Equity Requires Equal Access to The Law

Rose Wilder Lane discusses the influence of the American revolution in her introduction to Bastiat’s Economic Sophisms (online here). Lane writes:

Americans had begun the world revolution half a century earlier. The outward revolutionary impulse had disrupted Europe and overthrown every government south of the Rio Grande. Excepting Great Britain’s hold on Canada and Spain’s on Cuba, it had driven the Old World from the western hemisphere. Now the outward impulse temporarily slackened. In the revolution’s center, the States were straining against their union. Northern manufacturers were increasing the Federal power and using it to re-establish a fragment of King George’s planned economy, his “protective” tariff; southern agriculturists were revolting against this reaction. American thinkers were succumbing to the European confusion of thought. The realistic, rational thinking of Madison and John Adams was replaced by Emerson’s trancendentalism, infused with the first infiltration of socialism from Europe.

After the defeat of Napoleon, the Terror in England slowly waned. British subjects were granted their former rights again, and in addition a cautious freedom of the press. The planned economy was still operating as police-enforced economic regulations always work; it was starving the English working classes and hampering British shipping and trade. A struggle for freedom began again where it always begins, among merchants and traders. They demanded, and got, repeal of the Corn Laws that kept food out of England, repeal of the regulations and the tariffs that strangled shipping and commerce. Their struggle was the British liberal movement which made Victorian England’s prosperity and empire. 

But the British liberals, too, attempted the impossible combination of the knowledge that men are free with the belief that men are not free. They acted practically, they demolished the political obstacles to free action and free trade, but they acted as individualists and spoke as socialists. For this reason, the British liberating movement was short lived, and slid backward into socialism.  [6]

Bastiat is the thinker who carried the revolution into economics. The American revolutionists had been the first to “trace civil government to its foundations in the moral and physical nature of man,” as John Quincy Adams said. They carried the Jewish-Christian doctrine of man’s free will, of individual self-control and responsibility, into political philosophy, and used it as a political principle. Bastiat traced economics to its foundation in the moral and physical nature of man, and of man’s eternal situation on this earth. Bastiat’s thinking uses the principle of man’s natural liberty as an economic principle.

Lane next notes Bastiat’s predictive formula the distribution of wealth in America:

The brilliance and accuracy of his thinking is indicated in one small detail. In a footnote to Economic Harmonies – a fragment of the great work he did not complete – he gives the simple mathematical formula of the increase and distribution of wealth in a free economy. The formula is pure theory; Bastiat arrived at it rationally, in 1840. In 1930, the United States Census report confirmed it. 

In 1840, when Bastiat wrote, the national income of these United States was 2 billion dollars; capitalists and landlords got 60 %, the employed got less than 40 %. Ninety years later, the national income was 75 billion dollars; wage-earners got 64%, entrepreneurs about 20%, capitalists and landlords, 16%. For ninety years, the American capitalist economy had followed Bastiat’s mathematical formula of the increase of wealth, and of the transfer of wealth from capitalist to wage-earner.

Critics of market economies in Europe and America claim this engine of economic freedom is now running in reverse with incomes and wealth flowing from those working (and not working) to the wealthy elites, the top 1% and .1% of income earners.

Kareen Abdul Jabbar, the thoughtful and articulate former basketball star, cites in Time magazine what he takes to be irrefutable evidence that “our middle class is collapsing”:

That’s not hyperbole; statistics prove this to be true. According to a 2012 Pew Research Center report, just half of U.S. households are middle-income, a drop of 11 percent since the 1970s; median middle-class income has dropped by 5 percent in the last ten years, total wealth is down 28 percent. 

Statistics can sometimes mislead. Jabbar’s article tries to turn the ongoing police and race conflict in Ferguson, Missouri into service of the ongoing income-inequality debate.

Incomes are unequal and have always been. Whether incomes have become more unequal is less important than whether income differences have become more unjust. Are some people’s wages held down while others benefit? Historian Ralph Raico used to joke that Bill Gates became a billionaire by exploiting thousands of software programmers at Microsoft. A great many of these programmers became multi-millionaires themselves and likely felt more fortunate than exploited. So maybe Mr. Gates exploited customers somehow? But researching that history finds that Microsoft came to dominate word processing and spreadsheets by offering products rated highly by reviewers at prices way below competitors like WordPerfect.

The billionaire founders and investors in Microsoft, Apple, Google, Amazon, and Facebook created goods and services out of thin air, our of ideas in their minds and in the minds of dozens, then hundreds and thousands of designers and programmers. Their serial acts of wealth creation may well have tilted the income and wealth inequality scales, but only because to vast scale of their wealth-creation enterprises.

There are other ways income statistics can mislead. The Tax Foundation’s August 13, 2014 article, “Income Data is a Poor Measure of Inequality” notes a number of reasons for income differences. Consider how age influences average income:

The average taxpayer’s income changes dramatically throughout his lifetime; the average tax return for an 18- to 25-year-old shows about $15,000 in adjusted gross income where an average tax return for someone between ages 55 and 64 shows above $80,000.

In a single generation, between 1980 and 2007, more than 10 million people migrated, legally or illegally, from Mexico to the U.S. Today there are more than 12 million Mexican-born people in the U.S. and millions of American children who are their offspring–amounting to almost 10% of the nation’s population. That is exponentially larger than in 1970, when there were less than one million Mexican-born people in the country, or 1980, when there were two million. The Mexican migration, and the similarly large migration of others from the rest of Latin America, has in just one generation reshaped the nation. (“A Nation Built for Immigrants,” Wall Street Journal, Sept. 21-22, 2013, page C1.)

DID you know that nation-level income inequality would drop if the government herded all the poor people onto boats and dropped them off on a distant island? Newsweek’s Mickey Kaus, apparently excited by this sort of logic, proposes something similar as a winning solution to America’s alleged inequality woes. The difference is that Mr Kaus proposes to keep relatively poor people out in the first place.

So here’s how it all shakes out. Low-skilled immigration reduces economic inequality when we set aside nationalist assumptions and focus on people instead of populations. Even if we cling to analytical and moral nationalism, low-skilled immigration doesn’t happen to increase measured inequality. On the contrary, complementaries between the skills of migrant and native workers can leave natives better off than they would have been with less immigration.

Societies allowing open trade, labor, and investment markets encourage commerce, entrepreneurship, and innovation. In pre-revolutionary times, the aristocracy benefited from legal restrictions that limited economic opportunities for peasants. We still have some of these legal restrictions today both in developed and developing countries. Reducing these restrictions is key to economic progress around the world.

Globalization at the Crossroads and The Power of the Poor, two Hernando de Soto documentaries now online, explain the institutional reasons for slow progress and ongoing conflicts in the much of the world. The core unfairness, the lack of equity experienced by people from America’s inner cities to hundreds of millions in cities of the Middle East, Africa, and Latin America, is a lack access to a just rule of law. Most are outside the law because of dense regulations and restrictions keep them out and confer a kind of pre-revolutionary status to today’s elites.