Time for Economics Refresher? Pope and President on Income Inequality

Written by William Pauwels on January 15, 2014

Pope Francis on Capitalism: “(Income inequality) is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation. . . A new tyranny is thus born . . . ”  November 24, 2013.

Society, the media, Barack Obama, and even the Pope seem to be preoccupied with income inequality between, so-called, income classes and wealth classes.

Clearly, income and wealth inequality are primarily the result of economic freedom – ideally, constitutionally protected economic freedom (free-markets) and personal property rights.

A free person, a free business, a free institution can make innovations, investments, and trades – and take actions that result in superior economic results.

A free person can voluntarily work longer and harder and perhaps more thoughtfully than the average guy. A free person and/or a free business can invest time, effort, ingenuity, creativity and money in the development of new and better products, services, businesses, practices, etc.

Measuring wealth inequality by comparing so called income classes with the most affluent classes of society is the wrong metric.  There will always be differences in income and wealth in an economically free nation.

With the exception of inheritance (private property rights), a person gets rich by demonstrating excellence in a free-market, free-enterprise, private-property economy – which is always in search of the best talent, goods and services. An excellent performer will always be in demand – have a better offer – a better opportunity – and thereby earn a superior income.

The demand for excellent performers has minimal negative effect, if any, on society’s subordinate economic classes.  In fact, more often than not, the exceptional man or woman will bring superior performance to his institution, practice, and the markets he/she serves. So the folks down the line benefit from the superior goods and services that result from the outstanding person’s effort and investments.

It seems to me that income fairness in free enterprise nations should be measured against previous generations in the same socio-economic class. How many hours do they have to work today compared to previous generations to secure the goods and services they desire. 

Middle-class and lower-class people live far better today in free-enterprise nations than they did, say, 50 years ago. Most “stuff” produced by private enterprise is simply more affordable today because of competitive innovation and economic forces. For example, cars today, new and used, are far superior to new cars of the past. And most of the poor in western societies have one or two automobiles, heated homes, refrigerators, washing machines, color TVs, cell phones, computers, educational opportunities, etc.

Liberal-leftists (de facto Marxists) simply don’t get it.  When government taxes workers – and pays non-workers – a nation get more non-workers. The USA, for example, now has 22 million unemployed and underemployed workers as a result of welfare-state, government handouts. This strategy is wrong!  Government policy should make poor workers rich – not the rich workers poor!

The prosperity of any nation is the result of its collective productivity and excellence – less the cost of government and nonproductive entitlements – as measured in non-inflated (constant) dollars.  Competitive, free-market, free-enterprise, constitutionally limited government and human Exceptionalism are the keys to class prosperity.

Emphasis on economic-class inequality is the wrong priority.  A nation’s emphasis should be on increasing productivity, innovation, entrepreneurship, private investment and excellence.  That will produce the good paying jobs and prosperity that our world needs.
Keeping money in the private sector where it will be quickly spent and passed along (monetary velocity) and/or invested – is the best way for a nation to enhance its economic vitality.  

Empirical experience has clearly demonstrated that the keys to a flourishing economy; plentiful good-paying jobs; and individual prosperity for the greatest number – is a competitive, free-market, free-enterprise, balanced-trade, entrepreneurial, innovative, personal-initiative, profit-motivated, moral, law-and-order, low-tax, decentralized economic and political system – where private companies and public enterprises exist, and people freely produce, to meet the needs, wants and expectations of their customers, clients, employees, suppliers, communities, creditors, shareholders, and the handicapped and future generations.  And this must be accomplished at a price/cost ratio sufficient to support the ongoing and balanced needs of their free-enterprises and their suppliers – and adequate to provide investors and creditors with an attractive return on their invested capital – and sufficient to offset the implicit risk of supporting the financial needs of businesses and their stakeholders.

Even so-called nonprofit institutions must produce a surplus to grow and survive. In the absence of an operating surplus (tax-free profit), these institutions are dependent upon charity and/or government subsidies.  “Nonprofit” is a politically deceptive myth.

Free market, competitive, Constitutional Capitalism is a time-proven economic and political system that benefits the greatest number.  It is based on freedom, natural law, and the private ownership of the means of production and distribution of goods and services. It is characterized by free, competitive markets, motivation-by-profit, and safety nets for those who cannot care for themselves.

In a de facto Marxist/Socialist oriented economy, many of these functions and forces are taken over by centralized government elites, academics, bureaucrats, and complacent job-fillers, who can’t possibly provide the collective wisdom, experience and motivation of liberated businesspersons, entrepreneurs, innovators, and workers – producing in a competitive, cooperative, free-market, free-enterprise, low-tax, private-property, “sky’s-the-limit,” financially responsible, Constitutional, Capitalistic economy.

Unfortunately, much of society today – apparently, including our beloved Holy Father – has been inundated by much of the Marxist, class-oriented philosophy and ideology promulgated by the leftist media. Marxism, Communism, Fabian-Socialism, etc. have hideous track records when compared to competitive, free-market, Constitutional, free-enterprise.

Image: Courtesy of: http://research.blogs.lincoln.ac.uk/2011/11/09/esrc-demand-management-consultation-favours-researcher-sanctions/

William Pauwels
William A. Pauwels, Sr. was born in Jackson Michigan to a Belgian, immigrant, entrepreneurial family. Bill is a graduate of the University of Notre Dame and served in executive and/or leadership positions at Thomson Industries, Inc., Dow Corning, Loctite and Sherwin-Williams. He is currently CIO of Pauwels Private Investment Practice. He's been commenting on matters political/economic/philosophical since 1980.