Piketty, Poverty & Politics / The ideological corruption of scholarship and philanthropy

Bloomberg Business Week cover from May 2014 Editor admits having Wealth-Inequality Fever

Bloomberg Business Week cover from May 2014
Editor admits having Wealth-Inequality Fever

The Left has a new economics Svengali, and his name is Thomas Piketty.  He claims to believe in capitalism, but his utterances make plain his belief is in something other than free-markets.  Admirers have taken to wearing tee-shirts emblazoned with the symbols ‘r > g’ in support of his wealth-inequality warnings.  Like Keynes before him, socialists praise Piketty because he validates strongly held negative beliefs regarding capitalism: its presumed failings and demands for strict controls.   Among those are: need for greater market regulation and taxing the rich so as to discourage profiteering.   Piketty’s key assertion is that the rate of capital return is sufficiently greater than the rate of economic growth (i.e., r > g) that that is causing wealth-inequality to soar, and that this ‘problem’ (i.e., inequality) must be corrected if our economy is not to implode.  His prescription for averting this calamity is to redistribute wealth via a globally imposed wealth-tax.   So enamored is the radical-Left of Piketty’s inequality warnings and prescription for avoidance, they accept his contention inequality is inherent to capitalism, and that this inequality represents a major societal threat without ever examining his supporting premises and proofs.   Nor, do they take any notice of the growing list of respected economists contradicting him, his book, his bias, and his data-handling.  Regardless of critics, Piketty has found great favor among heads of state who, even now, are advancing his global tax proposal.

Disclosure: A complaint made of Piketty critics is that few have bothered to read his 700 page book.   I have not read it nor intend reading it.   However, I have read the working paper he wrote together with Emmanuel Saez.   I have also read various interviews of him, articles written by him, and articles by others faithfully presenting his arguments.   He does not claim his book contains any greater evidence, new ideas introduced, nor conclusions reached than these provide.   From what I gather regarding the book, its factual parts could have been reduced to a paper and his ideas to a chapter; making the whole rather tedious reading to anyone not already of his convictions.  I make every effort throughout to avoid misrepresenting the man, his work and his opinions.

Wikipedia identifies Piketty as the “son of Trotskyite parents” who became “… a firm ‘believe[r] in capitalism, private property, [and] the market”.   Notably, it reveals this transformation from Trotskyite scion to money-grubbing capitalist was occasioned by a 1991 visit to the then collapsing Soviet Union.  However, it also reports he was (in 2012) an advisor to a (French) Socialist Party candidate, advised Britain’s Labour Party (i.e., center-Left, 2015), and sometimes writes for two left of center journals (Libération and Le Monde).  This identifies him as one of those influential socialists who coincidentally believes in capitalism (given only that it is strongly regulated and serves a socialist agenda).  This pairing of socialism with capitalism goes back to at least the mid-1980s at a time when socialism was in retreat.  Margret Thatcher famously remarked the “… problem with socialism is that you eventually run out of other people’s money”; which fairly identifies the cause of their distress.  They could hardly deny the truth of her observation as Western economies (not just communist countries) were reeling from socialist excess: over-regulation and punitive taxes, scarcity and rationing (e.g. Carter’s gas lines, Soviet wheat), economic bubbles growing larger and more frequent, the savings & loan crisis, rebellion in Poland, Glasnost & Perestroika, the Soviet Union’s rapid disintegration, China opening its doors to capitalists (to stave off a similar crisis), Cuban boat-people fleeing the worker-paradise, and socialism falling into disfavor globally; all within a single decade.   By acknowledging socialism alone did not work, at least some on the Left broke with their ideological past, a past in which capitalism had no place.  They did not so much renounce socialism as look for ways to salvage it, however.  

What they came up with was a new strategy in which capitalism was allowed a minor role refashioned to fit the socialist agenda.   It was less a partnering than a yoking.   Bill Clinton was a major promoter of this idea, and helped recast capitalism’s role into that of a cash-cow for funding socialist programs.   The late-80s and early-90s were a great time for the Clintons, but a bad time for socialists generally.   The remaining problem for these so-called ‘centrists’ was how to sell this concept to their more radical brethren without alienating them politically.  Marx provided the answer in that he regarded capitalism a necessary, if temporary, expedient.   This new paradigm is tolerated then to the extent it serves the agenda, but no further.   In this, it operates much as crown princes of old licensed trade they could not directly control; a sort of new-age ‘mercantilism’.   This idea has since spread to hardcore socialist and even communist countries, some of whom have profited from the idea, though not always with such noble intentions and results as the West’s peculiar variety of ‘soft-socialists’.  

Piketty appears to be cut from this revisionist cloth.   He was doing doctoral work around that same time (early-1990s), so probably imbibed this socialized-capitalism idea as an undergraduate.  It apparently led him to seek ‘scientific’ trappings with which to adorn and advance the idea among likeminded socialists.  It would also have helped him reconcile his hardcore socialist upbringing to capitalist virtues.   No doubt, he was mindful of the Soviet collapse, perhaps giving us a clue to his research direction (i.e., what might cause a similar collapse of Western capitalism).   It is doubtful his faith in capitalism was ever very strong, and certainly isn’t now.   Like all socialists, he clearly regards unregulated markets a danger not to be entirely trusted.   Thus, he set out to prove two seemingly incongruent ideas: a) capitalism is safe enough if well-controlled and, b) capitalism is a time-bomb otherwise.    

Piketty’s book and public statements are peppered with terms common to the Left; among them: ‘income-inequality’, ‘capital hoarding’ and the much reviled ‘one percent’.   Those are used both as code words and justifications for redistributionist tax policies as punish wealth and discourage investment.   They identify him as anti-wealth however much he denies being anti-capital.  His Marxist followers strongly concur in his notions of structural injustice and inequality begets poverty.  His argument is that, uncorrected, capitalism does more harm than good by concentrating wealth into too few hands over time; eventually reversing capitalism’s initial beneficial effects.   To radicals, capitalism is beyond redemption, yet they support Piketty because his message aligns well with their own, and forces the rest of us in a direction they favor.   They go much farther than him, of course, in denouncing profit (not just its concentration).  Piketty is more favored among social ‘centrists’, especially those currently shaping governing policies.

