Top-down Intervention & Wealth Inequality

Post #667

Economist Simon Kuznets proposed a theory that undeveloped nations have low inequality (because everyone is “poor”), and that developing nations have the highest inequality (some “rich” and some “poor”), and fully-developed and economically-mature nations have low inequality again (everyone is “rich”): The Kuznets Curve.

While true for nations that are economically-free, almost all nations now erroneously use top-down economic intervention by the government to interfere in private business affairs. OxFam is an outfit supposedly aimed at the reduction of inequality. Here is a snippet from their latest report:

The 7 world regions showing here all have somewhat different levels of wealth inequality, as measured by the share of financial wealth held by the top 1%. The worst inequality is found in Asia and the Middle East, and the least inequality is found in the Pacific and in North America.

But OxFam offers the wrong prescription for growing inequality: more top-down interventionism.

Only if it was the case that Simon Kuznets is wrong (that prosperity brings equality) could it ever be the case that interventions might promote equality — rather than cause inequality. But when looking at the heat map of economic freedom, look how the places with worst inequality (Asia & Middle East) compare to North America:

North America, being all green, is above a Heritage Index of Economic Freedom score of 70. But in Asia and the Middle East all scores are below 60 (orange) and many scores are below 50 (red).

If top-down intervention is causing the inequality in the first place — as these two images clearly show — then you don’t try to fix the problem with even more top-down intervention. The “fix” of the problem is to restore economic freedom so that you can follow the Kuznets curve until you reach greater equality by raising living standards.

With the 4 pillars of economic freedom — sound money, low regulation, low government spending, and open trading policies — economic freedom will “raise the lowest bar” (a rising tide lifts all boats). Notice that the opposites to those 4 pillars of economic freedom are rampant: inflation, regulation, stimulus, and protectionism.

But those 4 things all help to increase the wealth inequality in the world. It’d be much better to restore economic freedom than to catapult ourselves into more top-down intervention with a Great Reset formulated by those who just met at Davos.

Reference

[OxFam report suggesting that even more top-down interventionism can reduce inequality] — OxFam. https://www.oxfamamerica.org/explore/research-publications/inequality-inc/

[economic freedom around the world] — The Heritage Foundation. https://www.heritage.org/index/heatmap