Refuting the economics behind the ‘rich don’t pay their fair share’ fallacy
See yesterday’s post for a refutation of the “rich don’t pay their fair share” fallacy.
Today, I’d like to address the economic philosophy behind that statement and why it is also wrong.
The unstated, underlying economic assumption that many leftists make is that the rich have to pay their “fair share,” because the rich are wealthy only because they have taken from society or the poor and that government must right that wrong through taxes or “spreading the wealth around.”
Nothing could be further from the truth.
What’s amazing about free-market capitalism is that the way you get rich is by meeting the needs of other people and making their lives better. Generally, rich people are those who’ve created the most wealth or value for other people. They’ve grown the economic pie.
This idea of creating wealth is critical. If you think the amount of wealth in the world is limited, it might make sense for government to take from the rich and give to the poor, because the economic pie is finite and if someone has more, than someone else has less.
But that’s not the way the world is. The amount of wealth in the world is rapidly increasing.
You have to make a distinction between wealth and money. Wealth is stuff – cars, cell phones, medical care. Money is the ability to buy stuff. There’s little point to having $300 billion in money, if there’s nothing to purchase.
An easy way to think about this is to imagine yourself – with your car, income, internet access, indoor plumbing, A/C, refrigerator, cell phone, TV, etc. – living in the early 1900s. With those modern conveniences, you’d be the wealthiest person in the world. John Rockefeller would have more money than you, but you and I would have the best stuff and the best standard of living.
Your TV is bigger and gets more channels. He never had a microwave. Your cell phone is better than any form of communication he had. He never had a DVD player or even a VCR. Through the internet, you have access to more information at virtually no cost than he could have imagined. He never had access to a CAT scan, MRI or Lasik. The twelve-second flight at Kitty Hawk didn’t even occur until 1903.
I drive a 1994 Mercury Sable, and I have a better car, in terms of performance, than Rockefeller, a man who would have been worth over $300 billion in today’s dollars, ever did.
Think about that. It’s stunning to consider.
You and I are wealthier – in terms of stuff – than John Rockefeller, who would have been worth over $300 billion in today’s dollars.
Because over the last 100 years, thousands upon thousands of inventors and entrepreneurs have created stuff that made the lives of people they didn’t even know much better off.
Why did they create and invent? While, given the complexity of human motivation, it’s impossible to give a definite blanket answer, for most entrepreneurs making money is a significant motivation. And the best way to make money is to create something that another person will pay for. And what do people pay for? Things that improve their lives.
As a result of entrepreneurs’ ability to make things that are beneficial to others, some of these inventors and businessmen and women became rich – some fabulously wealthy.
Their wealth has not detracted from our wealth or quality of life. In an uncountable number of ways, you and I are indirect beneficiaries of the wealth they created.
Rich people aren’t the enemy of the poor. In many ways, rich individuals (through their businesses and inventions) have made the lives of the poor in America better than the lives of rich Americas 100 years ago.
Via the Heritage Foundation, consider these facts about poverty in modern America.
â€¢ 80 percent of poor households have air conditioning
â€¢ Nearly three-fourths have a car or truck, and 31 percent have two or more cars or trucks
â€¢ Nearly two-thirds have cable or satellite television
â€¢ Two-thirds have at least one DVD player and 70 percent have a VCR
â€¢ Half have a personal computer, and one in seven have two or more computers
â€¢ More than half of poor families with children have a video game system, such as an Xbox or PlayStation
â€¢ 43 percent have Internet access
â€¢ One-third have a wide-screen plasma or LCD television
â€¢ One-fourth have a digital video recorder system, such as a TiVo
As he often did, Milton Friedman explained this best. Enjoy this clip of him talking with Phil Donahue about how the masses escape poverty through the free market.
Because the economic pie is always growing in a free-market economy, the richer the rich get, the better off the rest of us are.