Inequality and the Role of Government
February 2014
Inequality has lately been receiving a great deal of attention. This is not new to the history of the Republic. The sixteenth amendment, passed in 1913, was driven the by the need to create a new source of revenue in addition to the Tariff system, which was believed to have disproportionately negative effect the poor. It is very simple argument. Somebody who is making too much income transfers part of that income, through a series of governmental entities, to those who make less money.
Therefore the opportunity to use funds to change status among those who make less is enhanced. Simple in theory. Not so simple in reality. One of the primary condemnations of this redistributionist system is whether this system is taking assets from the most productive and providing those to the least. Progressives would argue that the nature high earnings come from advantages only available to these entities and that the concept of greater productivity is illusory. I agree with this concept in one salient aspect. Those who manipulate the pervasiveness of government do create wealth for themselves in a fashion that would in fact, provide an uneven playing field.
There are three primary sources of great wealth. The first is of course inheritance. When one examines the Forbes 400 circa 2013 the names of the Waltons, Pritzkers, Coxes etc are prominent in many parts of the list. The second avenue to wealth is the traditional, justly celebrated way that is still unique to the United States. Cornelius Vanderbilt, Andrew Carnegie, and John Rockefeller could all rise from humble beginnings to vast wealth in a single lifetime. Today one might note luminaries such as the middle class Steve Jobs achieving a similar ascent. One of the definitions placed on this second group is that they achieved their successes by building enterprises in truly competitive situations. But there is a third way practiced by many, much more so in the early 21st century. That is to use the preeminent power of government to create that tilted playing field. Whether it be billionaire Elon Musk of Tesla stumping for tax credits on cars that he makes, General Electric extolling so called green laws, and then making the wind turbines to meet these statutes, a former Vice President using his influence and notoriety to achieve financial stakes in companies not available in the public markets, and what about a CEO of large seed company pushing for food stamps knowing this will artificially inflate the price of his products. In all of these cases the power and reach of government is being used, being manipulated to enrich a few at the expense of the many. Forget about inequality of wealth. These individuals practice an inequality of influence, an inequality of connections, and inequality of access all of which leads to the inequality of wealth. It has been said quite often on this website that it is ridiculous to expand the power of government and then be surprised when there is a massive focus, in terms of time and treasure, to influence how that government operates.
This is not a new aspect of the Republic. Jay Gould is often held up as the archetype of a laissez-faire environment. Yet when his career is closely examined he is actually the archetype of the influence man who can manipulate government to his own and his partner’s ends. His scheme to corner the gold market was predicated on unparalleled access to the Grant administration and how they were to handle the government regulation of gold. In his epic fight for the Erie Railroad, he and Vanderbilt tried to use the power of the judiciary and even local legislative frameworks to create an unfair advantage. The last thing on his mind was to build a superior railroad product. It would be interesting today to see what sort of ventures a 21st century Jay Gould would endeavor. Perhaps he would contribute to a Super PAC or two to manipulate the Affordable Care Act to his ends and then invest in certain Insurance companies or medical device manufacturing. Another venture would be to try to corner green lighting while trying to kill off the incandescent market but of course GE has already done this.
Government’s tentacles are more invasive than at any time in our history in terms of regulation. Only those with money and influence can manipulate such as large entity and that influence definitely extends to the few, the real elite. Forget 1% in terms of wealth. Who are the 1%, who have the access to manipulate the government to their ends? That is the true inequality in the Republic today, and there will be no equality until the role, scope and reach of government is severely curtailed.