Demonizing the Rich

In the wake of our current financial crisis, the most popular scapegoat is quickly becoming the wealthy in America, inspiring class warfare reminiscent of Marxist socialism. One popular blog writer expressed this sentiment, probably more clearly than intended, when he wrote:

The super rich can only be that way for so long, before the masses reach the critical point and take the wealth back. Our founders knew that Revolutions are needed from time to time, and that time has long past. The anger is palpable; the formerly comfortable middle classes are being pushed over the edge. … I won’t be suprised [sic] when the fires start, and the blood starts to flow. Robbery is becoming the only chance to eat, and the rich flaunt themselves at every opportunity (Captain Obvious Blog, Feb 3, 2009).

Recent government proposals appeal to this growing resentment, which paint the wealthy as the only culprits in this debacle. Senator McCaskill (D-MO) announced a bill that would limit total compensation of any executives working for a recipient of the bailout TARP funds to $400,000. Congressman Barney Frank (D-MA) was so bold as to suggest that these limits ought to be applied to non-TARP companies as well. Senator Sheldon Whitehouse (D-RI) said he would propose a “temporary economic recovery oversight court” that would give government the power to “take reasonable steps to restrain the massive self-indulgences that these masters of the universe have become accustomed to.” And Treasury Secretary Timothy Geithner said he would consider “extending at least some of the TARP provisions and features of the $500,000 cap to U.S. companies generally.”

I completely understand the anger in reaction to the arrogance, greed, and irresponsibility of certain Wall Street figures. However, there is plenty of blame to go around, beginning with politicians who institutionalized ridiculous lending practices (i.e., Fannie Mae and Freddie Mac) in pursuit of utopian visions of universal home ownership. But also to every overspent, debt-laden American who borrowed what they had not earned to buy what they could not afford. Suffice it to say, government intervention of the sort mentioned above will not only not remedy our current financial crisis but may also institutionalize anticapitalist principles that will weaken our economy for decades.

Recently, the White House announced the formation of a new task force “to raise the living standards of the middle class.” This is interesting, since the government does not and cannot create wealth, which is necessary to raise the standard of living. No, their only option is to take from one group to give to another—generally from those who actually do create wealth and drive economic expansion in this country: the wealthy. In actuality, cutting taxes on the rich proves beneficial to both government and the public. Economic columnist Thomas Donlan writes in his book, A World of Wealth: “After the Bush Administration … reduced the top marginal rates, the people with the highest incomes shouldered a larger share of the tax burden because they made so much more money…. Of more importance, the expanding economy generated more revenue from income taxes, sales taxes, corporate income taxes, and social insurance taxes…. By fiscal 2007, higher economic growth and lower tax avoidance covered the loss of revenue from lower rates” (Thomas G. Donlan, A World of Wealth, [FT Press: Upper Saddle River, NJ, 2008]).

Nonetheless, the current financial crisis has given fodder to socialist thinkers such as David May who argues, “Only the socialist reorganization of society can reverse the accelerating polarization of the classes and finally dispense with class society altogether.” In the wake of Marxism’s complete failure during the twentieth century, you would think socialism would have died a natural death but alas, it hasn’t. Vice President Biden writing in USA Today (January 30, 2009) continues the popular appeal to classism when he writes:

Over the course of America’s last economic expansion, the middle class participated in very few of the benefits. But now in the midst of this historic economic downturn, the middle class sure is participating in all of the pain. Something is seriously wrong when the economic engine of this nation – the great middle class – is treated this way.

This is very appealing if you are among the middle class. However it’s just not true and only serves to inflame class divisions. America’s unprecedented economic growth since 1980 has benefitted more people than any time in history, both the poor as well as the middle class. The Heritage Foundation publishes annual reports on the world’s standard of living; the most recent indicates that the standard of living of the poor in America today is comparable to the standard of living of the American middle class a few decades ago, and of the European middle class today.

William Pfaff, reporting on this year’s World Economic Forum held in Davos, Switzerland, underscores the growing sentiment that free-market capitalism is to blame for our economic woes when he writes:

The immediate disaster, evident at Davos, is that the American economic model of deregulated market capitalism, dominant today in the U.S. and the rest of the industrial world, cited as a vehicle of human progress, proves under examination to have been in significant part an affair of swindle, personal enrichment, looted Third World nations, international and national crime conspiracies, bank robbery and Ponzi schemes, criminal real estate practices, environmental and institutional rip-offs, and official corruption.

I am not defending greed and avarice, but free-market capitalism is simply that: free. This in and of itself is not the cause of any vice. It may serve as an avenue to vice but it does not compel one to immoral habits. What capitalism demands and what is increasingly scarce is moral restraint. Historically, it was the values of Christianity, socially reinforced, that provided this restraint. The rejection of this moral restraint is at the heart of what is destroying our economy and culture. It is not the continued “history of class struggles” suggested in the Communist Manifesto.

The neo-Marxist philosophy that is emerging in the wake of our present economic crisis threatens to displace the best economic system for human flourishing—free market capitalism. And, depriving people of the opportunity to accumulate unlimited wealth will not improve your or my condition one iota. In fact, it will diminish the opportunity for us all to pursue our grandest ambitions, express our best entrepreneurial energies, and maintain the greatest charitable resource in the history of the world.