Celebrating Income Inequality

http://capmag.com/article.asp?ID=5005

Democrat and Republican candidates for President are debating one another on nearly every issue--but nearly all are united on one thing: America faces a crisis of "income inequality." The rich are getting richer, the refrain goes, while the poor and middle class are held back by stagnating wages, lousy schools, and growing healthcare costs. The solution, we are told, is more government intervention: spend more on education, provide "universal healthcare," and force employers to raise wages through minimum-wage increases and union protection legislation.

But all of this outcry is based on a false premise--that income inequality is bad. While some of the problems critics point to are legitimate concerns, income inequality is not. Income inequality is a natural and desirable part of a free, prosperous society.

In America, equality should mean only one thing: freedom for all. If business and wages were deregulated, we would see a dramatic rise in economic opportunity. If education and medicine were left free, with America's businessmen, doctors, and educators liberated to offer education and medicine at all different price points, we would see quality and price improvements like those for computers or flat-panel television sets. But these benefits of freedom require that we recognize the moral right of each individual to enjoy whatever he produces--and recognize that none of us has a right to something for nothing.

Great essay from Alex Epstein of the Ayn Rand Institute. I love topics like this that catch people in the contradiction of their thoughts. Most people instinctively condemn "inequality", but in this case, when they apply their minds to why that inequality exists and what is being proposed to "fix it", they find some difficult pills to swallow. This is yet another example of the two paradigms: one that is risk averse, wanting protection from one's own weakness, and the other that embraces risk and the responsibility that comes with it (and its ensuing rewards).

Too many people see only the rewards gained by some, and covet them. Not understanding why they have those rewards (e.g. proof of their profitable actions), they take on the mentality of the victim, saying that they were unfairly gained, either by unfair competitive circumstances or at the expense (exploitation) of the poor victim.

The Five Stages of Counterfeiting

http://www.lewrockwell.com/north/north550.html

A truly serious counterfeiting operation would in fact plan to do something very similar to what Mr. Heath said a counterfeiter would not do – just not in a single step. The goal of a serious counterfeiting operation would be to persuade the public to use its money rather than the official bills it originally copied when it designed its original fake plates. Its goal would be the replacement of the original official bills with its own bills, making them official in the eyes of the public.

This has been the primary goal of central bankers ever since the creation of the Bank of England in 1694

Gary North's essays are always very detailed and thorough, if a bit lengthy. This article covers a very broad scope of economic history and describes the process of converting generations of people to treasure a currency once thought to be worthless. It covers precious metal debasement, fractional reserve banking, fiat money, central banks, and inflation - all in the context of a larger move to legitimize a counterfeit currency.

Cartels: Economists and Central Bankers

http://www.lewrockwell.com/north/north546.html

Economics as a science is seen by its practitioners as having progressed by identifying more and more institutions as governed by personal self-interest. Yet when economists come to banking and education, they refuse to extend this traditional analysis. They either remain silent or invoke the mantra of public interest.

You will search in vain for a chapter on education as an oligopoly within the context of tax-funding, laws mandating education up to age 16, and government licensing of college-accreditation agencies. Somehow, economics textbook authors skip over any analytical discussion of this, the largest sector of the American economy.

Gary North asks some pointed questions in this essay, where he reveals the lack of critical examination on the part of economists when it comes to things like the Federal Reserve. He outlines the obvious contradictions and deceptions being practiced that for some reason, no one ever bothers to question (don't ask, don't tell).

Walking Through the Looking Glass

http://www.freecapitalist.com/columnists/koerber_archives.php?id=13

What's the difference between failure and prosperity? How can you be sure you are headed in the "right" direction? Is it even possible to chart a course to live the abundant and prosperous life? Is it just an age-old gimmick to trick the naïve and unsuspecting entrepreneur into believing that the American dream is still a possibility? Can an honest person actually make it "big" in the business world?

To anyone with any substantial ambition whatsoever, these questions-and many related to them-are very important. To me, it has been very surprising indeed how I have come to learn the answers to these questions over the last few years.

I have learned that prosperity is not about some external event or some lucky opportunity. Prosperity is about a choice and the subsequent change that starts from within. It is literally like "walking through the looking glass" and seeing a world that so many people never see because of their own fears. I add my voice to those who have gone before me and say, "I too have walked through the looking glass and see a new way of life."

So what happened that enabled me to walk through the looking glass? Did I get lucky? Was I in the right place at the right time? Did I find a partner with a lot of money? No. None of these have anything to do with my success. The fact that I used to think in a way to even conceive such possible explanations for success is almost frightening to me.

This a great essay by Rick Koerber, where he outlines the journey of his failure and success, and describes what made the difference between the two. An excellent introduction to changing you perspective from scarcity to prosperity.

Panama Has No Central Bank

http://www.mises.org/story/2533

For a real-world example of how a system of market-chosen monetary policy would work in the absence of a central bank, one need not look to the past; the example exists in present-day Central America, in the Republic of Panama, a country that has lived without a central bank since its independence, with a very successful and stable macroeconomic environment.

