TIME WORSTALL HITS THE SPOT YET AGAIN

Tim Worstall with his characteristic clarity hits out at common concerns with ‘inequality’ - the ’’99 to1” syndrome - whereas I for one consider it more relevant and better targgeted to be concerned with addressing actual poverty in any society rather than its inequality  

Here is Tim’s take (12 June) on the Adam Smith Institute's Blog HERE :

“As we've noted around here before, Venezuela's problems do not stem from the inequality in that country, rather from the silly, even pig ignorant, methods they've tried to use to reduce that inequality. Similarly Sweden is both more equal and competitive because they do two things right. Firstly, underneath the tax burden, they run an intensely classically liberal economy and secondly, they raise that monstrous amount of tax revenues by taxing consumption, not capital or corporations.

Which leads us to two observations: the first being that we don't actually have any evidence that inequality harms the growth prospects of the economy. The second is that even if it does whether reducing that inequality will reduce the performance of the economy depends upon precisely how we reduce the inequality. We might try price controls, rationing, import substitution, nationalisation, the Venezuelan route, or we might try a properly free market economy with a high VAT to give us the money to redistribute, the Swedish way. That latter works, in that the country is more equal (if that's something you want to worry about and we don't) and also remains competitive. The former doesn't work in either sense: but sadly if we look around UK politics we see those concerned with inequality arguing for those Venezuelan policies rather than those Swedish ones.

Which end of the political spectrum is said to be the evidence based one again?”

Comment

If you select a target you are also obliged to identify the means of addressing the issues implicit in the alleged problem. That is where choosing the wrong target is self-defeating.

I have no doubt that the inequality warriors are sincere about addressing their identified problems.   But if their solution makes the problem worse, not better, it is time to think again.

In Venezuela the government’s measures do not address the significant problem identified as the consequence of inequality.  In fact there is little doubt that poverty remains a stubborn fact of life for both existing and newly created poor Venezualians.  Deliberately creating equality in a poor economy, even with the windfall of a valuable natural resource like oil, reduces scope for the major factor that could contribute to disarming its levels of poverty which always worsens the situation they want to address.

Shooting the existing rich, as in the murder of the Kulaks in the early years of the Soviet Union, led to famines, an awful indicator of worsening poverty.  The country needed more food; it got less.  Moreover, food shortages exacerbated poverty in the towns too and again it was the city poor that suffered the biggest burdens of poverty.  The so-called dash to communism in Mao's enforced Communes worsened the lives for hundreds of millions.  Any socialist satisfaction that the ‘rich’ deserved what they got was hardly compensated by any victories over poverty.

In modern market economies, assaults on the conspicuously, well-heeled owners does not reduce poverty by creating more goods and services which the only route to reducing poverty - it creates fewer goods and services than before and does so in conditions where principles of liberty are downgraded and most unresponsive bureaucrats take charge, creating nothing but more misery than was evident before.  

The market is the route to consistently higher and more widespread production of desired products out of which, as the people who labour acquire incomes from working itself and from innovation across all levels of production and from their involvement in old and new divisions of labour, come rising living standards and falling real prices.  As the young are educated (not ideologically indoctrinited with failed ideas) their access to new ideas and better ways of doing whatever their participation in the consumption society requires, be it super high-tech or simpler ways of producing or servicing what people are prepared to pay for, drives the means to reduce or eradicate poverty.

Many consequential changes have occurred in China since market producion forms have been allowed.  Millions lifted out of poverty - many Chines still poor by Western standards but no longer suffering the extremes of pre-market poor Asian societies.

There is still a very long way to go. There is no magic-wand that can make social changes go quicker.  It’s a trans-generational route to lasting changes.  Once started it gains its own momentum, provided the ruling authorities allow markets to self-generate and to be honestly governed.  

Progress against poverty will in time tackle inequality.  However, state intervention driven by ideology worsens poverty without removing, or even reducing, inequality.  Of one thing we can be sure, Venezuelian actions against inequality will simply ruin those of its citizens formerly in its upper 10 percent and replace them with a new well-heeled 10 percent of politicised bureaucrats and commissars,  some well-meaning no doubt, others exploiting the temporary personal rewards of being in charge of bureaucratic rent-seeking bodies in a slowly sinking and failing ship of state.