In Praise of Capitalist Inequality

For several weeks now, the Occupy Wall Street protestors in New York City and around the country have been demanding “economic justice,” which includes a mishmash of leftist goals including universal health care, forgiveness of student loan debt, and higher taxes on the wealthy. To the extent the OWS protestors have a unifying theme, it’s that capitalism is bad and that redistributing wealth to reduce “inequality” is good.

The Irish socialist playwright George Bernard Shaw once wrote, “A government that robs Peter to pay Paul can always depend on the support of Paul.” The Occupy Wall Street protestors demanding government redistribution of wealth from the richest Americans (“the 1%”) to themselves (“the 99%”) would certainly agree. But as some of them are starting to learn, if their ideas were actually put into practice they’d end up being the Peters, not the Pauls.

Already, some of the OWS protestors are finding their ideas coming back to bite them. Recently, OWS kitchen staff staged a mini-revolt because they were tired of working 18-hour days to prepare meals for “freeloaders.” Another OWS protestor was upset that someone had stolen her $5500 Macintosh computer. Redistributing wealth suddenly became a lot less appealing when one was the victim of the “redistribution,” rather than the recipient.

The OWS protestors are learning first hand about something that novelist Ayn Rand discussed more than 50 years ago in Atlas Shrugged, in her vignette about the Twentieth Century Motor Company. In the novel, the new owners of the factory decided to run the company according to the supposedly noble precept of “From each according to his ability, to each according to his need.” Workers would be assigned duties based according to their expected ability — but paid according to how much money they needed, rather than how much they produced.

In theory, this would result in a more equitable distribution of wealth. But in practice, it meant the men of greater ability worked longer hours without hope of reward. Hence, the more competent workers either left or deliberately underperformed. In contrast, the more irresponsible workers received more money because of their “need” — regardless of how hard they worked. Of course, eventually the company went bankrupt.

But Rand’s lesson was not merely that such a model was economically unsustainable. She also made a deeper moral point about the motivations of the workers who supported this scheme. As one of the characters in the story said:

There wasn’t a man rich and smart enough but that he didn’t think that somebody was richer and smarter, and this plan would give him a share of his better’s wealth and brain. But while he was thinking that he’d get unearned benefits from the men above, he forgot about the men below who’d get unearned benefits, too. He forgot about all his inferiors who’d rush to drain him just as he hoped to drain his superiors. The worker who liked the idea that his need entitled him to a limousine like his boss’s, forgot that every bum and beggar on earth would come howling that their need entitled them to an icebox like his own.

This is precisely the lesson that the OWS kitchen staff (or the woman with the laptop) have learned the hard way. Most people who advocate robbing Peter to pay Paul always imagine themselves as Paul — never as Peter. But when their desired forced redistribution is applied at a national level, the result is the near-universal misery and squalor of socialist countries like Cuba and North Korea. Except for a few political elites, everyone is equal — but poor.

In a free society, the economic inequality that the OWS protestors oppose is not something to be condemned, but something to be celebrated. A fully capitalist society allows people to rise as far as their ability and efforts allow. Because people differ in their talents, work ethic, and personal priorities, the natural result would be unequal levels of wealth.

Unequal “power law” distributions are the norm in a free society. A small number of authors sell a disproportionate number of books — just ask Harry Potter author JK Rowling. A relatively small fraction of blogs attracts a majority of web traffic. Or as anyone who works in a customer service field knows all too well, a small minority of customers always account for the majority of complaints.

Hence, it’s natural that a relatively small fraction of individuals might possess a disproportionate share of the wealth. In a free society, such inequality per se is not a problem, especially given that there is still income mobility for people to rise (or fall) as they deserve based on their talent and willingness to work hard — which is still the case in America.

Fortunately, many Americans still have a healthy respect for earned inequality. When Apple CEO Steve Jobs recently passed away, William Stoddard poignantly wrote:

I’ve given many thousands of dollars to Apple over the decades, a substantial part of which went to Jobs. And every dollar I’ve spent has brought me something that was worth more than the money was. Jobs spent his life giving me things of greater value than the money he accepted in exchange. And the same is true for his other customers. He gave the world far more value than the value of his personal wealth. If his fortune looked huge, it was a measure of the immense number of other people he made better off.

The fact that Steve Jobs earned a greater fortune than most others reflects the fact that he created much more value than most others — and in the process enhanced others’ lives to a proportionately greater degree. Steve Jobs’ earned wealth was a direct reflection of the value he added for himself and others — and his wealth should be praised and respected as a noble achievement.

It is also important to recognize that America is not currently a capitalist country, but rather a mixed economy with both capitalist and socialist elements. Hence, some Americans have become undeservedly rich through political “pull” and favors. But the OWS protestors aren’t opposed to government favoritism in principle — they merely want to shift those special favors onto themselves.

The OWS protestors claim to want “economic justice.” But real economic justice doesn’t consist of looting others’ wealth, but respecting others’ right to keep what they’ve earned. Unlike the OWS protestors, I don’t want to destroy the 1% to achieve a dubious “equality” where everyone is equally miserable. I don’t want to live in a dog-eat-dog world of constant “redistribution” and mutual predation where I survive only by looting from those wealthier than me, while those poorer than me survive by looting from me. Instead, I want a capitalist society which allows the top 1% the freedom to make their lives better — and in the process makes my life better as well.