The absence of a central bank in Panama has created a completely market-driven money supply. Panama's market has also chosen the US dollar as its de facto currency. The country must buy or obtain their dollars by producing or exporting real goods or services; it cannot create money out of thin air. In this way, at least, the system is similar to the old gold standard. Annual inflation in the past 20 years has averaged 1% and there have been years with price deflation, as well: 1986, 1989, and 2003.

This is a short essay about the argument that we don't need a "federal reserve" or central bank. It doesn't go into a lot of detail about the pitfalls of a central banking system and fiat currency, but it references them clearly. National financial systems can seem horribly complex - and they usually are, when a government agency, beholden to politicians, instead of shareholders, contols monetary policy. Panama provides a good example of how a free market banking system would work.

In Defense of Income Inequality

http://www.capmag.com/article.asp?ID=4940

Income inequality used to be a rabble-rousing issue of the left. Now it is being raised by mainstream figures, from the head of the Federal Reserve to President Bush, who are apologetically trying to offer solutions. But what is the actual problem they wish to solve? Certainly, it is not a growth in poverty. To the contrary, between 1979 and 2006--the period during which income inequality has supposedly become more acute--real wages for the median worker rose 11.5%. Even workers in the lowest tenth percentile had an increase of 4%.

No, the alleged problem is not that some are becoming poor--but that others are too rich. The complaint is that while the bottom tier enjoyed a 4% rise in income, the top tier enjoyed a 34% increase. The complaint is that over the past 25 years, the share of income of the top fifth of households climbed from 42% to 50%, while that of the bottom fifth fell from 7% to 5%.

But this development represents an injustice only if we use a perverse standard of evaluation. It is unjust only if we measure someone's economic status not by what he has, but by what others have--i.e., only if he benefits not by making more money, but by making his neighbor have less.

This is the standard of egalitarianism--the standard that demands a uniformity of income, regardless of anyone's ability or effort. It is the standard of envy, whereby a problem exists whenever some have more, of anything, than others. And the egalitarian's solution is to eliminate all such inequalities.

Egalitarianism is the antithesis of the valid tenet of political equality, under which we have equal rights. That is, we have the right to achieve whatever our ambition and talents allow, with no one permitted to forcibly stop us. Egalitarianism, however, is a denial of the individual's right to be left free. It is an abhorrent demand that some people be punished for achieving what others haven't. It is a brazen declaration that an equality of condition must be attained.

Highly recommended essay on the fallacy of egalitarianism, and its role in the public clamor over income inequality. This is only an excerpt - click the link above the quote to read the whole article.

Economic Inequality: Process and Results

http://www.capmag.com/article.asp?ID=4803

... many people erroneously use income inequality as a measure of fairness. Income is a result. As such, results cannot establish whether there is fairness or justice.
... For the most part, income is a result of one's productivity and the value that people place on that productivity. Far more important than income inequality, there is productivity inequality. That suggests that if there's anything to be done about income inequality, we should focus on how to give people greater capacity in serving their fellow man, and we should make sure there's a climate of peaceable, voluntary exchange.

A good lesson about the real reasons why some people have a greater income than others (they create more value), and a very plain argument for why redistribution of income is morally unjustifiable.

Why U.S. tax policy makes saving a sucker's game

http://www.slate.com/id/2164050/

If I said to you, "You can have $10,000 to spend now—or $9,500 to spend in 10 years," which would you choose? Probably the $10,000 now. And in doing so, you would be making the same choice many Americans make when deciding whether to save or spend their hard-earned cash.

The problem is how we tax investment gains. Over the past 80 years, the average annual return on Treasury bills (a proxy for savings accounts) has been 3.7 percent per year. Inflation, meanwhile, has averaged 3.1 percent per year. This combination has produced a "real return" of a paltry 0.6 percent per year. If you got to keep that 0.6 percent, you might still have an incentive to save: A $616 real gain on $10,000 in 10 years wouldn't be much, but it would at least be $616 more than you have now. Unless you're so poor that you're exempt from taxes, however, or so flush that you can afford to lock up cash for decades in a tax-deferred annuity or retirement account, you won't be keeping that 0.6 percent. You'll be giving all of it—and probably more—to the government.

I thought this article did a good job of demonstrating just one of the consequences of our current tax system. Having just tried to explain to my wife our tax return this year, I'm extremely frustrated - not at the amount I have to pay, but at the lunacy of the system that has been perverted repeatedly by politicians and the brain-off constituency that clamors for more tax revenue and more exceptions at the same time.

Of course, such negative consequences are not the reason we must overhaul our tax system - they are the symptoms, not the disease. Our tax laws violate natural laws, and the result is tyranny.
(see principles 12+13)

"Do we need money to live the life we love, or is prosperity the consequence of learning how to live the life we love?

What do you want? Do you want money, or do you want to love your life?"

-- Rick Koerber