Piketty describes wealth-distribution over time as having a U shape, and predicts an ever shrinking jobs base as wealth returns to pre-WWII levels.    He acknowledges free-markets generate wealth and increase opportunities; but only at first and for a while, after which (he says) wealth flows the other way, concentrating into fewer hands, and resulting in a political elite with an unhealthy interest in preserving its own wealth and power.  He argues this concentration ultimately drives wealth away from production and toward ‘hoarding’ and fewer jobs.   From there, he jumps to advocating extreme taxation of the super-rich and wealth-redistribution as the only or best means of putting ‘hoarded-wealth’ back into circulation as makes the economy more ‘sustainable’.

Unlike his radical following, Piketty does not associate capitalism with poverty other than in a weak structural sense (which he believes avoidable).   He does, however, hold capitalism-sourced wealth-inequality accountable for both middle-eastern poverty and terrorism; and, believes that that somehow spawned ISIS.   His critics say his work is riddled with broken threads, and his historical-political-sociological analyses are similarly broken.  The main problem with his thesis is few terrorists are poor, and Islamic terrorism dates back some 14 centuries to a time when monetized wealth was much flatter and well before capitalism can have had any influence.  It is true ISIS (and other fundamentalist groups) prey on and recruit from among the poor, but this is no different from other periods in history in which the poor provided cannon fodder for wealthier belligerents, and for which capitalism can have had no part.  Islamic fanaticism against others (including many poor countries) cannot, therefore, be attributed to capitalism induced income-inequality as drives some to murder and terrorize infidels, all the while defending super-rich oil-sheiks as embodiments of true faith. 

Piketty and his ideas are, in part, an attack on the Reagan-Thatcher tax-cuts and market deregulations of the 1980s, policies he regards contributors to ‘the dilemma’ now facing us.  Piketty favors greater market regulation because he thinks it is necessary to keeping markets healthy and Western political systems democratic.   He frets wealth-concentration begets political concentration and usurpation by the super-wealthy.   This last item, ‘political-inequality’, appears to be his primary worry.

The key phenomena Piketty cites in evidence of this political-concentration appears disconnected from reality.  Contrary to what he believes about inherited-wealth, the super-rich currently and increasingly exhibit a high turnover rate; not a lower rate as we’d expect for his wealth-inequality begets political-inequality assertion to hold.   Moreover, he fails to consider, eliminate or correlate factors other than wealth-concentration (e.g., illegal-immigration, deregulation, outsourcing, &c) as possible alternative explanations for some or all of his findings; and that is just not good science.   Poverty historian Dierdre McCloskey says of him In focusing solely on the distribution of income, he overlooks the most surprising secular event in history: the Great Enrichment of the average individual on the planet by a factor of 10 and in rich countries by a factor of 30 or more.  Many humans are now stunningly better off than their ancestors”   McCloskey’s own analysis makes clear the Industrial Revolution was also an economic revolution, one in which, for the first time, population and wealth increased together and per-capita wealth greatly outpaced population.   For example, from 1780 to 1860, British per-capita wealth increased twelve-fold.   Even if there is some truth to his wealth-concentration prediction, the degree of loss that represents to the poor and middle-class counts for little when compared to these kind of gains from where we started.

Dubay and Furth (Heritage Foundation) dismiss Piketty’s wealth-concentration assertion altogether.   They contend there is no strong evidence it has been rising.  They further state his model is poorly supported by his own data, and that there are better existing models to which the data can be fitted.   They report Piketty inappropriately blended productive with non-productive capital (e.g., personal property) in his study, that that grossly inflated his capital-to-income ratio, and it is that which produces his U-shaped data plot.  They say that, correctly fitted, the data show no upward tendency at all.  FEE’s Phillip Magness goes farther by saying Piketty’s key graph supposedly validating his U-shaped discovery is a patchwork of partials taken from his and other studies, and then arranged to arrive at a particular conclusion.  Finally, his failure to include depreciation in his ‘Second Law of Capitalism’ makes it improbable he’d get any result other than the one he did.

What I gather from this is Piketty, et al, did not so much discover an inequality as set out to prove it was there; which is not how science is generally done.  The scientific method has four steps:

  1. observe & describe the phenomena
  2. form a hypothesis to explain phenomena
  3. use hypothesis to predict existence of other phenomena or results of new observations
  4. test predictions using independent experimenters following properly defined protocols

Piketty appears have started from step 2 (formed hypothesis) before making any observations or describing what he’d observed.   It is, moreover, unclear he successfully completed steps 3 and 4, placing his work in the preliminary stage with much still to be done.  Piketty, et al, have drawn a number of conclusions for which there is no objective evidence (i.e., inequality is bad).   So the only thing he has really shown is that wealth-inequality may be a little greater today than it was at the end of World War II, and that that may be somewhat structural.   Yet, even that may turn out to be false if his critics are correct.

Since not all wealth is directly measurable, it is unclear wealth has become concentrated at all.   If wealth is instead measured by things we can access, possess and treasure, how we live, and the kinds of opportunities we have for enriching ourselves further, it is more likely wealth is distributed more evenly today than it was at the end of WWII (regardless of cash values), and far more than at any earlier period.  Yes, the super-rich can fly to faraway exotic places in private jets, but most of the rest of us can get there too, and in a manner and with such ease our parents would envy.   My dad visited many lands as a sailor in WWII, but mom and most of her generation could only imagine such places.   Her grandkids have seen far more of the world than she, and think little of taking bargain junkets to Paris, Tokyo or Cayman Isles.  Even our poor take occasional vacations to Cancun, Las Vegas and Hawaii that were the stuff of dreams in 1950.   To give another example, rich people own cars most of us envy.  The same was true of the 1950s super-rich.   Note, that while most of these earlier cars were far above of my dad’s price range, restored versions of them are not out mine, and some of them can be found in Havana driven by shopkeepers and tour guides.   Less obvious is that many advanced features of those early super-rich cars found their way into modestly-priced cars within a decade, and almost every car within two decades; features like fuel-injection, electronically-controlled engines, anti-lock braking, electronic emissions (ECM), aerodynamic bodies, better handling suspensions, cruise-control, electric windows & locks, rear defogger/deicers, self-diagnostics (OBD), air-bags, tinted-glass for greater visibility, smart-keys & remotes, and LED lighting.   We take such features for granted today, but most of them were only found on the most expensive cars of the 1990s, and were unheard of in 1950.  These are but two examples, but others abound.  This suggests we are more equally affluent today than in 1950 when Piketty asserts we were more equally poor.   Piketty’s study does not attempt to address this kind of intangible wealth or its speed of dissemination.   The rich may have more money with which to fly around, influence politicians, and show off, but their advantage is more a case of rich-man’s toys.   There is little they have we don’t or soon will have also.  Wealth today is not only greater, its effects are more evenly distributed to more people than at any other time or under any other system thus far devised.

