Williams, however, points out the undeniable correlation between capitalism and wealth.

  Quoting Williams, Duke writes, “if you rank ‘countries according to whether they are closer to being a free market economy or whether they’re closer to having a socialist or planned economy’ and based on ‘per capita inco
me,’ you will find a general ‘pattern whereby those having a larger measure of economic freedom find their citizens enjoying a higher standard of living.’”3

  Thomas Sowell makes the point as well: “None of the Marxist regimes around the world has ever had as high a standard of living for working people as there is in many capitalist countries” dominated by the free market.4

  Yet planners like Piketty think public policy should try to ameliorate income inequality. Reports of a handful of people owning nearly half the world’s wealth incite calls to disallow such accumulation of wealth.5

  In an article for the Washington Times, Dalibor Rohac illustrates how an obsession with income inequality can lead to ludicrous conclusions. He writes, “Liberal pundits are alarmed that income inequality in the United States is higher than in Pakistan or Ethiopia.”6 Which invites the question: Would anyone then choose to leave the United States and move to Pakistan or Ethiopia? Churchill famously explained the false allure of equality under socialism: “The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of Socialism is the equal sharing of miseries.”7

  Every election we hear Hollywood celebrities, most with barely a high school diploma, threaten to leave America if Republicans win. They scold us from their Beverly Hills mansions and private jets. They lecture us through their Juvederm-plumped lips. Perhaps we should send them travel brochures on income equality in Pakistan and Ethiopia. Citizens in those countries enjoy much greater income equality, albeit less access to fine dining and Prada sunglasses.

  These liberal actors can’t separate themselves from the fiction of the big screen. If they could, they would look at the facts and argue for policies that actually help the poor. Rohac makes this point clearly: “If one cares about the welfare of the poorest and the most vulnerable, income inequality is not a useful measure. Measures of inequality tell us nothing about the living conditions of the poor, their health and their access to economic opportunity.”8

  Harry Frankfort, a professor at Princeton and the author of On Inequality, makes a similar point. Like other critics of the obsession with income inequality, he’s not buying the hysteria. He writes: “Economic equality is not, as such, of any particular moral importance, and economic inequality is not, in itself, morally objectionable.”

  Obsessing over income inequality misses the real debate. According to Frankfort, “Inequality of incomes might be eliminated, after all, just by arranging that all incomes be equally below the poverty line. Needless to say, that way of achieving equality of incomes—by making everyone equally poor—has very little to be said for it. From the point of view of morality, it is not important that everyone should have the same. What is important is that each should have enough.”9

  The mistake is believing that income inequality has anything to do with economic well-being. Stephen Pinker elaborates on this point: “the starting point for understanding inequality in the context of human progress is to recognize that income inequality is not a fundamental [measurement] of well-being. It is not like health, prosperity, knowledge, safety, peace, and the other areas of progress. . . .”

  To make his point, Pinker tells a Soviet-era joke.

  Igor and Boris are dirt-poor peasants, barely scratching enough crops from their small plots of land to feed their families. The only difference between them is that Boris owns a scrawny goat. One day a fairy appears to Igor and grants him a wish. Igor says, “I wish that Boris’s goat should die.”

  Instead of wishing for greater wealth for himself, Igor, like today’s equality zealots, would prefer to have equal misery.

  Pinker argues that “the confusion of inequality with poverty comes straight out of the lump fallacy—the mindset in which wealth is a finite resource, like an antelope carcass, which has to be divvied up in zero-sum fashion, so that if some people end up with more, others must have less . . . wealth is not like that: since the Industrial Revolution, it has expanded exponentially. That means that when the rich get richer, the poor can get richer, too.”

  Pinker makes the case that Thomas Piketty is guilty of succumbing to “the lump fallacy.”

  Piketty argues, “The poorer half of the population are as poor today as they were in the past, with barely 5 percent of total wealth in 2010, just as in 1910.” But Pinker points out that “total wealth today is vastly greater than it was in 1910, so if the poorer half own the same proportion, they are far richer, not ‘as poor.’”10

  As usual, socialists (and their fellow travelers) get both the problem and its solution all wrong. Rea Hederman and David Azerrad write at the Heritage Foundation, “Free-market economics is not about dividing up a dwindling pie, but expanding the pie to serve everyone. Those who succeed do not do so at the expense of others.” The purveyors of the dwindling pie zero-sum world inspire the worst in us. If winning in the marketplace requires that someone must suffer a corresponding loss, then the unhealthy tendencies of envy are stirred.

