The Makers of Money
posted at 2:31 am on November 27, 2009 by Doctor Zero
A businessman of my acquaintance once interrupted a conversation about economic cycles to proclaim, “Good times, bad times, it doesn’t matter. I always make money.” His company had the balance sheet to back up this claim, and as the old saying goes, it ain’t boasting if you can do it. I’ve often reflected on that conversation over the years, because it helped me to understand something important about the struggle between the public and private sectors.
Every nation has a mixture of rich people, poor people, and some form of middle class. There is some degree of circulation between these economic groups. A poor worker might earn enough to advance into the lower middle class, while a middle-class professional could become rich… or suffer a reversal of fortune that leaves him in poverty. This basic situation exists under every form of government, from free-market capitalism to fascist dictatorships. What changes under different systems is the composition of the upper class, and the size of the lower and middle classes.
Collectivists sell their politics with a promise of “equality,” generally understood by their audience as a promise to redistribute the wealth of the rich to improve the lives of the poor… but this is a lie. The upper class in a communist, fascist, or socialist government is fantastically wealthy. Most of the “redistribution” comes at the expense of the middle class, which shrinks as the lower class grows. Every form of collectivist government, including twenty-first century American socialism, declares war on the middle class, or tries to lure them into submission with promises of benefits.
The middle class provides most of the funding for Big Government, and feels the pinch of high taxes more than rich people, who can often find ways to avoid them. A ten percent loss of income hits people struggling to make car payments much harder than it hits millionaires. The middle class inevitably grows tired of being milked for funding, responds quickly to economic downturns that compromise its lifestyle, and has enough voting power to destroy political parties.
Socialists love to posture as enemies of the rich, but in truth, the upper class is not usually a big obstacle to their plans. They are happy to cooperate willingly, if they see advantages to gaining the favor of a command economy. They can profit from government policies that hurt smaller competitors much more than they hurt the biggest of the big dogs, or restrict access to markets where they already dominate.
The rich often find themselves rewarded with official power under a collectivist government, smoothy transitioning from respected businessmen into honored members of the ruling Party, or government consultants. Sometimes the upper class finds the thrill of power, and the indulgence of their ego, well worth a few million lost in the rusty gears of a contracting statist economy. If worst comes to worst, the collectivists know that the rich are a small group with little voting power, easily overwhelmed at the polls by an aroused population.
The desperately poor are generally reliable supporters of socialist politics. Someone who pays no taxes will understandably tend to support endless expansion of government benefits. Eventually, members of the working poor may come to realize their own prospects suffer when too much economic damage is sustained by those who employ them. It follows that high rates of long-term unemployment will generally increase the size of the dependency class, which produces more political rewards for statists who promise hefty government benefits… and extracting resources from the economy to pay for those benefits causes the economy to contract further, producing more unemployment. Unemployment is a malignant tumor.
Who are the rich? With a few trust-fund, sports, and Hollywood exceptions, the rich are people like that businessman of my acquaintance: they always make money. It has been said that if you gathered all the money in America into a single pot, then divided it evenly between every citizen, in a few years the same people would be rich and poor again. No matter how limited or activist the government might be, the same people tend to end up at the top. The most dramatic changes occur in the middle and lower classes… the people who don’t always make money. They can’t evade higher taxes, or turn draconian government regulations to their advantage. They depend on economic growth to produce jobs for them, or create the conditions necessary for them to launch profitable small businesses.
Collectivist politicians have much to gain by increasing the size of the dependency class. The fundamental political purpose of State-controlled health care is to transform much of the middle class into the lower class. The economic damage from spending trillions of dollars on a monstrous new government program in the middle of a recession is a feature, not a bug. A middle class dependent on the benevolence of the State for its health care will become less troublesome, less independent, and less able to begin the climb into the upper class through small business formation. Fewer small businesses means fewer working poor rising into the middle class.
To liberals who are not politicians, but involved citizens who sincerely care about their less fortunate neighbors, I would say that the temptation to redistribute from the rich to the poor is the tragic pursuit of a mirage. You will never draw real blood from the makers of money, and even if you could, it would never be enough to purchase “social justice.” Redistribution always slides from the middle class to the poor… and the result is, inevitably, more poverty plus a smaller middle class. Look at how the stock market fluctuates under the current Administration, while unemployment remains high. The markets can adjust and recover, because they are filled with people who always find ways to make money. When circumstances force those people to employ strategies that do not promote job growth and capital formation, the livelihood of the middle class suffers, and the ambitions of the working poor drop dead.