Let me present two facts about the United States that are not in dispute:
""1. "Fewer than 3 percent of those in the bottom 20 percent [in terms of income earned] in 1975 were still there in 1991, while 39 percent of them were now in the top 20 percent" (Sowell, Thomas. Basic Economics. Basic Books. New York. 2000. p. 137).
This striking statistic is important, because it shows how misleading the economic rhetoric of the left is. As Sowell points out, when we talk about the rich and the poor, most often we are talking about the very same people at different stages of their lives. Twenty-year-olds with little experience and education are paid less than they will be paid at forty years of age. 97 percent of the poorest people moved out of the bottom fifth of incomes in only 16 years. And 39 percent of the poorest fifth had joined the richest fifth in the same period. That is impressive even to the most ardent defender of capitalism. One reason the United States does not have an epidemic of kidnapping of the wealthy by the poor (which the reader above describes as commonplace in Latin America and other places) is that there is a more civilized and less risky way to acquire money in this country—earning it.
What about that 3 percent? They are stuck being poor, it seems. Shouldn’t a moral nation of compassionate people do something about the few who, for whatever reasons, are permanently poor? A nation should do whatever it wants, if what we mean is the people in a country. But a nation’s government should not. Let’s not ignore the other side of this moral question—"doing something about it" usually means demanding more money from taxpayers, who, if they wanted to contribute to help the 3 percent, might do so voluntarily. When an individual takes money from those who earned it to give to those who have not earned it, it is theft; when government does it, to paraphrase Frederic Bastiat, it is legalized theft. The action and violation are the same. This is also a case of the slippery slope made real—a government authorized to violate the right to property will not take long to expand its power and violate other rights as well—history has shown this to be true time after time in place after place. But we don’t need to make this philosophical argument—the practical, economic objection to "helping" the poor is that it does not help them at all.
In nations that have made the most effort to eliminate poverty through government action, there are more poor people, smaller middle classes, and fewer technological innovations and affordable consumer goods. Some might feel badly that there are a small percentage of people who will be poor all of their lives, even if in many cases they are the cause of their own long-term poverty. But those governments that try the hardest to eliminate the poor end up hurting the other 97 percent as well as the 3 percent they are trying to help, and always either increase poverty in the long run, or inhibit prosperity. People find it unacceptable that 3 percent are forever poor because they are holding on to an unrealizable utopia. The 3 percent needs to be considered in context of every other kind of economic system around the world. In that context, it is a tiny number, certainly small enough for private charity to be of substantial relief. And compared to practically any of these other nations, poor people in the United States are hardly "have-nots."
2. In 1994, in households defined as at or below the poverty line by the U.S Bureau of the Census, 71.8% had one or more cars (up from 64.5% in 1984); 59.7% had a VCR (up from 3.4% in 1984); 71.7% had a washing machine (up from 58.2% in 1984); and 60% had a microwave (up from 12.5% in 1984). The list goes on, all reflecting a similar trend. The 1984 numbers were themselves substantial increases over previous decades. In terms of material goods and life’s conveniences, "many of today’s poorest households have … more even than the general population had two decades ago" ("Where We’ve Been and What’s Ahead" Dallas Business Review).
We can dismiss this idea that somehow the poor are worse off today because the rich are even richer than they were before. The argument only makes sense (and not much) if we measure the lives of the poor merely in terms of envy: "Oprah has a yacht and I don’t—my life sucks!" The real way to measure the growing or falling wealth of people is to determine whether the basics and the conveniences of life are more or less prevalent than in years past. The competition, innovation, and profit-motive of capitalism make it exceptionally efficient at providing products at ever-more-affordable prices. That is why in just ten years, VCRs and microwaves went from luxuries of the rich to common appliances even among the very poor.
Capitalism has been so successful at fulfilling human needs and material wants, poverty has continually been defined upward. One can own a washing machine and dryer, personal computer, car, color television, VCR, microwave, air conditioning, and more, and still be considered poor by the United States government. Just fifty years ago, some of the conveniences owned by today’s poor would have been science fiction to even the wealthy. When politicians and activists say there are more poor people than before, or that the gap has grown between rich and poor, they are ignoring the vast improvement in living standards that continually takes place in our society. And they are misunderstanding the crucial role economic inequality plays in social progress.
F.A. Hayek, the brilliant economist and social philosopher, points out in The Constitution of Liberty that the gap between rich and poor is a requirement for advancing living standards. Prototypes and early versions of new technology are expensive to make and cannot be mass-produced. Therefore, they must be sold for exorbitant prices in order for it to be economically feasible to produce them. Businesses don’t create innovations unless they can afford to do so, and there is a high cost to develop new devices that might end up benefiting the entire society. The rich buy and enjoy the technology first, and this might create envy. But the effect is that businesses can afford to experiment and test-market and develop more efficient production methods. This is why, at first, personal computers were found only in the homes of the wealthy, and before long, all but the very poorest Americans will have their own computers (and eventually they will as well).
Hayek shows that this trend also exists internationally. Developments in wealthier nations often find their way to poorer ones. The poorer ones, lacking economic and social structures necessary for the innovations, would never have benefited from them if all nations were equally poor. But the existence of richer nations makes possible the improvements in poorer ones. These improvements in the lives of the poor are not due to the compassion of the rich. In fact, when rich nations try to help poorer ones, they usually cause more harm than good. Intent is not relevant here; we are concerned with results.
It might seem unfair that some have to wait for the benefits of these developments, but in nations without wealth inequality, the developments never take place at all. People in socialist nations don’t invent very much, and don’t produce these items that they don’t invent at prices that make them affordable to regular people. It is clearly better to live in a society where the rich have more money than the poor and have access to innovations first, but where the poor soon have better standards of living as a result. It helps that in the United States the poor are not stuck being poor for very long.
It is politically effective to manipulate the bottom 20 percent and feed the jealousy people have for those who seem to live lives of excess. It is also effective to manipulate the unearned feelings of guilt and the economic ignorance of the population-at-large and direct it at the very rich and the entire economic system. Yet a free society not only must allow such excess to exist for moral reasons, but in many ways benefits from its existence. The "have-nots" in the United States have quite a bit as a result, have more with each passing decade, and are not forced to remain "have-nots" for the rest of their lives. An economy that achieves these awesome results should be emulated around the world, and should not be fettered by politicians and activists, who out of ignorance or their own self-serving agendas, seek to control it.
None of this is to imply that it is easy to be poor in America, or that there aren’t real social problems in many neighborhoods, such as drug abuse, violent crime, bad schools, broken families, and resentment. There are diverse causes of these problems, but as with economic difficulties, many are caused or exacerbated by the government. What is certain is that economic ignorance or intentional misrepresentation of the success of capitalism at improving the lives of the poor is not going to bring any solutions to the above problems. It might help get votes, but it is intellectually dishonest and harmful to the very people who need capitalism the most. Capitalism is the cure for poverty everywhere it has been tried. If there is still too much poverty in the United States, try more capitalism.""
