Economy & Budget

Personal freedom tied to economic freedom

Personal freedom tied to economic freedom

In the course of last night’s debate, President Obama said, “Governor Romney has a perspective that says if we cut taxes, skewed towards the wealthy, and roll back regulations, that we’ll be better off. I’ve got a different view.” Obama was referring to Romney’s pledge to preserve the Bush tax cuts.

In fact, President Obama’s policies have been far more “skewed toward the wealthy” than the tax cuts of his predecessor.

Under President Bush, from 2001 to 2009, the GINI index (a measure of inequality) of the United States rose from 0.466 to 0.468, according to the Census Bureau  – an increase of 0.002 points. In comparison, under Obama, from 2009 to 2011, the GINI index increased from 0.468 to 0.477, an increase of 0.009 points – an increase in inequality more than four times as great under Obama as Bush.

Bush’s increase in inequality of 0.002 points over eight years comes to an annual increase of 0.00025 points, while  Obama’s increase in inequality of 0.009 points over three years comes to an increase in inequality of 0.003 points per year – an annual increase in inequality 12 times as great under Obama as under Bush.

If Romney’s pledge to preserve the Bush tax cuts is “skewed toward the wealthy,” Obama’s policies are a dozen times more so.

President Obama has chosen to make this election about economic inequality. As he put it, “the average income for the top one percent of Americans has risen almost seven times faster than the income of the average middle class family.”

To remedy this situation, says Obama, we must increase spending, raise taxes and generally increase the size of government. Whether it increases the deficit and the debt, or harms economic growth and employment, we must do this, he says, in the name of “fairness.”

BUNK

The recent increase in inequality has coincided with a massive increase in taxation, spending and regulation. According to Americans for Tax Reform, government last year consumed 60.4 percent of national income – up from 48.2 percent in 1995. Far from the solution, big-government tax-and-spend schemes are precisely what have gone wrong:

  • Crony-capitalist bailouts allow “too big to fail” corporations to reap record profits, while offloading losses onto the public. Government “loans” to predictably bankrupt but politically well-connected companies funnel millions into the pockets of already well-heeled political entrepreneurs, sticking taxpayers with the bill.
  • The national debt is now more than $16 trillion – more than $50,000 of debt for each man, woman and child. The interest alone was $454 billion last year – more than $4,000 per household. Like Robin Hood in reverse, this interest burden is a transfer from working taxpayers to mostly wealthy institutions and investors who hold Treasury bills – increasing economic inequality.
  • Even a program supposedly designed to help the little guy actually enriches banks even more. Struggling homeowners who take advantage of Obama’s Harp 2 program to refinance their homes are expected to save just $2.5 billion to $5 billion, while banks are expected to reap more than twice as much from the program – up to $12 billion.

Yet another factor producing “sharply increased economic inequality” – according to George Reisman, emeritus professor of Economics at Pepperdine University – is credit expansion.

From 2009 through 2011, real Gross Domestic Product grew just 4.41 percent, while the money supply grew three times as fast – 13.53 percent. Meanwhile, stock prices have more than doubled, the Fortune 500 has seen record profits, and the wealthiest Americans have become even wealthier.

With all these surging stocks and record profits, where are the new jobs?

Back in 2006 – when the unemployment rate was just 4.4 percent – 60 percent to 80 percent of net new jobs were created by small business, according to the Small Business Administration. But small businesses that want to hire must carry a rising regulatory burden: more than $10,000 per employee by 2008, according to a 2010 study for the SBA. We might afford this in a good economy, but right now it’s keeping millions of workers unemployed.

Each of these government interventions is justified in the name of the general welfare; but each contributes to the widening gap between rich and poor, by chipping away at our economic freedom: A free man works for himself; a slave works for others. We’re 60 percent slave now, and the more the cost of government grows, the closer we get to slavery.

In the real world, less freedom doesn’t mean more equality. It’s the freest economies (as measured by Canada’s Fraser Institute) that display the most equality (as measured by the World Bank’s GINI Index).

And it was in economic freedom that Americans showed the world what real equality looked like, when success spurred congratulations, not envy. To restore that uniquely American spirit of fairness we have lost, we must restore economic freedom.

Sources: Fraser Institute. Economic Freedom of the World 2012 Annual Report. 2012 Dataset; World Bank, Development Research Group. GINI index.

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