Returning to Piketty’s main complaint regarding wealth-(cum-political)-inequality, he believes the rich have a disproportionately greater political say as a result of capitalism, and that that is getting worse.   He is correct the rich have a greater say individually in our affairs than we have individually.  I agree with him this ‘political-inequality’ is an unfortunate aspect of our system, but disagree as to its causes and remedies.   It should be noted, however much some few may dominate our system, the domination is still less than can be found under any other political system, and that includes those socialist systems Piketty favors.  

Piketty must be challenged on his one-percent dominance assertion.   Is it really untrue the one percent of today have greater dominance than did the one-percent of half a century ago?  It has always been the case our leaders and people of great wealth have had greater voice than most of us (both individually and collectively).  But, that is also mitigated in large part by the rich falling out among themselves as much or more than they do with us.  As Madison showed (Federalist #10), the larger the pool of people, the relatively smaller is the voice of most of those within it, the more our political voice becomes expressed through alliances (factions), and the more these subgroupings tend to be led by those having the resources, time, energy and/or will to devote to politics.   This is less a question of wealth than how many can hold a conversation at one time and it not become unintelligible.  It is also a matter of social behavior that few are, at any given moment, all that attentive to politics.   That is because we have other things monopolizing our time and attention.  So, even in a republic where democracy is both practiced and practical, a mere handful will dominate the conversation.   What makes it democratic is not that we all participate equally, but that we have an opportunity to participate; and this is so whether in equal or less than equal measure.

What Piketty argues, however, is that wealth is stealing what little political voice we had before, and not the simple dilution I describe above.  He assumes we would individually have more say and would participate more if not for the dominance of the rich.  He argues the rich have become more dominant in the aggregate, that that is proportional to expanded wealth, and that the super-rich conspire against the rest of us to further usurp power.   But, is that really true?   Will the Koch Brothers find they have so much more in common with George Soros they willingly join with him against us?   Madison’s observation regarding factions in large republics holds regardless the combinations of parties are defined by wealth, race, gender, objectives, class-solidarity, greed, ideology or some other variable.  Even greed sprouts from a thousand enterprises, and many of those enterprises find themselves in conflict with others over which policy to favor.   Even among equally sized competitors there are notable differences of political opinion (e.g., Ford opposed bailouts).  

We know ours is a more ‘democratic’ society today than it was before capitalism.   In fact, it is more democratic than it was in 1950 (a critical date in Piketty’s calculus).   How do we know this?   We know because more people have been rendered eligible to participate in the political process.   Many more are able to vote in our elections (some of whom are not even citizens) who were not then eligible, and some of those belonged to poor or economically disadvantaged groups.   Since 1950, we have passed the 23rd (DC voting rights), 24th (no polling tax), and 26th (18 year-old vote) Amendments to the Constitution; plus the Civil Rights Acts of 1957 (Civil Rights Commission), 1960 (federal inspection of polls & penalties) and 1964 (unequal application of voter requirements).   Since 1950, blacks, Asians, women and gays have joined the ranks of lawmakers and governors (many of them disproportionately representing the poor, minorities and labor).  We now have a black President and a woman just ran for President.   Many of our cities are run almost exclusively by racial minorities.  Government employs proportionately more minorities than does the private sector, thereby increasing minority influence within our public affairs and generally favoring entitlements.   Unions, media bias, educational system bias, and public opinion greatly favor the poor over the rich in our political calculus.   All of which shows there is greater political participation by populations historically identified as ‘poor and disadvantaged’ and proves it is the poor, and not the rich, who have gained the most politically under capitalism since 1950.   For Piketty’s theory to hold, the poor would have lost rather than gained ground (especially during the final 20 years) in the period under his study.   And, this is as untrue of Piketty’s European Union as it is here.  Those of us who lived through this period can attest to the greatly increased political sway of the poor within our lifetimes.   In 1950, minorities had so little political say they were all but invisible; and poor minorities far more so than middle-class minorities.   Today, we can have almost no political discussion that does include the poor and minorities, and must even genuflect to them.   If the poor lack coherent voices, it is not because they lack political capital or energy but because they lack a coherent program, one that seriously addresses the problems facing them.   Thus, it is not that Piketty is entirely wrong; it is that he is insufficiently right that we should acquiesce in his findings.

Blaming capitalism for poverty began with Blanc, Proudhon, and Karl Marx in the mid-1800s.  Those early socialists did not have to exaggerate poverty of their time, but modern socialists do, else find little with which to justify the intense loathing of all things commercial.   Piketty is a product of that teaching, one who uncritically embraces the assertion of an inherently unjust economic system.   Inequality is not poverty, but that is what the Left believes and implies by the ‘income-inequality’ meme, a meme Piketty abets whether consciously or not.  Why else harp so much on wealth-inequality if all we are concerned with is balancing political voices as makes a difference to what concerns those at society’s bottom most – living decently?    I really can’t imagine Piketty thinks cutting wealth-inequality a couple of GINI points is going to place the poor (or even the middle-class) on a political level with the super-rich, a situation never before seen in civilized society.   Ergo, it must be he agree with this ‘income-inequality begets poverty’ notion, even if he disavows it.

