Random House, 400 Hahn Road, Westminster, MD 21157 1990 • 262 pages • $19.95 cloth
Don’t let the politicians and economists confuse you. There are only two moving parts to our economy. One creates wealth. The other just moves it around. The first part is made up of people buying and selling goods and services in mutually agreeable, mutually beneficial transactions. Everyone wins, nobody gets hurt, and wealth is created. This is the part of the economy where, as Murray Rothbard says, “The greater a man’s income, the greater his service to others.”
The second part of our economy doesn’t create wealth. It moves wealth around by force. When a thief moves money, we call it a crime. When a politician does it, we call it government policy. In this part of the economy there are winners and losers, and each transaction is accomplished by coercion. Here, the greater a man’s income, the greater his ability to force other people to give him money. The most violent disagreements in crime and politics are about dividing up the loot.
This simple, two-part economic system means there are two ways to accumulate wealth: you can earn it or you can steal it. Unfortunately, too few people make the distinction. A primary case in point is Kevin Phillips, author of the best-selling The Politics of Rich and Poor.
Phillips cites lots of statistics trying to prove that there is a growing disparity between rich and poor. He argues that government policies redistributed income from the poor to the rich during the 1980s. The problem is he never distinguishes between the rich who earned their wealth and those who had it redistributed to them. And that’s a big difference.
Phillips assumes that all wealth comes at the expense of the poor via government policy. This assumption isn’t just unfair, it’s absurd. And it’s too bad, because the point he’s trying to make is emotionally appealing and morally correct: government should not take money from the poor and give it to the rich.
Most of us would agree that it’s immoral for the government to plunder the poor for the sake of rich. But it’s immoral to steal anything from anybody, rich or poor. The bottom line is that government policies shouldn’t redistribute wealth up or down the economic ladder. Rich and poor people should be allowed to keep what they earn, and give away what they want.
Now if government policies were the only way to get rich, Phillips might have a point. But remember that new wealth is not the result of government intervention; it springs from creativity, service, and risk-taking. Lots of wealthy people earn their money by serving others. How can anyone justify taking money from them, or anyone else for that matter?
Phillips tries to strike an objective, analytical tone that hides his biases against free enterprise, rich folks, and Ronald Reagan. And he is really after Reagan more than anything else. The whole book seems designed to pin income inequality on Ronald Reagan. Perhaps the Reagan Administration did redistribute income—that’s what politicians do—but to imply that government policies moved all the wealth to the rich is nonsense. Many people made money in the 1980s because they worked hard, not because some bureaucrat had his hand in a poor person’s pocket.
Phillips just doesn’t understand free market economics. His ignorance is especially obvious when he constantly confuses the term “capitalist” with “Republican.” Some Republicans are capitalists (so are some Democrats), but not all capitalists are Republicans. Phillips never takes the time to make an intelligent distinction between these terms. He just lumps Republicans and capitalists under one label, even though he admits that Richard Nixon followed a rather populist set of policies, and it was Jimmy Carter who started the process of deregulation.
Another example of Phillips’ misunderstanding of economics is when he calls a tax cut a redistribution of income from the poor to the rich. Clearly, when the government lets rich people keep more of what they earn, that doesn’t mean it is taking money from poor people.
This book is flawed because Phillips condemns the worthy with the unworthy. But to condemn the productive part of our economy for enabling people to become wealthy is bad economics and misguided public policy.
Mr, Rast is a financial advisor with Prudential-Bache Securities and a Fellow of the Committee for Monetary Research and Education.