Why the rich are getting richer

Equal is Unfair argues that efforts to solve economic inequality are actually hindering the American Dream, while in contrast, Wealth Secrets of the 1% reveals how far the super-wealthy rig the system.

by Stefan Stern
Last Updated: 21 Apr 2016

Timing is everything. As US voters roar their disapproval at an economy that feels rigged, in which protected elites prosper while almost everybody else finds life a struggle, along comes a book which declares that all this fretting over inequality is misguided.

Inequality is a 'non-problem', say Don Watkins and Yaron Brook of the Ayn Rand Institute (more of her later). The American Dream is under threat, not because of howling gaps between rich and poor, but because the dead hand of government is stifling opportunity.

The authors tell a stirring story about free enterprise and how America became rich, quoting Francis Grund, a Viennese immigrant, who wrote in the early 19th century: 'Business is the very soul of an American: he pursues it, not as a means of procuring for himself and his family the necessary comforts of life, but as the fountain of all human felicity.'

But 'inequality alarmists' do not understand this, the authors say. 'The inequality critics often speak of economic success as if it was a fixed-sum game. If wealth is a fixed pie or a pie cooked up by society as a whole, then it follows that economic equality is the ideal, and departures from this ideal are prima facie unjust and need to be defended.' This is one of several 'straw men' arguments deployed, based as it is on a misconception. Critics of inequality do not seek equal outcomes. Not many people outside North Korea do. Instead, they just want a bit less inequality.

The authors are true Ayn Rand acolytes, and share some of her zingers: 'The man at the bottom who, left to himself, would starve in his hopeless ineptitude, contributes nothing to those above him, but receives the bonus of all of their brains.'

This is the book's problem: it is too faithful to the authors' chilly heroine. Government is bad. Why? Well, 'if the government gets to decide what the minimum wage is, you don't get to decide that it's in your interest to accept a lower wage.' That's right: you should seriously consider trying to get paid less than the minimum wage. There's more: 'Phase out the welfare state so that America can once again become the land of self-reliance.' Even if some will starve in their hopeless ineptitude?

They are nothing if not lucid. 'When people are free to make their own decisions and chart their own course, some people do well, some people do incredibly well, and others fail miserably,' they say. This may be true. But what supporters of Donald Trump and Bernie Sanders are saying, in their different way, is that there are far too many losers and just a few (big) winners.

A more balanced and enlightening account of the rich is provided by Sam Wilkin in an updated paperback edition of his 2015 Wealth Secrets of the 1%. In part, he agrees with the Randites: 'Much of what has gone wrong with capitalism has been the result of actions of government, as those on the right so fervently contend.' But there's a kicker: 'By and large, government didn't take these actions of its own volition: it did it because influential rich people lobbied the government behind closed doors to take such actions so they could be even richer. So, you on the left, who think the rich are the problem - you're right too.'

Wilkin is clear about how the wealthy do it, 'by gaming the system: by rigging laws and regulations so competitors are ejected from their playpen of profits; by obtaining implicit government support so that the financial system is transformed into a casino where the house always loses and the gamblers always win.' His book offers a grand historical sweep, taking in ancient Rome and 19th-century America - the era of the 'robber barons' - as well as the modern day.

He says that the expansion in the number of billionaires is largely due to the rise of the emerging markets. 'It is in these countries where the conditions that produced the American robber barons - rapid economic growth, weak regulation, and difficult business environments - combine to create superprofits in the modern day.'

He argues that to get rich you need to own your business, be well networked, and use IP rights skilfully to protect what you have. The Microsoft founder was the master of this. 'By establishing intellectual property rights in an economy-of-scale business, Gates had given himself not only a monopoly, but an untouchable monopoly.

'If there is one thing we know for certain,' Wilkin adds, 'it is that a legislated monopoly is a wonderful thing.'

Equal is Unfair: America's Misguided Fight Against Income Inequality by Don Watkins and Yaron Brook is published by St Martin's Press at £18.61

Wealth Secrets of the 1%: The Truth About Money, Markets and Multi-Millionaires by Sam Wilkin is published by Sceptre at £9.99

Stefan Stern is director of the High Pay Centre. Follow him on Twitter: @StefanStern

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