President Obama, the Chief Inequality Fighter of the United States, in a recent address at Georgetown University discussed poverty and brought up yet another statistic: the top 25 hedge fund managers earned more ($11.6 billion) last year than all the 158,000 kindergarten teachers in the country ($8.5 billion) in 2012 (the latest data). Obama used this statistic to argue for higher taxes on carried interest, so as to reduce the income inequality between top earners such as hedge fund managers and those that do lower-paid work such as educating children. (According to a Washington Post article, the average salary of a kindergarten teacher was $53,480 while the top 25 hedge fund managers made about $464 million each).
The above statistics are not new. They reflect the fact that even in a mixed economy, those whose skills are in more demand than there is supply for (such as top-performing hedge fund managers) will garner higher income than those who also have objectively valuable skills (such as educating children) that are possessed by a much larger number of people. Individuals in each group get paid what they deserve. (Government regulation of education of course distorts the income of kindergarten teachers who would earn more if schools were private, in a free market for education).
But it was the online replies to the Washington Post article that caught my attention. One, while flaunting facts, captures the spirit of the mostly negative comments (slightly abbreviated here): “Where is the news? We already know hedge fund managers are thieves.” On a business newspaper’s site, I found also the opposite responses to the story, such as “I don’t understand why we always demonize those who make more money. Why envy those who are rich? It pleases me to think that there are others who are more successful and can afford to achieve their dreams. It’s not a crime to be successful in life.”
Why do most people criminalize wealth creation while others cheer and appreciate it? President Obama and others who decry inequality of income and demonize the wealthy hold a view of man that contradicts facts and forms the foundation of their anti-human ideology. For them, man is a helpless creature, incapable of surviving and living, lest he attaches himself to a group that enforces upon its members a duty to be their brothers’ keeper. Accordingly, they assign primacy to the collective: the needs of the group, the tribe, or the state trump individual liberty. It is the individual’s duty to sacrifice his interests, his income, his wealth, for the collective.
In the modern welfare state, the government’s role is to ensure equality—or at least to minimize inequality—among citizens, for the “overall” wellbeing of the collective. Enter President Obama and his tax plan to diminish the discrepancy between the incomes of hedge fund managers and kindergarten teachers and between all other high income and low(er) income earners.
What is the basis of the opposite view that cheers wealth creation? At its foundation is a view of man that recognizes the factual requirements of human survival and flourishing. The primary requirement is the use of reason to discover the knowledge we need to survive, including the knowledge necessary to create the material values our physical survival and enjoyment of life depend on, such as financing vehicles like hedge funds that finance the production and trade of goods and services. Those who cheer wealth creation also recognize that inequal levels of wealth are caused not only on supply and demand but by differences in individual motivation and ability to create values that others are willing to pay for.
The use of reason has but one social requirement: freedom. Although collaborating with others can be tremendously valuable, it requires thinking individuals who must be free to think before they can productively collaborate. Introduce force, such as the enforced duty to sacrifice for others through taxation, and you diminish the thinkers’ and the producers’ freedom and motivation to create material values from which we all benefit. Witness the fleeing of capital and its owners whenever new tax schemes to punish wealth creation are introduced.
If we acknowledge the requirements of our survival and flourishing, the logical conclusion is that individuals should be left free to think, produce, and trade with each other as long as they don’t coerce others. To achieve such a system, the best we can do is to keep challenging the destructive ideology of President Obama and his followers and to advocate more individual freedom and free markets that lead to more value creation, to everyone’s benefit.