In
1795 the United States Supreme Court declared, “The right of acquiring and
possessing property, and having it protected, is one of the natural, inherent
and inalienable rights of man. No man
would become a member of a community, in which he could not enjoy the fruits of
his honest labor and industry. The
preservation of property then is the primary object of the social compact.”
Soon
President Obama will deliver his State of the Union Address, which is going to
lean heavily on his philosophical disdain for growing income inequality in the
United States. We know he wants to raise
the minimum wage to $10.10 per hour.
Last year income and payroll taxes were increased, in part to satisfy
his desire for greater revenue for the relief of struggling Americans. And, of course, he recently stated that to
not extend unemployment benefits would be, in his words, “cruel.”
I
share the President’s desire to see an increase in the income of poorer and
middle income Americans. No one in the
economics community I know of has argued that we need to see falling incomes in
order to produce a healthier economy.
Unfortunately,
his speech is going to create the impression that income and wealth can be
viewed as a ‘zero-sum game’ featuring the idea that if Bill Gates earns one
more dollar someone else is $1 poorer. Yet,
rather than acknowledge his economic failures over the past five years we will
be told more about how unfair life is for poorer Americans.
This
is where the 1795 Supreme Court comes in.
America’s
long history has proven that prosperity for all hinges on a healthy respect
for, and protection of property rights.
Left
alone, every business owner has an inherent desire to earn a profit. They learn over time that in order to make
profit in the long run, they must serve their customers in a way that makes
people want to voluntarily engage in commerce with them. They also know that taking greater risks and
seeking expansion opportunities will only take place if it is believed that more
profit will follow. In order to expand –
or to exist to begin with – productive employees are necessary. Hiring and maintaining these employees means
offering an income that is commensurate with the marketplace for that
particular type of labor. Paying
greater wages and salaries to workers who prove to be the most productive is
also rational, inasmuch as losing them to your next best competitor is an
ever-present risk.
When
a wage is offered, the prospective employee has the right to evaluate the
offer, compare it to others and say “yes” or “no”. The social compact ensures that liberty,
rather than force, violence or coercion will keep this system working well for
the employer and the employee.
When
government steps in and forces employers to pay more than employees
productivity and value would warrant, or when government imposes mandatory
health care or sick leave benefits, it is tantamount to a taking of the
employers property, by force, and the right to voluntary exchange is violated.
This
is what is missing from the current income inequality debate. The right for human beings to free negotiate
labor contracts has been taken away.
Private property is being transferred, by force, from employer to
employee. Meanwhile the following unintended
consequences unfold.
First,
fewer and fewer jobs are available and those who have jobs become convinced
that it is government, rather than their own advancements is skill, education
and training, that is the source of a better life. This keeps people locked into dead-end jobs
while waiting for the next law to come along forcing employers to do “the right
thing.”
Second,
rather than take the risks of starting a new business, or expanding an existing
one, the men and women who might otherwise have become valuable entrepreneurs
and income creators, decide that the risks outweigh the rewards and either relocate,
refuse to expand or never open their doors to begin with.
Until
President Obama realizes the connection between private property rights and long-run
income creation, we will continue to see more laws, more force, more
regulations and more income inequality.
