Yesterday’s Washington
Post (02/17/14) carried two columns related to the growing economic
inequities. From Robert Samuelson there
was “Economists in the Dark.” From
Lawrence Summers there was “How to Curb Inequality.” Both were on page A19.
Rather than write two separate blogs, we thought we’d handle
both at once, since both, frankly, have nothing substantive to propose. They just highlight the problem and throw up
their hands.
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| Income and Ownership Gap, 1847 |
True, both commentators make good and necessary points.
Economic inequality is a serious and
growing problem. Tax and monetary reform
is an effective way to address the
situation.
Unfortunately, neither Summers nor Samuelson (nor anyone
else) address the causes of inequality.
They focus on symptoms, and analyze different forms of redistribution
and their effectiveness. This does
nothing to solve the underlying problem.
Issuing more government debt to depreciate the currency and redistribute
wealth through inflation will not do the trick.
It inevitably hurts the people it was intended to help, and concentrates
more and more wealth in the hands of those who own capital.
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| Government job creation |
This is actually one of the reasons why Keynesian economics
“likes” inflation: it “forces” savings, transferring wealth from wage earners
to producers so that producers will presumably invest in more new capital and
create jobs. Unfortunately, the
Keynesian theory relies on the false assumptions that 1) labor is ultimately
responsible for all production, and therefore 2) forming additional capital
necessarily means creating new jobs.
Alas. The fact of the
matter is that 1) both labor and capital produce marketable goods and services
and in the same way, and 2) the effect of capital is to replace human labor,
not enhance or increase it.
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| Is labor alone productive? |
The only way to “create jobs” when people have only their
labor to sell is to mandate or encourage unnecessary employment just to get
income to people, a complicated and unnecessarily expensive and wasteful form
of redistribution. Within the current
economic framework, Milton Friedman was right: the correct thing to do when
people don’t have jobs is just give them money.
Don’t bother with “creating” unnecessary jobs.
Of course, a better answer to the problem is not just to
give them money, however necessary that might be as a short term
expedient. Handing out the cash (i.e., redistribution) does not address
the real problem: lack of democratic access to the means of acquiring and
possessing the capital that is replacing human labor as a factor of production
at an increasing rate.
In other words, don’t just give them money, although that's a very good, even virtuous thing to do. Give them opportunity . . . and the means to
take advantage of the opportunity.
Monetizing economic growth directly by creating money for
the private sector to finance new capital formation in ways that expand the
base of capital ownership would allow currently propertyless people to own
capital without redistributing
existing capital or income. Prohibiting
further monetization of government debt would force government to live within
its means and stabilize the currency.
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| 18th Century American Tax Revolt |
Greatly simplifying the tax system by imposing a single tax
rate on all income above an exemption sufficient to meet ordinary living
expenses would diminish the need for redistribution. Most of the current complications in the tax
code are there to encourage people to save to finance new capital. Financing new capital formation out of future
savings instead of past savings would remove the need for a lot of the
complexity and injustice.
In addition, making dividends tax deductible at the
corporate level, but fully taxable for the recipient, would encourage full
payout of earnings. This would stimulate
consumption naturally without government-induced inflation or any other form of
redistribution.
These and other measures to restructure the economy through
equality of opportunity to own capital can be found in the “Capital
Homesteading” proposal by the Center for Economic and Social Justice (CESJ), as
detailed on the new website.
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