Socialists, and Frenchmen, Should Leave Economics to the Grown Ups

Michael Schaus
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Posted: Jun 04, 2014 12:01 AM
Socialists, and Frenchmen, Should Leave Economics to the Grown Ups

The French Economist (is that really a thing?), Thomas Piketty, has been touring the television circuit promoting his 21st century reincarnation of Karl Marx’s “Das Kapital”. But, leave it to a Democrat from the People’s Republic of Massachusetts to one up the Frenchman with a penchant for progressive fiscal policy. Elizabeth Warren – who also penned an intellectually bankrupt analysis of income inequality – described Piketty’s book, Capital in the 21st Century, as an explanation of how capitalism punishes the poor while rewarding the rich. She then explained, with an obvious abandonment of common sense, that wealth “trickles up” in the free market.

Being sure to lampoon the economic success of Reaganomics, Warren explained that we (I can only assume she means everyone on planet Earth except, apparently, for us right-wing nuts) have learned that “trickle-down economics” doesn’t work. “Wealth” she explains, “trickles up.”

Trickle up economics… Now that is an economic theory that only a rich liberal could embrace with any sincerity. Warren’s precarious grasp of reality must have been hugely influenced by the liberal bubble in which she seems to be ensconced. Because, unless I am very out of touch with modern economics, poor people are still not the primary employers in America.

Of course, this is the absurdity of Keynesian philosophy mixed with European socialism. Warren’s comments are (and, to be fair I’m kinda guessing here) based on the notion that poor people, and middle-class America, are the main consumers in the economy – therefore it is their hard earned (and well spent) dollars that profit the business owners, corporate CEO’s, and Wall Street investors… Which, really, is about half of the picture:

Consumption certainly does drive the economy to a certain extent; but all consumption is a function of wealth. Wealth is generally accumulated through employment, which is a function of a business’s ability to hire workers to fill a demand… And, in order to hire more workers, businesses and corporations must make profits. And profits generally correlate to higher wages for executives and greater value (read: capital gains) for investors. In other words: Wealth creation and jobs are both symptoms of economic prosperity, but jobs cannot be created without the wealthy first investing in labor.

After all, the guy making $8.00 an hour to flip burgers probably doesn’t have the capital to start up a business, or finance a renovation of his home. But if he has a degree in business management (and, let’s face it: It’s an Obama economy – so he very well might have a degree in business management), some capitalist might be willing to invest in his start-up, or help him renovate his home for a profit on its sale. (Which Warren probably knows something about, given her history in flipping houses.)

Although, to be fair, Warren’s “trickle up” theory isn’t really her fault… I mean, she’s a liberal academic hack who has gotten wealthy primarily off of the backs of taxpayers and exploiting vulnerable low-income consumers. Her ignorance of economic reality was on full display before she even mentioned the phrase “trickle up”. With her first utterances of praise for Piketty’s book, she explained that under capitalism, the rich get richer while the poor get poorer.

And, basically, that was the thesis of Piketty’s book. Which is why the French should stick to wine and smoking, and leave the grown up things (like modern warfare and economic policy) to the rest of us. After all, it’s easy for a Frenchman to become a socialist. In Europe, the history of wealth creation has been a history of oppression and exploitation. In Europe, the aristocracy remained wealthy – from generation to generation – until their castle was conquered, or the peasants revolted. (Wait… You’ve seen History of the World Part I, right?) But that is not the history of America, or Capitalism.

In America, wealth alone does not guarantee a dynasty. In fact, income mobility is the single greatest facet of free-market capitalism. What enables innovation and ambition, is the fact that such traits are rewarded regardless of the economic circumstances that are inherited from generation to generation. Put simply, being born into a class in America (and most modern European nations) does not render that individual to a life of servitude. The son of a mechanic can become a doctor. The daughter of a janitor can become a software engineer. Likewise, wealthy families can quickly find their riches dwarfed by innovative entrepreneurs and savvy professionals. True generational income mobility is only possible in a system that rewards success, and allows wealth to accumulate faster than the rate of inflation, or economic growth.

But the notion of the “rich getting richer” isn’t nearly as intellectually bankrupt as the claim that, under capitalism, “the poor get poorer”. Elizabeth needs to go on a few field trips around the world before she starts talking about the plundering of the impoverished in America. To say that capitalism makes the poor poorer is patently absurd when you consider that the poorest Americans are better off today than they were in – say – 1820. For example, they have shoes. And a place to live. And, according to the US Census: a TV, a game console, a car, a cell phone, a stove, running water, a refrigerator, heat, air-conditioning, cable TV…

The poorest souls in America live far better than almost all individuals in nations with strong redistributive policies. (Consider Cuba, North Korea, Venezuela, etc.) If you want to see what real poverty looks like, visit the “bottom 10 percent” in nations like Russia, or China. (Both of which have high levels of millionaires as well.) In Piketty’s book, he conflates capital with income, to skew the numbers in favor of his argument. And liberal political opportunists – such as Elizabeth Warren – are more than happy to exploit his narrative for their cause. (For a more in-depth look at the degree to which Piketty fudged his numbers, I suggest you skim this Forbes article on the topic, or take a look at this article from the Financial Times.)

Besides the obvious deficit of intellectual honesty in the liberal complaints against capitalism (well… It’s obvious to some of us), we should probably ask a pretty basic question: Does redistribution really solve wealth inequality? Does making someone comfortable in poverty (which is essentially what unrestricted welfare, food-stamps, and OBAMAPHONES, tend to do) really help close the gap? Judging by America’s most liberal jurisdictions, the answer is a resounding “no”.

Income inequality has risen under the economic stewardship of Barack “Spread the Wealth Around” Obama. New York City, the progressive haven that just elected a socialist mayor, is one of America’s leading examples of income inequality. Chicago, LA, and even Detroit show large gaps between the wealthy and the impoverished… And all of those examples have been run (in some cases, for generations) by people like Elizabeth Warren.

Milton Friedman once said that “underlying most arguments against the free market is a lack of belief in freedom itself.” And I will go one step further: A failure to believe in freedom is, at its core, a lack of faith in individuals. People like Piketty, or Elizabeth Warren, don’t believe that the average person is capable of achievement. They believe individuals are fragile and uninspired drones that allow themselves to be exploited and victimized by the rich and the powerful. (Although, I do think that explains a large swath of European socialist.)

Of course, who could blame them? If I was surrounded on a daily basis by socialists from Massachusetts or France, I’d probably lose faith in people as well.

Now, for a refreshing defense of American capitalism, please consider Kevin O’Leary from CNBC’s Shark Tank: