What’s Stossel Supposed to be Defending, Again?

by Kevin Carson
What’s Stossel Supposed to be Defending, Again?

I coined the term “vulgar libertarianism” several years back to describe reflexive mainstream libertarian defenses of the existing corporate capitalist system as if it were the free market, and using “free market” principles to justify the evils of the corporate economy. I recently saw one of the worst examples of this phenomenon ever, courtesy of John Stossel (“Debunking Popular Nonsense About Income Mobility in America,” Reason, June 4).

Vulgar libertarian apologists for capitalism use the term “free market” in an equivocal sense: They seem to have trouble remembering, from one moment to the next, whether they’re defending actually existing capitalism or free market principles. So we get the standard boilerplate article arguing that the rich can’t get rich at the expense of the poor, because “that’s not how the free market works” — implicitly assuming that this is a free market. When prodded, they’ll grudgingly admit the present system isn’t a free market, and includes a lot of state intervention on behalf of the rich. But as soon as they think they can get away with it, they go right back to defending the wealth of existing corporations in terms of “free market principles.”

Stossel’s piece does that in spades. He begins by conceding Thomas Piketty’s claim, in Capital in the 21st Century, that the concentration of wealth in the hands of the super-rich is at an all-time high. It’s true, he says, that “the wealth gap has grown. Now the top 1 percent own more assets than the bottom 90 percent!” But not to worry!

Stossel begins by arguing that what matters is not the relative shares of wealth between various percentiles of the population, but the mobility between those percentiles. And moving up is just as easy as ever. Just look at Oprah Winfrey (once on welfare)! And Sam Walton (a former fieldhand)!

Actually this is a load of buncombe. First of all, Stossel in my opinion unjustifiably minimizes path dependency. For example, there are persistent structural differences between the economic security and well-being of black families generations later, depending on whether they lived in areas where the U.S. army granted land to former slaves during Reconstruction — not to mention ongoing structural injustices like black sharecroppers being tractored off their land after WWII, or bank redlining.

But even leaving that aside, there’s been a significant amount of social mobility in most class societies in history. Without such mobility, they would ossify into caste systems incapable of adapting to change. That’s why Orwell’s Inner Party in 1984 is a complete meritocracy that recruits talent from the Outer Party and Proles in each new generation. The Soviet class system was probably more mobile than the American; most of the Party apparatus and the state economy’s managerial establishment, in the mid-20th century, were populated by the millions of workers and peasants (and their children) who swarmed into the Party in the ’20s and ’30s and got sent to vocational schools. Even under Roman chattel slavery, there were more enterprising or cunning slaves than average who bought their freedom and eventually became slave-owners themselves. Does this mobility mean that the dominance of the Ingsoc Party in 1984, or the dominance of the Soviet apparatchik over the average citizen, or the Roman slave-owner over the slave, was legitimate? It’s just an amazingly stupid argument.

But the real vulgar libertarianism comes in when Stossel dismisses considerations of justice or injustice in the distribution of wealth: “Also, the rich don’t get rich at the expense of the poor (unless they steal or collude with government).”

Um, that’s a big “unless.” Stossel writes as if the legitimacy of the super-rich’s fortunes were the rule, and collusion with the government were some sort of rare exception. To be sure, Stossel occasionally writes about some government boondoggle for the rich (like subsidized insurance for their beach homes) or corporate welfare. But his instinctive reaction, when someone attacks the polarization of wealth or the power of big business, is to interpret it as a leftist attack on the “free market,” and to circle the wagons in defense of the rich and powerful.

But in fact corporate capitalism as we know it is defined by statism to its very core, and the overwhelming majority of the income of the super-rich consists of rents on artificial property rights and artificial scarcities enforced by the state. I doubt it would be possible to accumulate a fortune of 100 million on the free market — let alone 100 billion. The Fortune 500 corporations, without any exception I can think of, owe their profits and market shares to government-subsidized inputs, government-enforced monopolies, entry barriers and regulatory cartels.

Stossel isn’t defending against government intervention. He’s defending a system based on it.

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  1. For instance, the ‘vulgar libertarians’ (fiscal conservatives?) go up in arms about increasing the minimum wage. In a UK context, the working poor are forced by law to pay taxes and council tax that now gives the majority of state workers the ‘living wage’ (as well as many other privileges). The working poor also subsidise the idle rich with corporate welfare and bailouts etc.. Also, look how much public cash is spent propping up the housing market and higher education which only really benefits the well-off. ‘Vulgar libertarians’ also promote mass immigration whilst the powerful buy protection from foreign competition. The list goes on…

    What we effectively have now is free markets and globalisation for the marginalised – protectionism, tax-breaks and socialism for the politically-connected and well-heeled. If you want to remain consistent, what is permitted to one, has to be permitted to all, and what is denied to one, has to be denied to all. Otherwise it’s just pick ‘n’ mix principles and standards that benefit one group at the expense of another.

  2. Actually many of the working poor (I am one) in Britain do not pay income tax (although some do), and many get “Tax Credits” (government payments) which are greater than the income tax or Council Tax payments (and Council Tax is low in Britain compared to the Property Tax payments of much of the United States – although Property Taxes in the United States vary wildly from New Jersey at one extreme to Alabama at the other).

    The big tax in Britain for the poor is actually VAT (sales tax – much more important for the poor than “National Insurance”, although it would be better if this “NI” farce was ended as it has been in Australia and New Zealand where it is openly admitted that these things are not “insurance schemes”).