  When policy is directed toward eliminating income inequality, the unintended consequence is to lessen the incentives that drive the wealth creation that has lifted millions of people out of poverty over the past few centuries. Hederman and Azerrad explain that “the Left’s new American Dream is first and foremost about all that the federal government must do to create opportunity and ensure that incomes are distributed more equitably. Individual effort takes a backseat to government spending and cradle-to-grave entitlements.”

  Despite the left’s obsession with income inequality, Hederman and Azerrad argue: “Income disparities have not caused a decline in upward mobility. Standards of living have increased for everyone—as have incomes—and mobility, however one measures it, remains robust. Simply put, how much the top 1 percent of the population earns has no bearing on whether the bottom 20 percent can move up.”11

  Decades before the income inequality debate came into vogue, the great Austrian economist and writer Ludwig von Mises wrote: “Those who advocate equality of income distribution overlook the most important point, namely, that the total available for distribution, the annual product of social labor, is not independent of the manner in which it is divided. The fact that that product today is as great as it is, is not a natural or technological phenomenon independent of all social conditions, but entirely the result of our social institutions.”

  Mises’s point is exactly what the left never gets, namely that wealth creation is not accidental, nor is it a guaranteed result. Wealth creation is dependent on the economic system. Capitalism creates wealth. Socialism does not.

  Mises goes on to explain that the incentive of unequal returns is absolutely a necessary component of a successful economic system. Mises writes: “only because inequality of wealth is possible in our social order, only because it stimulates everyone to produce as much as he can and at the lowest cost, does mankind today have at its disposal the total annual wealth now available for consumption.” If government destroys this incentive, it also destroys productivity and economic growth. On average, individuals are poorer when the incentive of “income inequality” is eliminated.12

  Andy Puzder, the former CEO of Carl’s Jr. and Hardee’s, describes well socialism’s inherent focus on greed.

  “If you’re in a capitalist economy, the only way you can succeed is by meeting the needs of other people,” he said in a recent interview. “Socialism, on the other hand, focuses you inward. You’re focused on what you can get.”13

  The technology revolution in the United States has also shown that the best outcomes for creating super wealth are often not the traditional paths to success. Who would have thought quitting college and tinkering in his garage would result in Bill Gates becoming the richest man in the world?

  And Gates’s success has inspired many more inventors to pursue their dreams. In America, the son of a car salesman and a teacher can invent a new virtual technology in his parents’ garage and make millions. Palmer Luckey, a friend of mine, comes from a conservative, middle-class fa
mily. He was homeschooled. He spent one year at California State University, Long Beach but dropped out to work on his idea for a virtual reality headset. This invention became Oculus Rift, which was ultimately purchased by Facebook for $2 billion in 2014. Palmer’s route to unfathomable success was possible only by having a society with equal opportunity but not equality of outcome.14

  Friedrich Hayek argues that “from the fact that people are very different it follows that, if we treat them equally, the result must be inequality in their actual position, and that the only way to place them in an equal position would be to treat them differently.”

  His argument deserves restating. Since people have different and unequal talents, the only way you get equal outcomes is to treat them differently. In other words, to have an unequal application of the law. This should be anathema to both liberals and conservatives.

  Hayek concludes: “Equality before the law and material equality are therefore not only different but are in conflict with each other; and we can achieve either the one or the other, but not both at the same time. How wonderfully put: Equal outcomes require the injustice of unequal treatment before the law. Love to hear the Bern respond to that one.”15

  Piketty, Sanders, and other crusaders for equality admit that they can’t get rid of all inequality, but at the least, we should eliminate the extremes of income inequality. Socialists rarely speak of who it is that will have their wealth taken. They shy away from naming names. After all, Michelle and Barack Obama are one percenters who live in an enormous mansion and travel the world on luxury vacations. I certainly don’t have a problem with that. They have made millions on book deals and speeches and can afford to celebrate their achievements. But I wonder if Representative Ocasio-Cortez does? How does Bernie feel about Michelle Obama’s much-praised four-thousand-dollar Balenciaga boots? While Bernie and AOC might find the extravagant footwear of one percenters “unequal,” I support the right of the rich to shine in glittery boots! After all, they are helping to support a luxury goods industry that employs creative people who craft fine materials into beautiful designs. If we didn’t have rich people to buy such luxury items, those talents would be lost. Do today’s socialists want a world without Balenciaga or Tom Ford?