It is important to understand this meme is woven into the narratives of media, propagandists, and politicians alike; and has shaped the thinking of entire generations, including a great many that should be able to see through it.   Pundits, like this one are forced by this meme to ask questions for which there are no contextual answers; questions like “what does it take to get poverty back where it was before the Great Recession?”  The way he answers his own question (context) suggests a problem so intractable it can only be addressed by government.   The problem is real enough, but the conclusions are all wrong, and that is because he sees every problem through a socialist lens that assumes more government is the only sensible fix.   He refuses to even consider the one thing we know reduces poverty (i.e., capitalism), and will do so cheaply, quickly and painlessly.   He talks about the need for jobs, but then asininely expects government, unions, open-borders and minimum-wage hikes to produce them.  Even if capable of reducing poverty, his preferred solutions require a political will strong enough and lasting enough to resolve it through brute force; and will, therefore, be unnecessarily painful, costly and ineffective – all because of a failure to correctly identify root causes.  What he should have asked is: how did we measure poverty that we think it too high, what has been effective in reducing it (or not), and how might we have been manipulated by political actors as defeats that goal?    There is no question poverty is higher today than it was in 2007, but the question (and answers) as posed assumes our metrics (then and now) portray poverty honestly over much longer periods, and that they were even devised to measure poverty.   Or, try this article in which anecdotal evidences disconnected from real causes are used to suggest income-inequality and poverty are strongly linked.

Our most accurate barometer for poverty is not the one used by government and media to report it.   Our best available metric is the Labor Participation Rate (LPR).  In truth, even that is not tailored to measure poverty, it is just a better yardstick than the ones used.  What it measures is how much of the estimated labor force is actively engaged after subtracting children under age 16, retirees, at-home moms, and the disabled.   There is no direct sampling to see if or how many non-participants are coincidentally ‘poor’.   However, we do know there is a strong correlation, and that poverty rises inversely to labor-participation.   The government prefers to use a combination of labor (BLS U3/U6) and census data.  The one measures unemployment-claims (not actual unemployment) and the other measures how well a variety of assistance benefits reach families (independent of needs).  As such, they do give us a slight indication of poverty as a moving trend, but not in absolute, proportional or consistent terms, and not as good as LPR.   The census data we have only reveal how needy some are relative to others, and is a highly subjective measure of poverty.  U3 & U6 are a little better, but still weak because easily biased to say what administrators want them to say.  In a system as politicized as ours, reducing poverty to pre-2007 levels is more a matter of cherry-picking data and biasing survey questionnaires so as to arrive at conclusions flattering to the administration then in power for a job well done, while at the same time maintaining a fiction poverty remains high enough as justifies continued assistance (programs) as keeps them generously endowed and guarantees the assistance servicing industry continues undiminished.   This is something of a balancing act as between two opposing and equally questionable goals, neither of which really serves the public interest for which they were created (i.e., ending poverty; all three got their start in the Great Depression).  Census-taking was enacted for purposes of representation, but was expanded to give Congress the means to budget.   Congress subsequently established an arbitrary wage-income limit as a standard of poverty that over-estimates poverty and even counts some people who are rich as though poor.   U3 & U6 only count as ‘unemployed’ those who are currently drawing unemployment benefits, and ignores all those who are off the rolls regardless they are still unemployed, able-bodied, and in need of jobs (even when they outnumber beneficiaries).   Under this administration, we get to see just how shamelessly these two statistics are sometimes manipulated to distort the unemployment picture.   Unemployment currently remains stubbornly high despite the low presentation made for it.   BLS really should change its labels to more accurately reflect what they actually measure (‘unemployment-wage recipient rate’, not ‘unemployment rate’).   Similarly, the Census Bureau needs to disambiguate its labels.

Ideology worms its way into the unlikeliest places and messages.  Recent ads declare one in five American children is struggling with hunger, and begging your help to rectify that situation.  These ads imply a great deal of ‘indifference to poverty’, are intentionally exaggerated, and are furtively partisan.  The children and parents look sad in the ads (as in parroting media articles), and it is likely they are struggling.   But, they aren’t starving to a degree for which national guilt-tripping is appropriate.   In fact, they aren’t starving at all; it is just their parents are worried they will (at some time or other) find themselves unable to put food on the table.  An awful lot of us grew up under just such conditions, and none of us suffered unduly as a result of it.    The ads and articles imply the kind of hunger we normally associate with starvation without actual saying so.    The source of this hungry-children crusade is a USDA report referencing a census survey inquiring if household children went hungry or were at risk of going hungry at any time during the prior year.   Unless you were born into wealth, it is likely you knew hunger or the prospect of hunger at some time in your childhood; which is no more than these families now experience.  The fact you missed a meal or two was not previously a cause for alarm or the subject of an intense federal survey.   Obesity is the bigger problem in America, not hunger; especially among black and Hispanic communities, which are the two groups most closely associated with poverty.  There are also some public-service (i.e., government) announcements reinforcing this ‘starving child’ meme, lending the private ads an air of authenticity.  One critic of the ads appropriately refers to them as “poverty porn” (though not for reasons we might find them repugnant).   What these critics are upset about is the ads are turning off prospective donors, whereas conservatives oppose such distortion because it serves the Left’s agenda of moving us closer to a more complete welfare state through an alliance of government and partisan NGOs.

Both Bernie and Hillary made poverty a key talking-point of their campaigns.   There is scant evidence Hillary ever worked with or for poor people    In the 1990s, Bill and Hillary campaigned on cutting welfare.   Now, she is working hard at connecting with the poor, and pretends her poverty record is that of an unwavering welfare warrior.   She gets away with it only because the media identifies all Democrats as advocates for the poor to the exclusion of all Republicans.  This willful misidentification of Democrats with poverty-relief has its roots in socialism (which Bernie, at least, admits) and to an effective, decades-long propaganda.   We know it is a scam as neither can be insensible to the futility of the welfare programs they advocate, yet each brazenly parrots a party-line debunked so often it should embarrass.   Their solution to the modest poverty remaining is to increase welfare spending at home and further increase aids to poor countries; spending long shown to have no impact on poverty other than to prolong it, and to undermine family unit stability and third-world political integrity.   Hillary is a chameleon, but, however much their programs are proved ineffectual, the Left reacts to sensible proposals with denunciations of greed; and, it is the radical-Left that now dictates these terms of engagement to the Democrat party as a whole.

