Saturday, February 05, 2011

Wealth of Nations

Adam Smith — one of the founders of modern economics — recognized clearly that a poor distribution of wealth could undermine the free market system, noting that: “The disposition to admire, and almost to worship, the rich and the powerful and … neglect persons of poor and mean condition…is the great and most universal cause of the corruption of our moral sentiments.” This was over 250 years ago. In today’s world, these problems are magnified under the lens of globalization.

--Dominique Strauss-Kahn,
Managing Director, International Monetary Fund

Smith isn’t around to defend himself, having died 220 years ago. Instead, Peter Foster of Canada’s Financial Post, on Smith’s behalf, takes on Strauss-Kahn. Never mind that the corrupt “rich” that Smith targeted weren’t entrepreneurs, but rather “aristocrats who lived off the backs of agricultural peasants.” Foster points out that the concept of government-engineered wealth redistribution
was utterly alien both to Smith’s political times and his own moral inclinations. Smith lived in an age of personal responsibility. . . The key to improvement was the universal desire to “better one’s condition” under a regime of secure property rights and minimal government. The division of labour, free trade, and the “natural order” of the market would do the rest.

most bizarre . . . is the suggestion that [Smith] might be more concerned about . . . inequality than the actual condition of the current “poor.” Smith . . . noted that even the poor people of his own day, thanks to the unacknowledged wonders of the Invisible Hand, lived better than had kings of previous times. That’s because they had access — via work — to coats, shoes, kitchen utensils and the odd sack of oatmeal.
Today’s “poor” make Strauss-Kahn’s hijacking of Smith’s poor even more bizarre:
of Americans officially designated as “poor,” 99% have electricity, running water, flush toilets and a refrigerator; 95% have a television, 88% a telephone, 71% a car and 70% air-conditioning. Cornelius Vanderbilt had none of these.
And globally,
in 2005, compared with 1955, the average human being . . . earned three times as much money (corrected for inflation), ate one-third more calories of food, buried one-third as many of her children and could expect to live one-third longer.… She was more likely to be literate and to have finished school. She was more likely to own a telephone, a flush toilet, a refrigerator and a bicycle.… It is, by any standard, an astonishing human achievement.
In the same vein, the Hoover Institution’s Thomas Sowell recently dug into one of the progressives favorite statistical sets, the one showing how much wealth the top 20% of American households possess, compared to the bottom 20%. Sowell brought out two points I’d never heard before:
in the top 20% of households there are 64 million people, in the bottom 20% there are 39 million people. So we are comparing apples and oranges from the beginning. If you talk in terms of people who work, there are more heads of households that work in the top 5% than there are in the bottom 20%. So how big of an injustice is it that people who work have more money than people who don’t work?
Strauss-Kahn, Europe, talk about equality of results. In the U.S., as with Adam Smith, it’s traditionally been about equality of opportunity. Here's hoping that’s the America in our future.

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