Excuse Me, Professor: Challenging the Myths of Progressivism

by Lawrence Reed

  The structure of the family is changing, including women having fewer children because of not having to worry about many children dying at birth or at very young ages, as was the case just a couple centuries ago. It is one thing to decide to have a big family, it’s another to have to have a big family because of death and the need to produce labor to work for the food you will eat. As prosperity has increased, the United States is wealthier, which gives women more direct control over how they will pursue employment.

  Institutions are changing as well. Now, more than ever, there are more options for tele-work and flexible hours which give women even more options as they make their own choices and manage the opportunity costs of family and work life. The bottom line is that the more women can voluntarily choose how much to work and when, the freer they are to pursue their chosen ends whether that choice is to stay at home with a large family or manage a full-time, corporate career. What is certain is for those women who want to work many paid hours and invest highly in education, there are more income opportunities in the highest quintiles than there ever have been.

  Nonetheless, as St. Lawrence University economist Steven Horwitz argues in “Markets and the Gender Wage Gap,” available on FEE.org, some good reasons exist for what some are quick to label “discrimination”:

  Men who go to college are more likely to have majors that generate higher pay (such as computer science and engineering), while women tend toward psychology and education, which do not pay as well. Women are more likely than men to interrupt their careers to care for children. Women (and men) who do so tend to fall behind their cohort in job experience and in keeping current in their profession. Their wages thereby fall behind their cohort’s and are lower than they would have been had they not cared for the kids. All choices that affect human capital also affect wages, so discrimination in the marketplace is not required to explain pay differentials.

  Forbes reported in 2014 that there have never been as many Fortune 500 female CEOs as there are now—24 in total, and that is up 4 in just one year, so the future for women business leaders is bright. In my own graduate program, there have never been more talented women pursuing PhDs as there are now, and they are completing their degrees and getting incredible academic placements.

  The hope for women everywhere is equality before the law and a freed labor market. Does some institutional discrimination still exist? Of course, but the quest for profit among firms makes them accountable to market signals about hiring the best employee for the job at hand. Over time, this reduces discrimination by penalizing it (employers who engage in it lose valuable employees to competing businesses and opportunities). A freer world is a better world for everyone.

  SUMMARY

  •The freer the market, the more opportunities there are for women (and anyone else, for that matter) to progress up the economic ladder

  •Most of the 17.9 percent wage gap in the United States can be explained by number of hours worked, marriage and age. Women who work full-time and who have never married make 95.2 percent of male earnings narrowing the gender-wage gap to less than 5 percent

  •For those women who want to work many paid hours and invest highly in education, there are more income opportunities in the highest quintiles than there ever have been

  #40

  “THE RICH ARE GETTING RICHER AND THE POOR ARE GETTING POORER”

  BY MAX BORDERS

  IMAGINE YOU COULD GO BACK IN TIME 50 YEARS. SUPPOSE THE REASON YOU ARE doing so is to put policies into place that would ensure that the rich got richer and the poor got poorer. (Why anyone would want to do this is beside the point, but stay with me.) What policies would you set?

  1.You would want to price poor, unskilled people out of the labor market with an ever-increasing minimum wage.

  2.You would provide special favors, artificial competitive advantages, and taxpayer subsidies to the politically well-connected (i.e., those already rich).

  3.You would stifle new, small businesses with stacks of regulations and bureaucratic paperwork.

  4.You would (literally) pay people to stay in poverty, to be dependent on government, so that any work ethic would be suppressed and eroded.

  5.You would implement an erratic and largely inflationary monetary policy that erodes savings and creates destructive booms and busts.

  6.You would want to soak “the rich” so as to reduce investment and the incentive of the non-rich to get wealthier.

  All six of these in combination might do the trick. Throw up barriers to the progress of the poor, or pay people to stay poor, or rig the system so the rich and politically well-connected get artificial economic advantages and chances are, the poor will indeed get poorer and the rich will get richer.

  By now you have probably noticed that every one of the policies above has been implemented to varying degrees during and since the Great Society. And yet the poor have still not gotten poorer in the United States.

  According to professional skeptic Michael Shermer:

  The top-fifth income earners in the U.S. increased their share of the national income from 43 percent in 1979 to 48 percent in 2010, and the top 1 percent increased their share of the pie from 8 percent in 1979 to 13 percent in 2010. But note what has not happened: the rest have not gotten poorer. They’ve gotten richer: the income of the other quintiles increased by 49, 37, 36 and 45 percent, respectively.

  Detractors will try to argue that the poorest quintiles have a smaller percentage of the overall pie. And that might be true, but the pie is much, much bigger. Would you rather have 50 percent of a million or 20 percent of a billion? Another way of putting this is: Would you rather be better off, even if that meant certain people were super well off? Or would you rather everyone were worse off, as long as everyone were relatively equal?

  That the poorest among us are still, on balance, doing better today than they were 50 years ago is a remarkable testimony to what relatively free people and markets can do, even as governments put up roadblocks. So if the poor aren’t getting poorer, why do people say they are?

  If one starts with the assumption that an equal distribution of wealth is the ultimate goal, then he or she is not terribly concerned with how much of that wealth is created to begin with. But some people, at least, understand that wealth has to be created and that when there is more wealth created the poorest among us will tend to be better off. The choice of starting points boils down then to whether one cares about distributing wealth evenly or growing overall wealth through productive activity.

  One reason this particular cliché manages to hang around is that people generally take a static view of the economy. The idea is that wealth is like a giant pie, which neither grows nor shrinks, but gets carved up and distributed certain ways. So, some people end up with the false idea that the only way the rich can be richer is if part of the wealth pie is taken from the poor. From this they conclude justice demands a different distribution of the pie. Advocates of “meritocracy” believe the static pie should be divided according to talent and hard work. Advocates of “social justice” think the pie should be divided according to some concept of equality. Both are wrong, but the fundamental error is in thinking that wealth is a static pie to start with. It is not.

  Wealth can better be imagined as a growing pie, or better, a growing ecosystem. Of course, wealth doesn’t always grow, but it tends to—as long as people have the incentives to be productive. Merit and hard work tend to be rewarded in this growing pie, but rewards more generally accrue to those who create value for others.

  In other words, someone who works really hard might not be rewarded if no one finds his work valuable—say, a man who digs ditches and fills them up again. Likewise, work that might be considered meritorious in an obscure academic journal might not confer any earthly good on humanity outside of the journal’s four-person review committee.

  Advocates of so-called social justice want the wealth pie to be divided according to an arbitrary and subjective abstraction like �
�fairness” or equal outcomes. But carving up wealth according to some nebulous concept of justice ignores the actual ecosystem in which people operate. In other words, such a concept ignores the behaviors, incentives and exchanges that encourage people to be productive—i.e. to generate wealth. By distributing from rich to poor, you end up paying poorer people to be less productive, while punishing more productive people. The distribution that would flow from people making more goods and services available to all is lost by degree, making everyone worse off. If taxation and redistribution for the sake of equal outcomes makes us all worse off than we would otherwise have been, how is this social justice?

  Egalitarian concepts of social justice also ignore any moral considerations that might attach to how an unequal distribution might have come about. If growing overall wealth is about people creating different degrees of value for each other, and taking different risks, then the rewards of value creation will never flow equally. Some people will make more money than others, for example, whether it’s because they were smarter investors, cleverer innovators, or better organizers. The rest of us enjoy the fruits of those efforts, so we might want successful people to keep investing, innovating and organizing—even if that means they get richer. And we might want to acknowledge that they deserve what they have.

  (Editor’s Note: Economist Thomas Sowell has said, “Since this is an era when many people are concerned about ‘fairness’ and ‘social justice,’ what is your ‘fair share’ of what someone else has worked for?” I often ask this question of a redistributionist in the presence of another person and ask the former to specifically tell me how much is his ‘fair share’ of what the other person in our presence has earned. I’m still waiting for a satisfactory answer.)

  Those of us who are not as productive (or, politically well-connected, as the case may be) still enjoy remarkable abundance in relatively free societies. In the United States, for example, all quintiles have become wealthier overall, over the last 30 years.

  It is also true that there are fewer desperately poor people around the world. In only 20 years, extreme global poverty has been cut in half. That is a remarkable achievement—one that is attributable to policies of liberalization (freer markets) around the world, which progressive activists and egalitarians decry. In other words, those who say the poor are getting poorer are simply wrong. And there are hundreds of millions of people thriving today who can talk about how much better things have gotten.

  More than a century and a half ago, Karl Marx and his early followers claimed the rich were getting richer and the poor were getting poorer. They argued this would continue and worsen. No one in his right mind can look back on the intervening years and believe the poor were better off in 1850 than they are in 2015. Just think how much more capitalism could do to alleviate the poverty that still exists if only government were to get out of its way.

  SUMMARY

  •Progressives should be honest and admit that the anti-free market policies they’ve promoted and achieved in the last half-century have disadvantaged the poor and conferred favors upon the rich and politically well-connected

  •Amazingly, in spite of those policies, the poor overall are still better off than they were 50 years ago. Imagine the progress that might have happened had these policies not been in place!

  •Redistributing wealth is just slicing the pie differently, at the risk of shrinking the pie. It’s a static view of wealth, one that’s greatly inferior to a view of baking a bigger pie for everybody

  #41

  “ROCKEFELLER’S STANDARD OIL COMPANY PROVED WE NEEDED ANTITRUST LAWS TO FIGHT MARKET MONOPOLIES”

  BY LAWRENCE W. REED

  AMONG THE GREAT MISCONCEPTIONS ABOUT A FREE ECONOMY IS THE WIDELY-HELD belief that “laissez-faire” embodies a natural tendency toward monopoly concentration. Under unfettered capitalism, so goes the familiar refrain, large firms would systematically devour smaller ones, corner markets, and stamp out competition until every inhabitant of the land fell victim to their power. Supposedly, John D. Rockefeller’s Standard Oil Company of the late 1800s gave substance to this perspective.