Robert Rector has been contextualizing poverty for decades, and Depression-era Americans tell us the poverty of today is as nothing compared to what it was in their youth.  Yet, even that was as nothing to pre-industrial poverty.   Prior to the Industrial Revolution, poverty was the norm, with 90% of global population living in moderate to extreme poverty.   Of course, it wasn’t regarded ‘extreme’ back then because it was simply ‘the norm’.   Ironically, America’s modern poor live at a level and possessed of such comforts as our founding generations’ wealthiest would have envied.  George Washington and Robert Morris were among the richest, yet today’s poor are better fed, better clothed, enjoy better modes of transportation (cars versus horse & buggy), and communications (phones, television, radio, & internet).  Our poor also receive better healthcare and live substantially longer than they did.  Moreover, our poor are afforded a basic education (free of charge), have more opportunities for advancement, and suffer less oppression.   Only in housing, can it be said our Founding elites fared better; and not always even there.  Yet, you would never know it to hear the Left spin our history.  They are forever alleging poverty has grown worse rather than better (or, if no worse, then surely no better).

So, why do socialist exaggerate poverty so shamelessly?   What motivates them to constantly raise the bar on what it means to be poor and piteously in need of assistance?   We can postulate altruistic motives, and there is some of that.     But, there is another motive that is purely partisan and ideological, and it is that I here explore.   I do not say capitalism is faultless, nor do I suggest there is no poverty that we should be indifferent to it.  I merely point out the motivation for such advertising and posturing is often political as much or more than it is humanitarian; with much depending on the timing.   It is not accidental so many of these ads appeared just now (just as Piketty’s book release was timed), at the peak of a political season when their identification with one party and contrast with the other could not be more helpful to the one and damaging to the other.  Conservatives are braced for attack ads, but these are more subtle, and easily escape notice.  Paired with attack ads and speeches calling attention to the ‘meanness’ and ‘stinginess’ the Left regularly (and falsely) assigns to the Right, these seemingly innocuous ads pile it on as direct attacks alone cannot.   Imagine you are an undecided voter.   One day you hear Hillary braying how Trump’s base includes some of the vilest, most deplorable of Americans: bigots, fascists, stingy, heartless … you know the litany.   Our undecided-voter rightly discounts Hillary’s accusation as campaign hype.  But, later the same day she hears one of these ‘pity the children’ ads, and unconsciously associates that positively with the party of ‘poverty-relief’ and negatively with the party of ‘moneygrubbing capitalists’. 

Capitalism has alleviated more poverty than all charities and government programs combined.   When confronted with this glaring paradox, socialists invariably draw on slight-of-hand analyses (e.g., Piketty) and anecdotal evidences of market induced sufferings to salvage their argument.   Back when Marx co-wrote his ‘Communist Manifesto’, poverty was pervasive and laborers were poor to a degree capitalism seemed a likely culprit (at least as regards urban factory labor and mineworkers).  But, correlation is not causation without corroboration, and not where contrary evidence also exists.   Even before the ink dried on Marx’s manifesto, the evidence favoring capitalism was strong and growing fast.  Poverty fell steadily from pre-Industrial levels of 90%+ in 1800 to 11.5% in 1974 (a 783% decrease), after which it largely flat-lined in the West (mainly from inept attempts at controlling it).   Conservatives often argue poverty has proved intractable; whereas, socialists are convinced their failure to eradicate is the result of conservatives and capitalists conspiring to keep poverty going.   Neither is really true, because real poverty in America (as then defined) no longer exists.   The poverty that remains is no more than a politically-motivated relativistic division of people into income-quintiles having no real poverty component other than some are more conspicuously ‘wealthy’ than others.   Thus, poverty no longer serves the Marxist agenda, and had to be replaced by something less ‘solvable’.  Income-inequality is just what they came up with as a replacement narrative.

What is Capitalism?

In order to reclaim the narrative, we need to redefine what is meant by the term; and to do that, we need to agree on what capitalism is and isn’t.   A big part of the difficulty we have in getting our message across derives from the way we allow capitalism to be defined by others, and how that is then taught and propagated into the zeitgeist.  A good definition should a) describe the thing as it actually, largely and accurately exists and functions, and b) should incorporate features most will readily recognize as belonging within the scope of the definition.  Imagine I give you a definition for ‘democracy’ that reads like ‘theocracy’.  Would you accept it as coming from a subject-matter expert or reject it as nonsense?  This is how I regard many of the so-called ‘expert’ definitions of capitalism.  Many of those we receive are blended, incomplete or emphasize negatives with little mention of positives.   Thus, our perception of capitalism has been subtly biased against the actual thing (else subtly favoring some counterfeit).

It was early-socialists who coined the term capitalism, so there should be little surprise our definitions have a negative spin.  They meant by it a kind of villainy to be shunned.   But, does that mean they get to own this term forever?   Much of what they impute to capitalism (both the term and the concept) is nonsense, and, therefore, in need of revising.   Where the socialist sees only cutthroat-competition, we see: friendly-competition, sharing, cooperation, organization, humanizing, opportunity, expanding knowledge, huge improvements in the human physical condition, new employment opportunities, and the largest drop in poverty known to man.   Capitalism has made huge improvements in the way we live, work and interact that would not have occurred otherwise.   Shouldn’t those also be reflected in what is meant by the term?   It behooves us, then, to clean up the mess socialists have made of this term so that it more accurately reflects both its vices and virtues.   Failure to rehabilitate means future generations continue to misapply, mistrust free-markets, entrust governments more than is prudent, and sink deeper into socialist thralldom.

Here are a few examples of how capitalism is typically defined by ‘respected’ sources:

Wikipedia – “an economic system based on private ownership of the means of production and their operation for profit”  

Merriam-Webster, short version – (“a way of organizing an economy so that the things that are used to make and transport products are owned by individual people and companies rather than by the government”)

Merriam-Webster, long version – (“an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market”)

Britannica – a “[system] in which most of the means of production are privately owned and production is guided and income distributed largely through the operation of markets.” 

