The Futility of Class Warfare; L.W. Reed

Imagine that. The same government that can't manage its own fiscalaffairs,that squan ders billions of other people's dollars in subsidies for corporations and foreign re gimes, that wasted a trillion more in a coun terproductive war on poverty, is now sup posed to preside over what Mr. Gates calls a "national ownership strategy" for the Amer ican people. Gates cites, among other sources, a 1995 study of New York University professor EdLawrence W Reed, economist and author, is presi dent of the Mackinac Center for Public Policy, a free-market research and educational organization headquartered in Midland, Michigan. by Lawrence W. Reed ward Wolff, who argued that wealth is more concentrated in the hands of a few than at any time since the 1920s. Wolff's study was severely flawed, however, because of its false assumptions and many omissions. For exam ple, it gave little attention to the shifting patterns within income categories.

In an economy with great mobility, people simply do not remain in the same top and bottom income categories over time. Treasury Department data showthat of the U.S. house holds in the bottom one-fifth of incomes in 1979,only 14 percent remained there by 1988. Meanwhile, 35 percent of 1979'stop one-fifth had fallen from the top by 1988. Wolff's study found a widening gap in the distribution of wealth in part because, amaz ingly, it excluded the value of pension plans! When wealth is measured more broadly, as it should be, to include pension benefits, home equity, and autos, the "wealth gap" reduces to a tempest in a teapot. Many recent economic studies refute the "rich are getting richer while the poor are getting poorer" scenario that Gates, Wolff, and others present as fact: • John Weicher of the American Enter prise Institute has shown that the portion of the country's total wealth owned by the richest one percent of Americans remains virtually unchanged since 1963. Ownership of mutual funds and retirement accounts among aver age households has soared in the last 20 years.

• Kenneth Deavers of the Employment Policy Foundation has shown that between 1970 and 1990,the share of families with real 337 338 income of less than $35,000 fell about 9 percent at the same time the share making more than $50,000 rose by more than 34 percent. • Benjamin Schwartz in WorldPolicyJour nal recently reviewed the long-term history of income inequality in the United States. He found that income inequality, even of an extreme nature at times, has always been a feature of the U.S. economy, throughout its two centuries of producing an ever higher standard of livingfor the vast share of the total population. In fact, income inequality is lower today than it was in 1890,when 12 percent of the population owned about 86 percent of the country's wealth. • W. Michael Cox and Richard AIm tracked a representative group of Americans to find out what happened to their incomes. The period they studied was 1975 to 1991-a wider span of time than that represented by the Treasury Department numbers cited above. Cox and Aim found out that the poor didn't get poorer at all. In fact, only 5 percent of the people whose income comprised the bottom fifth in 1975 were still in that bracket in 1991.Sixtypercent of them rose all the way to the top 40 percent of all earners.

If inequality of wealth is a problem, there certainly is a far more fruitful solution than forcible redistribution of income. The answer, which free-market economists have persua sively championed, is to remove the endless barriers to entrepreneurship erected by all levels of government. Government drains off more than a hun dred billion dollars of productive capital each year with its deficit spending, for instance. Onerous taxes, regulations, and bureaucratic red tape keep many aspiring entrepreneurs from getting a start and employingothers who need work. Welfare policies pay millions to stay in poverty. The government education monopoly spends a fortune and all too often guarantees that children are ill-prepared for a productive future. The fact is, when people have problems accumulating capital, it's not capitalism's fault. It's the fault of a system that puts political obstacles in the way of economic progress. Americans have erected so many roadblocks over the years that it is a great tribute to enterprise that so much wealth has been created anyway.

Interventionists, unfortunately, have a knack for refusing to take responsibility for their own handiwork. They propose A and when it fails, they propose B to deal with the problems that A created. B, of course, is yet another intervention and when it flops, they propose intervention C, and on and on. It seems that actual effects and results don't matter, that mere good intentions are suffi cient to avoid culpability for bad advice and move on to the next reckless recommenda tion. Classwarfare warriors are hung up on simplisticprescriptions for government action that reduce to redistribution of income. They should recognize the futility of that approach and embrace a fresh 'one-the approach that starts with the assumption that the way to foster broad-based economic progress is to clear the decks of counterproductive, govern menterected barriers to progress. 0 THEFREEMAN IDEAS ON LIBERTY First, Let's Deregulate All the Lawyers by George C. Leef O rganized groups-businesses, labor unions, professional associations frequently lobby for laws and regulations to shield them from having to face wide open competition. "Competition is great every where else," they say, "but our particular field is different. We need sensible controls and regulations to protect the public against in competence and the evils of cutthroat com petition." What the group is really after, of course, is cartelization, backed up by the power of the government, without which cartels seldom work very well or last very long. In a free market, competition keeps breaking out, but if members of a group restrict competition, they enjoy exceptionally high profits or earnings for an extended period of time.