The gap between rich and poor is widening to record levels. Some blame the “free market.” But what if government was also a culprit?
Since 2002, 65 per cent of the wealth created in the United States ended up in the pockets of the richest one per cent, according to a study. Who are these filthy rich? Many of them work on Wall Street. For years, brokers gunned their roaring Maseratis at every corner, wore $3,000 suits around the office, and let the Bordeaux wine flow… at lunch.
Then the stock market crashed. And it became clear that the emperor had no clothes. Most of these newly rich didn’t deserve their Maseratis, nor their suits. Paper profits vanished, and now most banks are drowning in debt. CEOs took on too much risk, and failed.
In a true free market, these cowboys would lose their fortunes. But the U.S. government chose to bail them out (here’s a couple billion dollars; don’t spend it all on one bonus). The state buries ordinary citizens — who earn just $40,000 a year — under a mountain of public debt to prevent Wall Street millionaires from having to sell a boat or two to pay the bills.
By bypassing the natural “clean-up” of the economy, the government perpetuates wealth disparity. Every crisis ends the same way: In the U.S. or elsewhere, governments save companies they consider “too big to fail,” along with their shareholders.
You call this a free market?
A free market rewards success and punishes failure. No bailouts at taxpayer expense. You failed? See you in the unemployment line. The poor do not pay for the mistakes of the rich.
On Wall Street, JP Morgan recently hired 2,000 new graduates. Thanks to government support, Wall Street is thriving again. Is this a good thing? In 1972, five per cent of Harvard MBA graduates went to work in finance. Today, it’s 45 per cent. Thousands of beautiful minds build complex algebraic models to sell refrigerators to Eskimos, instead of working on cleaner energy or curing cancer. The state must get out of the way and let this industry shrink in order to free up these brains.
If you scorn big banks, Wall Street or wealth disparities, you have good reason to do so. But don’t blame “the free market.” Better to blame this rigged system of ours in which the state meddles in everything, and takes from the poor to give to the rich.
David Descôteaux est chercheur à l’Institut économique de Montréal.