Note how Wikipedia’s definition is suspiciously close to the Marxist definition: “a socio-economic system based especially on private ownership of the means of production and exploitation of the labor force”.   Socialists have made, ‘operating for a profit’ synonymous with ‘exploitation’ in the minds of many, ergo Wikipedia’s is only slightly less offensive.  Merriam-Webster’s short version confuses matters as it treats private-ownership as some kind of novelty (regards public-ownership more the norm).  MW’s second version comes closer, yet still manages to avoid mentioning profit as if uncomfortable with the concept.    I suspect some these lexicographers of borrowing capitalism’s reputation for success to hide socialism’s embarrassing failures.   By blurring the lines, the above definitions manage to make it seem capitalism describes any number of systems, some of which are clearly antithetical to the free-market ideal.  To do this, they make their definitions broad enough to cover several competing models, the object being to trick readers into accepting counterfeits (rather like the Irish lass who finds her child has inexplicably morphed from healthy, happy cherub into a gnarly, snarly gnome).   Overwhelmingly, they regard real capitalism suspect, unregulated enterprise inherently dangerous, and the profit-motive degenerate (i.e., profit-sharing good, profiteering bad).   The term ‘capitalism’ was coined before there were any ‘socialized’ variants (e.g., planned-economies, state-capitalism, employee-owned, &c), so a sharp line needs to be drawn as between ‘free’ and ‘regulated’ systems.   As coined, the term was meant to describe ‘free markets’ and those only; and should not, therefore, be generalized to encompass socialist variants.   The only synonyms I recognize for ‘capitalism’ are ‘free-markets’, ‘free-enterprise’ and ‘laisse faire’.  All others need to find labels of their own more in keeping with their natures.

Ask a free-market libertarian what capitalism is, and you get “… a social system based on the recognition [or principle] of individual rights, including property rights, in which all property is privately owned.”   Note how this definition changes the emphasis from economics to politics, and from ‘profit’ to ‘property rights’.   For why this matters, read Locke’s ‘Second Treatise on Government’.    To true free-marketers (e.g., libertarians), profit is incidental and not an end in itself.   It is not a principle to embrace other than it serves to protect property against the confiscations of thugs and governments.   They support profit in the limited sense that, without some right in the profits arising from ownership, there can be no actual ownership in the thing itself.   Destroy the benefits of ownership, and you destroy ownership and we become mere stewards for the ‘real owners’.   Conservatives are similar in this view, except more definite in their defense of profit in its own right.   This is with some justice, as property without profit concentrates ownership into fewer hands over time (think of profit as: the transactional mechanism by which property is ‘voluntarily redistributed’ from those with more of it to those with less).   Socialists invariably regard all humanity as owners-in-common and authoritarians regard society’s elites as ultimate owners (for which they then charge us rent for the use of that we ourselves produce).   Either way, libertarians and conservatives agree redistribution is thinly disguised theft.  

Where conservatives and libertarians regard profit & competition somewhere between okay and outstanding, socialists invariably regard profit a form of theft, and competition a socially-destructive and repugnant behavior.  Indeed, there are socialists who demonstrate a higher regard for thieves, drug-dealers, and porn-stars than bankers, contractors and manufacturers.   The reason for this is they truly believe that for one party to have ‘profited’ from an exchange, another must have been cheated out of something.   Capitalists strongly disagree with that assumption, and regard profit mutually and socially-beneficial, and the vast majority of exchanges as ‘win-win’ (even those occurring between paupers and princes).   For an example of competition abhorrence, note the way our socialist-dominated public schools have scrubbed every hint of competition from the classroom, playground, and extracurricular activity.   Where, once our schools were thriving incubators of the competitive spirit, they are now hatcheries for all things feeble.   Little wonder then so many Americans, especially young-Americans, are openly supportive of ‘Occupy Wall Street’ type movements, and unthinkingly join every knee-jerk attack on ‘one-percenters’.   The Socialist denies wealth is created more than occurs naturally (a resource); and, being natural, are convinced it belongs to everyone equally (e.g., food, housing, jobs).   Or, even admitting, an item’s exchange value is mostly that which is added by humans, they regard even that labor as belonging in some degree to ‘the collective’.

Socialists celebrate China’s economic hyper-boom.  It apparently delights them a dynamic market is possible under socialism despite despotic conditions and without the freedoms previously thought necessary to strong markets.   They think this somehow negates capitalism’s superiority over alternatives.  Here again, the problem is one of definitions, and that we allow the Left to define what does and does not qualify as capitalism.  The term currently used to describe China’s system is ‘state-capitalism’, which is misleading because trade under it is heavily monitored and controlled; ergo not really ‘capitalism’.  What our own experience tells us is that it is far easier for markets to arise spontaneously and thrive in free-societies than in despotic ones, and it is much more difficult to sustain markets such as China’s without some expectation ownership will be secure.  China only proves it is just possible to create a strong market without the freedom to practice it as we please.   That kind of market can only be sustained through an exhausting and costly attention to minutia, however, and not without some pain.  If you separate what is plain, old-fashioned capitalism from what is communism in China, then it is obvious China’s rapid growth is almost entirely due to capitalism, and that communism still damps the overall result.  China’s economic speed should not surprise us because it is what we expect of a country with this much repressed energy suddenly unleashed.  Much of what is written about China today, and its boom, assumes its rulers think as we do, and that its reasons for promoting growth are similar.  To the degree China allows some freedom of action, its market thrives.   But, it also and deliberately hobbles its market and derails it in significant ways; and that is unlikely to change.   Foreign companies are subjected to restrictions which limit their competition against domestic companies, and domestic ‘free-enterprises’ are deliberately hobbled relative to state-sponsored and state-run businesses.  China reluctantly encourages profit by allowing limited freedom to engage in certain kinds of commerce, and those only.   Political and personal activities (e.g., speech, travel, education, family size) are still tightly controlled.  Its leadership is less concerned with prosperity than with stability and adherence to Marxist ideology. The real reason they allowed this much freedom was because they realized strict adherence to ideology was keeping China politically and militarily weak.   That, plus the USSR’s 1989 economic and political collapse, forced China to admit communism alone was self-defeating within the context of a world dominated by commerce.  If economic gratification alone had been the objective (i.e., for the good of their people), they probably would not have made the leap.  But as military/political dominance is the objective, and commercial strength the readiest means to it, they chose to switch tactics in the short term with every intention of reverting to ideology once super-power dominance is theirs.   Like all socialist, they fear and loathe capitalism, hate being forced to engage in it, and will revert to full-communism the moment they have the upper hand; and not just for themselves.   Assuming they achieve this goal (barring a Soviet-style collapse or abandoning Marxism), we can be fairly certain commerce as we know it will be much reduced thereafter.   And, the result of that will be our world reverting to poverty and squalor.  It is in our interest, then, to remain as economically strong as we are capable if only to avoid falling prey to communists masquerading as capitalists.

