Government Exacerbates Income Inequality

President Obama thinks income inequality is the biggest problem facing Americans. The Pope thinks it’s the most important issue in the world. The two men recently met to discuss it, but if they were honest, the solution would be readily apparent to both of them. Obama’s policies, and the economic policies of all governments, create the outrageous income inequality we see around the world today.

Still, income inequality is far from the worst problem facing society. For example, income inequality in China today is far greater than it was when Mao Zedong killed 65 million equally poor people in his Great Leap of Mass Murder. Obama is a great demagogue of income inequality because it benefits him personally. The reality is older people tend to make more money because they’re more skilled and they tend to have amassed more wealth because they’ve worked longer. If government hadn’t broken our economy, young people would do the same.

There’s nothing inherently wrong with income inequality when it’s based on merit. Every individual is unique, with different strengths, weaknesses and priorities. In a free market, better businessmen would make more money than worse businessmen, and business owners would make more money than workers in general in because business owners incur more risk than workers. More skilled workers would earn more than less skilled workers in general because there would be a smaller supply of higher skilled workers. The incentive of earning more income based on merit would create an environment of generally increasing productivity that would benefit everybody.

At the same time, no business owner would earn outrageously more income than others, at least not for long, because as soon as they did, competitors would enter the market to take a share of those profits until unrestrained competition lowered the profits back into the normal range.

On the other hand, it’s grossly unfair when government uses it power of coercion to enrich some at the expense of others, but that’s the only reason government as we know it exists. It’s a law of economics that taxes and regulations benefit the richest by protecting them from competition because their big businesses can absorb the additional expenses better than smaller competitors. Taxes, regulations and printing money are the tools government uses to create giant banks, corporations and the fantastic salaries of the plutocrats while making everybody else poorer. The problem of income inequality Obama pretends to care about is caused by US government interventions in the marketplace that keep the economy from being a meritocracy, and Obama is the worst interventionist of my lifetime. Bush the Younger was the worst before him. The more government intervenes, the wealthier the plutocrats get. It has nothing to do with partisanship. It’s the nature of all coercive governments at every level.

The Mises.org blog identifies Obama’s policies as one source of income inequality, “He has presided over corporate bailouts, not only declaring the Wall Street banks too big to fail, while a multitude of small businesses did fail, his policies continue to support the banking industry through low interest rates and the payment of interest on reserves held at the Fed. Banks holding bad mortgages were bailed out while individual homeowners were evicted from their homes.”

Economist George Reisman writes of another source, “Credit expansion is responsible for sharply increased economic inequality, in which the wealthier strata of the population appear to increase their wealth dramatically relative to the rest of the population and for no good reason.” All central banks including the Federal Reserve (Fed) expand credit by counterfeiting funny-money and handing it out to their big bank cronies. The Fed is a quasi-private entity whose owners are secret, but run primarily by political appointees. It was created by Congress for the benefit of the government and plutocrat bankers. Because it is a legalized counterfeiting organization, it could not exist without government.

So-called intellectual property rights - patents and copyright - are another source of income inequality government uses to quash competition, artificially enriching giant corporations by raising prices for consumers. Patents are described as grants of privilege, but they’re better understood as bans on competition. They are grants of monopoly. Government creates monopolies, not the free market. Patents and copyright create high tech, music and movie plutocrats.

The defining issue of our times is economic freedom or, since every decision is an economic decision, freedom. Countries with greater economic freedom invariably enjoy greater prosperity, security, health and happiness. They also invariably enjoy greater economic growth. Economic freedom in the US fell under Bush and plummeted under Obama. The Heritage Foundation ranks US twelfth in economic freedom in 2014, below Estonia. 63 percent of Americans believe the country is going in the wrong direction, and this collapse in economic freedom is why. All you have to do is look around to see Americans were better off when we were more free. When the debt bubble collapses, we’ll realize how bad income inequality really is. We’ll be stuck with a modern version of feudalism much like survivors after the fall of Rome.