    The vast majority of government spending in the United Kingdom is on the Welfare State – a point Jeriko One appears to be unaware of.

    • Every time I’ve managed to get tax credits I’ve had to pay them back – try zero-hour contracts… A complicated system which fails many working poor people. Then there’s all the stealth and green taxes on utilities etc., not to mention duties, motor fines and TV licence. Inflation (government borrowing and money printing) is the most sneaky tax of them all – and it hits the poorest the hardest. The manipulation of interest rates also only benefits those on high income – low earners will have a job securing, say a mortgage, with a 1% interest rate…

      The Welfare State is really the single-mummy/child benefits state – and how much of it goes directly into to pockets of landlords or retailers marketing junk at useless people? Some claim as much as 80% of the Welfare State goes on admin, and now businesses benefit from investing in social concerns with guaranteed returns.

  3. To turn to the post itself……

    No John Stossel is NOT defending the present size and scope of government in the United States (Kevin is just wrong – as always).

    A “vulgar libertarian” – is a real libertarian (as opposed to a collectivist pretending to be a libertarian – a collectivist such as Kevin).

    In the United States (as well as Britain) the vast majority of government spending (Federal, State and local) is on health, education and welfare (income support) it is not on “big business” or “the rich”.

    American policy is so pro “big business” that many American companies dare not bring back their earnings to the United States, due to the American government practice of taxing earnings that have already been taxed overseas.

    In reality (as opposed to Kevin’s fantasy world) most American companies are some of the most highly taxed and regulated in the Western world – it is only a matter of time before more American companies start to move the HQs and key personal out of the United States (a lot of manufacturing has already been moved). Then Kevin will be happy – and the population in the Untied States will see their standard of living crash. “Compassionate” Social Democratic polices in the Untied States have already led to relative stagnation for many people over the last half century.

    As for Piketty’s book – standard manipulation of numbers to fit a predetermined political agenda (as one would expect) , however there is one REAL point one needs to consider in relation to the rich…….

    Forget Piketty (he is a left bank “intellectual” – a nonentity), there is a REAL way that many rich people do in fact benefit from government interventionism – the “cheap money” policy.

    There are two ways of financing the demands of borrowers – either from REAL SAVINGS or from credit-money expansion.

    Government (seeking “lower interest rates”) actively supports the second way – credit money expansion.

    :Ludwig Von Mises correctly identified the pursuit of “low interest rates” as the central monetary folly of governments (over centuries).

    And Richard Cantillon (the 18th century Irish economist) showed how credit-money expansion tends to benefit rich people at the expense of poor people (it is not quite that simple – some rich people lose by this policy and some poor people benefit, but mostly it is rich people who benefit from “cheap money” low interest rate polices).

    If you want income distribution like Brazil (or so much else in Latin America) then follow the monetary expansion policy of Brazil has followed over the last century.

    Tragically most Western nations have I recent years followed such a policy of credit money expansion.

    The alternative is (as stated above) that loans should be financed by REAL SAVINGS – that interest rates should be high enough (and security strong enough) to attract people to give up some of their consumption so that it may be loaned for productive investment.

    What say you Kevin – is this finally something we agree about?

  4. Jeriko One.

    I am on a zero hours contract – and have been since 2008 (I did tell you I was one of the working poor). Actually I have always been poor – I have never earned average wage (apart from some weeks as a security guard when I did 100 hours a week – I was young and strong then) and I never will.

    I have never claimed any “Tax Credits” (or rent relief or whatever) – but most of this money is never paid back (people only pay back if they were paid more money than Mr Gordon Brown thought they were entitled to – for example because the amount of money they were paid in their jobs increased).

    “Ah but Paul – you get Councillor pay and expenses on top of your Wicksteed Park job”.

    Pay yes (I am guilty) – expenses no.

    I have not filed in a expenses claim for seven years (and get complaints every month for not having done so).

    This country is I terrible financial trouble – as is the Western World in general.

    But it is not “money for the rich – for the capitalists” that has put us in this slow-motion-fiscal-collapse.

    The entitlement programs (as the Americans call them) are out of control and this must be faced.

    Hiding behind if-it-was-not-for-the-rich-we-would-be-O.K. is no good.

    • You have to do 30 hours per week to qualify for tax credits – many people today do not get regular hours – so when their hours go down they have to pay back.

      It has been claimed that inflation could be as high as 10% for low earners when you consider their typical living expenses. The Government doesn’t have to tax you directly to steal money from you. Not everything is black and white and many ‘vulgar libertarians’ fail to see the opaqueness of the system.

  5. On admin – it is not as bad here as in the United States (but it is still very bad), the American Federal government is demented (even by British standards) with government officials on absurdly high pay and perks.

    On Housing Benefit (which I have never claimed in my life) – yes it does have the effect of inflating rents (we AGREE there J. One). It means that other people (who pay their own rent) have to pay more than they otherwise would (not good – not good at all).

    David Ricardo had many faults – but he did understand that subsidising something tends to INCREASE THE PRICE of it.

    Whether it is farm land or university tuition – if the government picks up the bill the price will go up and up.

    Also (still dealing with housing) – the policy of “cheap money” goes straight into creating a property bubble (not all the money goes in creating a stock market bubble).

  6. I worked more than 30 hours this week – but Tax Credits (Speenhamland for the modern age) do not appeal to me.

    All these ultra bureaucratic benefits are administrative nightmare – on that we agree.

    As for the increase in rent and so on – yes I have noticed.

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