EDITOR’S NOTE: This guest post is a companion to the recently published Robbing Mattresses.

I’m sure you’ve heard the narrative. The wealthy just get wealthier, and the poor just get poorer. Without massive government intervention, perhaps even a revolution, the “have nots” will rise up against the “haves,” and take the wealth they’ve been illegitimately withholding from them by force. So, rich white guy, this is your last chance to voluntarily give up your ill-gotten spoils, to take them out of your mattress and give them to the benevolent government for redistribution. And you should be happy about it too, because remember that unless you pay up, your future looks decidedly bleak, because the mobs will hold you accountable for your crimes.

Left-wing economists such as Thomas Piketty and Emmanuel Saez, in their book “Capital in the 21st Century”, and more recently Gabriel Zucman in a number of papers with Saez, have followed up and laid the groundwork, they think, for a popular disembowelment of any person who has succeeded under the capitalist system. The papers in question start with the presumptions as follows:

  • The economy has not grown since the 1980s
  • All gains that have been made benefit the rich and cost the poor
  • The well-off sit on their share of the economic wealth pie like a miser stuffing his mattress with cash

And, of course, once you accept these “facts”, you are quite ready to accept their conclusion that the well-off should have their assets seized and/or ruinously taxed, and safeguards should be put into place to insure nobody ever manages to get rich again. One of these economists (Saez) won a MacArthur Genius Grant for this kind of thinking, which goes to show that the well-off people who run the MacArthur Award buy this latest incarnation of Marxist thought with either enthusiasm, or fear. Both Bernie Sanders and Elizabeth Warren have reportedly consulted with Saez and Zucman as well, in order to come up with a plan that will appropriately soak the rich should they become president.

The problem with this line of thinking is, of course, that it bears very little, if any, relationship to objective reality. In order to present the three presumptions above, you need to be both willfully blind, and torture the statistics as well. Many other economists have attempted to point this out, but somehow they never seem to garner the kind of attention that the neo-Marxists get with their message of forcible seizure and redistribution. This may reflect the ideological biases of the modern media, or it may just be economic ignorance. Whatever it is, it must be challenged.

The first assumption, that the US economy has not grown since 1980, is trivially challenged by the most basic analysis. According the Federal Reserve, inflation adjusted GDP has grown smartly since then. So has the overall wealth of the US. Well, the neo-Marxists then argue, the wealth gains have all gone to the very rich, and hasn’t helped everyone else!

This much is certainly true: the economic growth over the last 40 years have produced many more well-off people. The definition of “well off” means having substantial assets. An economy that could produce more people with high net worth once upon a time would have been considered successful, even if not everybody was able to take advantage of that opportunity. So it is questionable to claim that having more well-off individuals is a bad thing. What would be a bad thing would be if those who did not win economically, in the aggregate, lost some of their net worth. But this has not happened except temporarily due to inevitable and cyclical recessions. Piketty et al do not seem to have much to complain about here, unless the goal is a precisely equal society where there are no rich but everyone is poor, e.g. communism.

For the last point, which has been called “the mattress fallacy”, the assumption is that the well-off take their assets out of economic use and basically hoard them. But this is nonsensical; the incentives in fact go precisely the opposite way, because cash in a mattress does no good for the person owning it, while assets invested may produce substantial returns. Indeed, one of Piketty’s complaints in his book is that people who invest make more money than people who just work, so he even contradicts himself on this subject. Should people with assets not invest them, because of poor returns or uncertainty related to the legal climate, history shows us what happens: the Great Depression in the 1930’s was exacerbated by most private investment dollars sitting on the sidelines, driven there by a hyperactive regulatory policy that made it impossible to make the kinds of investment decisions that would have ended the Depression many years sooner. Piketty et al have tried to make the case that private investment has been inconsequential in economic growth, but this has met with some derision, and substantial refutation by the economic conditions on the ground, e.g. that investment and growth have snapped back smartly since the Obama Years, when it was official government policy to challenge private investment of all kinds.

When the neo-Marxists are challenged about the loss of private investment, they invariably harrumph and assure us that government investment will do just fine, thank you, since the government is well-resourced and since presumably it knows best what to invest in for the future. But the lion’s share of attempts to insert government into the investment equation have been notable failures. It’s not surprising in retrospect — just as it is far better to have 350 million decision-makers deciding what products are needed rather that government bureaucrats, it’s also better to have millions of private investors, with their own limited money on the line, making investment decisions, than a government investment bureau. It doesn’t take a PhD in economics to understand this.

In short, the neo-Marxists have pretty much refuted themselves. It’s a puzzle why they continue to get any attention at all.

Karl Wright

About Karl Wright

I am a long-time software engineer, with wide-ranging interests including music, the sciences, politics, economics, and medicine. I've been active for a decade in the open-source community and I work for a major mapping company.


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