Incentives, Production, Wealth, and Equality

I wrote, some time ago, about how production follows a Pareto Distribution, and you can read that here. Whether right, wrong, or indifferent, half of all production, across all fields, comes from the square root of all producers, and half of THEIR production comes from the square root of that, right up to the point where you have a small number of people doing a tremendous amount of the total production. It should be totally unsurprising that incomes follow the same distribution, and that when the incentives driving this Pareto distribution are disrupted, production is disrupted as well.

The Soviets tried to ‘solve’ the Pareto distribution, as it related to farming, by killing the most productive farmers. The result was not equality, but mass starvation, to the tune of five million dead.

In fairness to the Soviets, I suppose dead people are equal…

Against this backdrop, Mark Ruffalo says that Capitalism has failed and is killing everyone. Mark Ruffalo is hardly alone – Bernie Sanders, Alexandria Ocasio Cortez, and 58% of Millennials agree. This is in spite of the fact that capitalism has all but eliminated world starvation.

Consider for just a moment that the only nations on Earth where starvation is still a problem are those that eschew capitalism. I marvel sometimes at the utter stupidity involved in asking to solve a problem by removing the things that are solving the problem, but there it is: capitalism is the only economic system ever invented that solves poverty, and yet many people want to address poverty by eliminating capitalism.

The left talks about income inequality as if it drops out of thin air, but it does not. Income inequality follows inequality of production; those who produce the most also earn the most. A war on income inequality is thus a war on the incentives that cause production, and by extension, a war on production itself.

Unless socialists can come up with some way to distribute that which is not produced, a war on production would seem problematic, as it proved to be in the Soviet Union.

Allow me to be crystal clear: socialism is a distribution system only. Socialism takes production for granted, and assumes that production will continue unabated even after all of the incentives to produce are eliminated, and socialism makes this assumption in spite of the fact that every attempt to maintain production, as the incentives to produce were eliminated, has failed.

When I was a young man, working at McDonalds, a manager pulled me aside, wrote the word ‘assume’ on a piece of paper, and then separated the word into three pieces: ‘ass’, ‘u’, and ‘me’. “When you assume, you make an ass out of you and me,” he said. Socialism assumes production while eliminating all incentives to produce, and I’m afraid that the Soviets found that rather than making people asses, it made them dead. Venezuela is, of course, learning the same lesson today.

Socialists point to the Scandinavian Countries as proof that socialism can work, but the Scandinavian Countries prove the opposite. The Scandinavian Countries went all-in on socialism in the 1970s and 1980s, and their economies damn near collapsed, forcing them to change direction in the 1990s, such that today, they have vibrant free market (capitalist) economies. Where the Scandinavian countries regulate their economies, they do so with far more transparency than we do, which is exactly the opposite of what our socialists call for. The Scandinavian Countries also use regressive tax rates in which the first dollar someone earns is taxed at prohibitively high rates, and as incomes grow, the effective tax rate is reduced. In other words, those who earn (and produce) the most in Scandinavian countries are taxed the least, whereas the poor and middle classes are taxed at prohibitively high rates, in order to fund generous social welfare systems. This, again, is exactly the opposite of what American socialists call for.

Why do the Scandinavian countries tax the rich at lower rates than the poor and middle classes? Because production follows a Pareto distribution, and the Scandinavians want things to be produced.

Note too that the Scandinavian countries got rich off of free market capitalism. I would challenge the reader to point out any rich nation that got rich with anything but free market capitalism. No such animal exists.

The Scandinavian countries are using policies that maximize the incentives to produce, by taxing the most productive people at the lowest rates, such that as much wealth is produced as possible. The Scandinavian countries have shown that wealth must be produced before it can be distributed, and as such they are a testament to the productive capabilities of capitalism.

The notion that the Scandinavian countries are socialist utopias is a lie. If anything, the Scandinavian countries are free market utopias – or, more to the point, they are not utopias at all, but are countries that became wealthy through free market dynamics, flipped to socialism, got burned, and have since been returning to free market dynamics.

People talk about free markets as if they are a thing, but really they are what exists in the absence of a government run economy. Free markets are what emerge when the government leaves people alone to pursue their own interests and values, as they see them. Any other form of economy is by nature an attempt by government to subvert the values and interests of the people. The only people who should be interested in a state-run economy are those who either are running it, or those who want the government to give them what other people have earned.

Whenever a Democrat promises something for ‘free,’ what they really mean is that the government is going to take what one person has earned, in order to buy something for someone else, and in the case of the Scandinavian countries, the government found that the people it needed to take from were the exact same people it was giving to – the poor and middle classes. If you take too much from the rich, as Bernie Sanders and Elizabeth Warren want to do, production crashes, and then there is nothing to distribute.

To have distribution, there must be production, and given that production is not equal, incomes will never be equal either.

Leave a Reply

Your email address will not be published. Required fields are marked *