Crony Capitalism to Blame Not Free Markets
By Philippe Gastonne - September 14, 2015

Two fatal developments are converging during this election in the United States. The decoupling of the super-rich from the rest of society is an accelerating trend in recent years. And also the consequences of a series of rulings by the Supreme Court in 2010 that enable politicians and support groups to accept unlimited donations. This confluence of events is undermining the development of the world's proudest democracy.

The distribution of wealth in the United States is getting absurd… The emerging chasm is so enormous it can be described as being no less than a gulf. The debate in Germany over the growing divide between the highest echelons of society and the lowest pales by comparison.

The idea that free markets will ultimately create the best possible living conditions is, of course, a wonderful one. But the reality in America looks like this: The yearly income of a typical middle-class family has fallen by almost $5,000 since 1999. If you factor in inflation, male workers last year earned on average $783 less than they did 42 years ago. For the country's richest, on the other hand, things are going swimmingly. The highest 0.1 percent possesses almost as much wealth as the lowest 90 percent taken together. The family of Sam Walton, founder of supermarket chain Walmart, has amassed over $149 billion in wealth. The family possesses as much as all of the lowest 42 percent of the country combined.

… [E]ven by American standards, the shifts that have taken place in recent years are grotesque. They are destroying the moral fabric of society. … With the exception of Sanders, however, not a single one of the current candidates for president is willing to call for an increase in taxes – not even for the top 0.1 percent. In fact, most are promising tax breaks – and this, despite the fact that many companies don't even pay taxes, because they conceal their earnings. – Spiegel Online, Sept 10, 2015

The writer for Germany-based Spiegel rightly notes the increasing wealth concentration in the United States in recent decades. The rich are indeed getting richer, while many in the bottom 99% struggle to make ends meet. He veers off course, however, by blaming the situation on free markets.

Simple logic disproves the point. Free markets can only "create the best possible living conditions" where free markets actually exist. They don't exist here. We do not now have free markets in the U.S. and have not had them for a very long time.

Instead, we have a form of corporate socialism or "crony capitalism." Maybe it looks like laissez faire from a German viewpoint, but our economic system falls far short of free-market capitalism.

Therefore, the ill effects of wealth inequality can't be a consequence of free markets. More likely, wealth inequality results from the absence of free markets.

If we had free markets, wealthy people would not be able to buy political influence and restrain potential competitors. We would not have occupational licensing that restricts people from selling their labor freely. We would not have a central bank manipulating the money supply in ways that reward some groups while punishing others.

Having misdiagnosed the problem, Spiegel goes on to prescribe the wrong treatment: higher taxes. Raising taxes will not make the wealthy any less powerful or disperse capital more broadly. Those at the top will find ways to avoid it, while those at the bottom stay locked in a cycle of poverty.

Restraining markets any further is not the way to break our ruling oligarchy; it simply entrenches them further. The Spiegel solution isn't working. Its advocates should take off the blinders and try something else.

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