  In 1899, Standard refined 90 percent of America’s oil—the peak of the company’s dominance of the refining business. Though that market share was steadily siphoned off by competitors after 1899, the company nonetheless has been branded ever since as “an industrial octopus.”

  Does the story of Standard Oil really present a case against the free market? In my opinion, it most emphatically does not. Furthermore, setting the record straight on this issue must become an important weapon in every free market advocate’s intellectual arsenal.

  Theoretically, there are two kinds of monopoly: coercive and efficiency. A coercive monopoly results from, in the words of Adam Smith, “a government grant of exclusive privilege.” Government, in effect, must take sides in the market in order to give birth to a coercive monopoly. It must make it difficult, costly, or impossible for anyone but the favored firm to do business.

  The United States Postal Service is an example of this kind of monopoly. By law, no one can deliver first class mail except the USPS. Fines and imprisonment (coercion) await all those daring enough to compete. (Editor’s Note: In the years since this article was written, technology in the form of fax machines, overnight delivery services, the Internet and e-mail have allowed the private sector to get around the government monopoly in traditional, first-class mail delivery.)

  In some other cases, the government may not ban competition outright, but simply bestow privileges, immunities, or subsidies on one firm while imposing costly requirements on all others. Regardless of the method, a firm which enjoys a coercive monopoly is in a position to harm the consumer and get away with it.

  An efficiency monopoly, on the other hand, earns a high share of a market because it does the best job. It receives no special favors from the law to account for its size. Others are free to compete and, if consumers so will it through their purchases, to grow as big as the “monopoly.”

  An efficiency monopoly has no legal power to compel people to deal with it or to protect itself from the consequences of its unethical practices. It can only attain bigness through its excellence in satisfying customers and by the economy of its operations. An efficiency monopoly which turns its back on the very performance which produced its success would be, in effect, posting a sign, “Competitors Wanted.” The market rewards excellence and exacts a toll on mediocrity. The historical record casts the Standard Oil Company in the role of efficiency monopoly—a firm to which consumers repeatedly awarded their votes of confidence.

  The oil rush began with the discovery of oil by Colonel Edwin Drake at Titusville, Pennsylvania in 1859. Northwestern Pennsylvania soon “was overrun with businessmen, speculators, misfits, horse dealers, drillers, bankers, and just plain hell-raisers. Dirt-poor farmers leased land at fantastic prices, and rigs began blackening the landscape. Existing towns jammed full overnight with ‘strangers,’ and new towns appeared almost as quickly.”

  In the midst of chaos emerged young John D. Rockefeller. An exceptionally hard-working and thrifty man, Rockefeller transformed his early interest in oil into a partnership in the refinery stage of the business in 1865.

  Five years later, Rockefeller formed the Standard Oil Company with 4 per cent of the refining market. Less than thirty years later, he reached that all-time high of 90 per cent. What accounts for such stunning success?

  On December 30, 1899, Rockefeller was asked that very question before a governmental investigating body called the Industrial Commission. He replied:

  I ascribe the success of the Standard to its consistent policy to make the volume of its business large through the merits and cheapness of its products. It has spared no expense in finding, securing, and utilizing the best and cheapest methods of manufacture. It has sought for the best superintendents and workmen and paid the best wages. It has not hesitated to sacrifice old machinery and old plants for new and better ones. It has pla
ced its manufactories at the points where they could supply markets at the least expense. It has not only sought markets for its principal products, but for all possible by-products, sparing no expense in introducing them to the public. It has not hesitated to invest millions of dollars in methods of cheapening the gathering and distribution of oils by pipe lines, special cars, tank steamers, and tank wagons. It has erected tank stations at every important railroad station to cheapen the storage and delivery of its products.

  Rockefeller was a managerial genius—a master organizer of men as well as of materials. He had a gift for bringing devoted, brilliant, and hard-working young men into his organization. Among his most outstanding associates were H. H. Rogers, John D. Archbold, Stephen V. Harkness, Samuel Andrews, and Henry M. Flagler. Together they emphasized efficient economic operation, research, and sound financial practices.

  Socialist historian Gabriel Kolko, who argues in The Triumph of Conservatism that the forces of competition in the free market of the late 1800s were too potent to allow Standard to cheat the public, stresses that “Standard treated the consumer with deference. Crude and refined oil prices for consumers declined during the period Standard exercised greatest control of the industry.”

  Standard’s service to the consumer in the form of lower prices is well-documented. Professor D. T. Armentano notes:

  Between 1870 and 1885 the price of refined kerosene dropped from 26 cents to 8 cents per gallon. In the same period, the Standard Oil Company reduced the [refining] costs per gallon from almost 3 cents in 1870 to 0.452 cents in 1885. Clearly, the firm was relatively efficient, and its efficiency was being translated to the consumer in the form of lower prices for a much improved product, and to the firm in the form of additional profits.

  That story continued for the remainder of the century, with the price of kerosene to the consumer falling to 5.91 cents per gallon in 1897. Armentano concludes from the record that “at the very pinnacle of Standard’s industry ‘control,’ the costs and the prices for refined oil reached their lowest levels in the history of the petroleum industry.”