Economy

The Myth of Capitalism-Caused Inequity

There is no explosion of income inequality in America, despite the cries of leftists.

Political Editors · Dec. 14, 2018

The expressions of greed and envy can be present in both the poor and rich alike. Or to put it another way, wealth does not make one greedy any more than poverty makes one envious. Both of these negative attitudes are manifestations of a deeper condition — that of selfishness. It is this deeper condition that politicians have made a profession of preying upon. And no political movement does this more so than socialism, which preaches that any inequality anywhere is a sure sign of injustice.

This is why leftists continuously point to differences, especially those involving income, and loudly declare, “Injustice!” “Not fair!” Rather than soberly considering the fact that within a free-market economy various income differences exist due to a multitude of social and economic factors, including one of the largest — personal choice — these socialists only play the politics of envy and resentment.

Like the infamous gender-pay-gap trope, which proponents tirelessly claim is evidence of some fictional unjust social order steeped in patriarchal misogyny, socialists dubiously misuse statistics to further their crusade against capitalism by maintaining that it only serves the greedy and the rich. And for “evidence,” they point to the supposed “explosion of income inequality” and blame capitalism for making the rich richer while making the poor poorer.

This was clearly the message of French economist Thomas Piketty in his 2014 bestseller Capital in the Twenty-First Century. In the book, Piketty contended that there was a skyrocketing income-inequality gap within Western societies and that capitalism was to blame. It’s unfortunate that Piketty’s book wasn’t classified under fiction, for it was little else.

Phil Magness of the American Institute for Economic Research notes Piketty’s errors, writing, “In short, the widely reported explosion of inequality in the past three decades is likely a myth, built upon outdated and flawed statistics. … Whereas Piketty … [shows] a massive century-long swing of almost 20 percentage points in the income share of the top 10 percent, the adjusted figures show a much flatter curve with a little over half the variation. Inequality still falls and rises under the revised numbers, but at a comparatively subdued rate. Under the adjustments, the top 10 percent income share seldom strays more than 5 percentage points away from a century-long average of about 35 percent.”

Magness adds, “Perhaps instead of assuming that we’re in the midst of a surging inequality crisis, we should first settle more fundamental issues affecting the accuracy of our measurements over the past century.” Or as James Freeman of The Wall Street Journal observes, “Perhaps we should also focus on ensuring an abundance of opportunity, rather than regarding it as a problem when some people inevitably make more than others.”

Greed and envy are not caused by and are not exclusive to capitalism; rather they are manifestations of the selfishness residing within the human heart. But no other economic system in history has allowed for more economic growth, created more wealth, or raised up more people out of poverty than capitalism. To suggest otherwise is to entertain an economic fiction rooted in resentment of the wealthy rather than concern for the poor.

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