One of the more prominent features of all highly regulated systems is corruption.  The anti-capitalist blames corruption on capitalism, but the reality is corruption exists only where there is something as gives it an unfair advantage.   Monopolies are the main target of socialists who believe it a distillation of all things wrong with capitalism.   Yet, monopoly has repeatedly been shown to be, at most, a short-lived phenomenon except where shielded by power.   Ma-Bell was the poster-child of a government-sponsored monopoly in the last century.    The U.S. Post Office is another, but because it was directly run by government the corruption potential was less (takes two to tango).  There is no corruption in a pure state of nature, because no power structure exists to give it form.  Thus it is power, and not commerce or competition, as begets corruption; and without power there can be no sustained corruption or monopoly.  China’s current spate of corruption scandals illustrates this point as never before.   No sooner did China set up its favored enterprises, than greedy actors swarmed to it.  If we assume Marxist China incorruptible, then there should have been none.  Yet, the speed and number of its scandals belies that naïve assumption.   So, too, does the spate of recent U.S. scandals most of which involve favorable treatment by government toward some and suppression of others.   Some are guilty of corrupting officials to get what they want, but more are encouraged to it by officials peddling influence or by politicians on a mission (e.g., treatment of Solyndra v coal and fracking) to save the planet.   Finally, there are the ‘pay-to-play’ and ‘revolving door’ corruptions of politicians who extort money and cushy jobs.   Under a truly ‘free-market’, there is far less corruption because little opportunity for it.   The more we regulate, the more opportunities we create to exploit loop-holes, the more scandals pile up around those loop-holes.  And, let’s not forget the recent corruption of the political process itself as shown by abuses of Executive Orders and a Democrat Congress forcing through Obama’s signature legislation under cloak of darkness; creating, thereby, a whole catalogue of fresh loop-holes to exploit.   That one legislation created more opportunities for extortion and abuse than anything since the New Deal.

The Case for Capitalism:

If government is incapable of eradicating poverty, and private charity failed to do so, what is the cure?   Probably, there is no cure for totally eradicating poverty, but we do know it was on its way down in this country and in Europe before we got it into our heads to legislate it out of existence (e.g., LBJ’s War on Poverty).   Before capitalism, it was assumed only kings and heaven’s favored few would ever enjoy great wealth, health and ease.   The rest had to settle for hardscrabble and leavings.   Life was short, brutal and disease ridden, punctuated only by the occasional pleasure or kindness.   Idleness and work avoidance were regarded immoral because they threatened weak economies incapable of underwriting laziness.   Modern society has become more tolerant of laziness in proportion to affluence (i.e., ability to bear burdens idleness/leisure imposes).  Yet, we are not yet so rich we can afford a great deal of laziness.  It is estimated more than 9 out of every 10 people lived in extreme poverty prior to 1800.   Life expectancy was under 32 years globally and 38 years in the West.   Food choices were limited and repetitious.  For a sense of just how far we have come since 1800, play around with this interactive link.

Socialists are obsessed with the idea of a ‘perfectible society … a utopia where all needs are met and all potentials realized.   Capitalists (i.e., businessmen, shopkeepers, property-owners, workers, careerists, lenders, &c) are more often pragmatists who take the world as it is, and use that to make life for themselves (and others) more comfortable.   A leavening of perfection seeking idealists in our society is not a bad thing as it drives us to do better.   But, in large doses, can be destructive of those things that already work, and work quite well.   It is clear that politics and well-meant (if misplaced) policies are keeping at least some of our people in a kind of ‘poverty limbo’, a limbo that only serves the interests of politicians, media and the ideologically dogmatic.   Most of those defined as ‘poor’ aren’t really poor and not really stuck, at least not in the sense for which assistance is appropriate.   They are made to feel stuck, however, become mentally-stuck in consequence, and are undeniably frustrated by that.   Sometimes, they lash out in violent frustration.   They see themselves as stuck on the dole from cradle to grave while others progress from starving-student to wage-earner to professional to comfortable-retiree.   However cruel it may be to deprive the poor of their long habituated props, they have no path out of this limbo short of: a) individually willing themselves out of it, or b) being slowly yet surely weaned of it.   Those with disabilities will continue to need our support, and that is appropriate.  Yet, even that can be trimmed considerably without harming them.  Keeping 15% in dependency when only 5% are in actual need is not only wasteful, it harms those who don’t actually need it and who are better served by opportunity.  Moreover, when many are clamoring for assistance they don’t desperately need, those in real need are shortchanged.   This is not so implausible when you realize there are people earning $91,000 who are receiving food stamps, and affluent seniors who are vacationing in Europe funded in part by Social Security, Medicare, and tax breaks.   Safety nets have, thus, morphed into lifestyle props.

Public-assistance should be local, rather than federal; and the more local the better.   To the degree possible, charity should be private rather than public; and only public in extremis and as temporary measures.   This is because big government is too remote and impersonal to understand and respond appropriately.   Our Founders understood this, as did all the great philosophers and philanthropists of antiquity.   We have become so enamored of the power of Big Government to get things done we no longer realize local government and community have advantages for both supplicant and society.   With local government, those helped are neighbors and friends; people with whom many of us have had some contact and are, therefore, ‘real’.   We have also become enamored of the superiority of government over private charities despite charities are 133% less wasteful in distributing assistance to those needing it.  When assistance is offered by charities, it is not forced, a power grab, or a political calculation.   Both the assistance and urge to help is genuine, and far more often tailored to meet actual needs.   Not only does this result in less waste, it minimizes the potential for overreach, imposition, dehumanization, alienation, corruption, and class-warfare.   At the federal level, the opposite is true, and the poor are reduced to a useful abstraction by injustice peddling politicians.  I shudder to think what assistance will be like when it is run at the global level, but we can get some sense of that from how assistance was meted out under the Soviets.

Whereas once we regarded ourselves one people divided only by temporary differences of circumstance and opinion, we are now divided into mutually hostile groups by politicians and professional agitators who gain from our misery.   Envy and dependence are the oftenest means they exploit for this.   It is they who manipulate the definition of poverty and manipulate statistics to exaggerate needs; and, they do that solely for the power it gives them over us.  We must learn to ignore the ravings of politicians and socialists alike if we are to ever become whole again.

