The global economic crisis that struck in 2008 can still be felt today. Groups such as the Occupy movement and the 99% claim to have identified many of the problems that caused the crisis and brought forward solutions. How good are those solutions? Here are six of them.
1. Income Inequality Is Rising and We Need to Worry About It
The first part is undeniably true; for many years, income inequality, as measured by the Gini index, is on the rise pretty much everywhere. Particularly in North America, you see many organizations such as the Canadian Centre for Policy Alternatives or media such as Mother Jones hammering the message again and again.
But while inequality is on the rise, it is of absolutely no importance. Indeed, do a janitor and a heart surgeon deserve the same salary? Also, as long as the poor are getting richer, it doesn't matter. China, while certainly not a model of free markets, provides a prime example of Winston Churchill's "Capitalism is the unequal distribution of wealth, while socialism is the equal distribution of misery." In 1980, before Deng Xiaoping started his free markets reformations (mainly by recognizing private property), the Gini index was at 0.291, revealing a rather egalitarian society. However, extreme poverty (people living with less than $2/day) was at 85%. About 25 years later, the Gini index was now at 0.415, a 42.6% increase ... but the extreme poverty level was down to 35%, almost a 60% decrease.
Finally, income inequality doesn't matter as long as government doesn't choose winners and losers as it it with the massive bailouts. Doing so disrupts the markets, and rewards incompetent corporations like GM and Chrysler while penalizing the successful ones by wasting their hard-earned money on basket cases. Chrysler failed twice in less than 30 years.
2. We Are the 99%
This has been the rallying cry of the Occupy movement: We are the 99%! We are the people! We represent oppressed minorities! And so on ...
There is a fundamental problem with such thoughts: there is no we. Even within the Occupy movement, everything is done by individuals, not by a homogeneous mass of people. This vocabulary, inspired by Marx when he spoke of "the" capitalist class and "the" proletarian class, has got to go. "The smallest minority on Earth is the individual," said Ayn Rand, and she was right. One cannot pretend to defend anyone if one approves of the oppression of anyone (here, "the" rich).
3. The Rich Need to Pay Their Fair Share
This rallying cry is quite old, but it seemed to have gained a new life with the Occupy movement. "The" rich aren't paying their fair tax share, causing all sorts of budgetary problems, they say.
Really? Let's look at the numbers to check on that.
- There were about 138 millions (M) federal income taxpayers in 2009. According to the most recent census, that means about 45% of the whole population pays a federal income tax.
- Of these people, the 1% paid 36.7% of this amount ... while earning only 16.9% of all the revenues. In other words, 1.38 million people pay as much taxes as the poorer 90% of the population.
- In comparison, the poorest 50% of the population earns 13.5% of the revenues while paying only 2.3% of the income tax. Is that the "fair" share?
Also, claiming that someone "must" pay his "fair" share implies that we have a right to that money, which we don't. No one on this planet can claim to have any rights over anyone's salary, unless one is a slave owner. Indeed, if paying 100% of your salary in taxes is slavery, then at what percentage is it not? Taxation is theft, period.
4. We Need the Government to Reign in Big Corporations
According to many, the present economic crisis was caused by deregulation. Therefore, we logically need more regulation so that banks will be more stable and transparent, right?
Wrong. Every single economic crisis since the 20th century can be linked to government REgulation, not DEregulation, as analyzed (and sometimes predicted) by Austrian economists and others. The Great Depression was caused by massive monetary inflation – M31 rose over 60%, while not forgetting the closing of the borders to trade, which inflate the Dow bubble like crazy. The stagflation of the 70s, and the ensuing hyperinflation, was caused by 30 years of uncontrolled spending by the US government and an unwillingness to mend their spendthrift ways. Finally, the 2008 crisis was caused by many regulations including: Equal Credit Opportunity, which basically bars bankers from asking questions such as sources of income or if a woman intends to become pregnant; Community Reinvestment Act, which has extorted 4.5 trillion$ from banks to lower and middle income families (i.e. at risk of defaulting); the Housing and Urban Development (HUD) department, which asked Mae and Mac to increase mortgages to poor and middle-class families, which was facilitated by a lowering of credit requirements in 1999; and the Federal Reserve, which kept interest rates artificially low, helping inflating the housing bubble as Austrians have been telling about since... 2003.
Furthermore, how can government control the corporations it goes to bed with? Monsanto, Goldman Sachs, General Electric, many social networking websites and members of the media, Big Pharma and many more all have direct ties with government officials.
1It includes money in circulation, checking accounts, saving accounts, retirement accounts and many more
5. We Need to Be More Like the Scandinavian Countries
This is a 99-percenter fetish argument: if Scandinavian countries (Sweden, Norway, Finland, Denmark) can have universal healthcare and free education, why can't we? Because
- Sweden, once seen as a socialist paradise, has now gone completely the other way. It has privatized / made open-to-competition mass transit, electricity, education, and healthcare systems, as well as many more. Of course, the taxes are still pretty high, but they have been decreasing since the 90s.
6. Austerity Has Failed
99-percenters and politicians alike keep repeating that austerity measures have failed and are prolonging the crisis. Therefore, the government must jump in to kick start the economy.
What austerity are we talking about, exactly? The U.S., France, Germany, Greece, Spain, and most other industrialized countries have see their debt-to-GDP ratio increase tremendously since 2008. And yet, the economy is not recovering. How strange ...
However, real austerity does work. Under Jean Chrétien's Liberal Party (1993-2005), Canada was able to decrease its debt-to-GDP ratio (and even start paying off the national debt) by cutting spending and by barely raising taxes. And people weren't dying in the streets. If you think Canada is a bad example, then go back to 1920, where another economic crisis struck the U.S. Warren Harding did what he had to do to stop it: nothing. Or rather, he decreased spending and taxes, and the crisis got resolved in less then two years. Compare that to what Hoover and Roosevelt did, and tell me again how cutting spending is bad for the economy.