Private charities and even some limited public assistance can do some good, but neither of those ever put much of a dent in poverty, and never will.  Charity is and should be personal, and has little meaning outside the personal.   Yet, however noble, charity is no more capable of eliminating poverty than is government.   Only capitalism, unconstrained by attempts to channel, redistribute, control and/or inhibit it has shown any real potential for reducing and eventually eradicating poverty.   Prosperity not only enriches the enterprising, it makes possible those so enriched to be more charitable to those less fortunate.   It is no accident that America is both the most prosperous nation and its people the most generous.  Prosperity is the key that unlocks the charity locked away in all hearts, and ennobles entire nations, and it is capitalism that brought us this untold prosperity.  To the degree businesses abuse, we have laws to regulate those.  But, our laws need streamlining to make them more comprehensible, uniform in application, and local.   Thus streamlined and straightened, they will afford less opportunity for corruption and favoritism.  Government needs to get out of the business of picking winners and losers in the marketplace.  Monopoly restrictions, in particular, should be eliminated as an unjustified interference resulting in far more abuses than it corrects.   The Federal Reserve Board, income tax, death tax, and eminent domain are additional progressive creations we should reconsider as unjustified attacks on property, capitalism, and liberty.


Additional readings & video links:

r > g explained; condensed version

a Piketty refutation

Heritage dissects Piketty

Cato article chastises Piketty as myopic; by economics historian Deirdre McCloskey

article supportive of War on Poverty

child hunger article; WP stretches facts to fit preconceptions; plus some fuzzy math and frequent errors of logic

source of my Marxist definition of capitalism

a refutation by an economist with some ideas of his own how to reduce the inequality

Did welfare really throw 3.5-million 3rd world children into poverty? – refutes ‘millions of children starving’ thesis

fee.org/articles/presidents-and-poverty/ – “the most comprehensive and effective [anti-poverty program] ever mounted by any central government in world history … [is] liberty

Cato/Boaz: Capitalism, Global Trade, and the Reduction in Poverty and Inequality

Cato/Moore & Simon: The Greatest Century That Ever Was – policy analysis

argues 1% is a conjurer’s trick using net wealth rather than income to prove income-inequality; some of the ‘poorest’ represented by this statistic were highly wealthy once but now owe vast sums (or also owe vast sums).

how global poverty fell from 42% in 1981 to 15.7% in 2011

a libertarian veiwpoint

poverty in the last 40 years; shows how consumption is a better indicator of poverty than income  

Heritage/Rector & Sheffield: Understanding poverty in the U.S.

The poor under capitalism – a zero-sum rebuttal

Zero-sum economy – an interesting blog discussion

Hoover/Hayek: ‘9 Myths about Capitalism

Cool to be bourgeois! – a rise in the material welfare of ordinary folks by more 3300%

Milton Freeman responds to a young socialist re capitalism’s relationship to poverty

pdf.usaid.gov/pdf_docs/Pcaab049.pdf – “… staggering is the failure to discern any positive relationship between aid levels and economic growth …”

shows inverse correlation of free-markets and poverty, and direct correlation of prosperity with wider political involvement; societies become more democratic with affluence; under Obama, U.S. has fallen from 5th to 16th in the EFW rankings

Forbes/Worstall: things we count and don’t count as poverty indicators distort understanding

Poverty elsewhere

mises.org/library/foreign-aid-disaster-making – “if anything, it is foreign aid that causes a vicious circle of poverty

even liberal Brookings get the ‘unintended consequences’ aspect of foreign aid  


Foreign aid gone awry:

Haitian-aid debacle

Some failed aid projects in Africa

7 worst foreign poverty projects

Who Does Humanitarian Aid Really Benefit?


quora.com/What-are-some-examples-of-philanthropy-gone-wrong – water supply developed by foreign aid workers turned out arsenic laden


Poverty before capitalism

Heritage: defending Constitution and honoring founding values does not make us stingy/greedy people

nuff.ox.ac.uk/users/allen/povprog3NEW.pdf – ‘Progress and Poverty in Early Modern Europe’ attempts to explain economic results of last two centuries using computer simulation similar to climate-models.   Unsurprisingly, he got exactly the results he wanted.   Garbage-in, garbage-out. 


chicagounbound.uchicago.edu/cgi/viewcontent.cgi?article=2942&context=uclrev – Sherman Anti-trust backgrounder; Left is convinced Sherman & Clayton Acts fixed a bunch of evils as justifies cost in lost liberty

fee.org/articles/the-purposes-of-antitrust/ – an attempt at rediscovering original intent of antitrust laws; useful for understanding how they are perceived today versus what they were meant to accomplish (1967); and how they have largely failed

law.cornell.edu/wex/sherman_antitrust_act – text of Sherman Anti-Trust law


toward a better branding – free-market versus crony capitalism

why competition is good politics

who (in America) qualifies as poor

poverty thresholds and guidelines

Forbes illustrates how differently Chinese economy operates from ours (less perceptive regarding what ails it or what to do about it, but provides some good background information)

The search for China’s end game – I include this as an example of sources reviewed.   My conclusions above differ from this and are a culling of many (far too many to list) readings.   I do not pretend to expertise on China, but I have long been interested in Chinese history and follow Chinese developments.  Recent readings give little insight into Chinese politics and culture, so it takes a lot of digging to get there.   Most of what is available on China is focused on its impacts on us, our economy, and our vulnerabilities rather than ferreting out the CCP’s agenda.   Amateur (non-Chinese) China-watchers tend to an excessive optimism focused on economic possibilities more than military and geopolitical vulnerabilities.   Chinese sources (mostly ex-pat) are a little more ‘helpful’, yet they too miss some things from standing too close to trees to see the forest.  Foreign policy with respect to China has been neglected in recent years, despite CCP showing few signs of becoming more transparent or relaxing any of its claims (if anything, expanding those claims) and maritime aspirations.   Many of the more expert security and foreign policy sources are, themselves, pushing agendas we need to understand before indulging their advice.   This subject alone makes for an entire article, so I do not want to dive too deeply just now.   I only detoured into the subject of China because a) China now represents the world’s second largest economy, b) what they practice is not capitalism, and c) it is important we disabuse others of mistaking it for capitalism or its near equal.

Heritage: China’s South-Asia Strategy & WFB: arms sales flap provide some idea of security & geopolitical issues

Comments are closed.