Myth: Income disparities wouldn't exist in a laissez faire economy.

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Note: This video is part of a series which debunks myths pertinent to laissez-faire capitalism. Many points not addressed in this video can be found at the above link.

Myth: Income disparities in the world at present are for the most part a result of government intervention, and wouldn't exist in a laissez faire economy.

It's certainly true that the current mix of capitalism and socialism in our economy is not a perfect example of what pure capitalism would be. Because no true purely capitalistic society has ever existed (and because it is most likely impossible for an economy to stay laissez faire for very long), it's hard to perform a scientific test of what it might be like. However, despite the existence of taxation (some of which produces an equalizing effect and others of which exacerbates disparity), the majority of goods and services in the world (and certainly in the United States) are produced and distributed under the mechanism of capitalism, and decisions about the allocation of resources are made largely by private institutions and individuals. We can, therefore, derive some important information about what a laissez faire society would look like by observing our own. We can also learn about what it would be like by considering what happens in a situation when the mechanisms of capitalism are allowed to operate unchecked.

Let's imagine that world governments were all drastically reduced in size such that they could only enforce the most literal definitions of "force" and "fraud," and that these governments were somehow kept from expanding. Let's also suppose that all of the world's resources were distributed in an even manner between all people from the start. In this society where no one had appreciably more bargaining power than anyone else, everyone would have the ability to make non-coerced decisions about their labor and possessions. Unfortunately, however, it's evident that this idyllic state of affairs wouldn't last long. Given that different people have radically different levels of skill and ability, given that chance plays an extremely significant role in level of financial success (see Myth: People are usually poor because they made bad choices), and given that as generations passed people would inherit the wealth that others had earned, clearly it wouldn't take more than a few generations at most for significant income disparities to emerge again. Once this began, there would be many factors working over time to make it worse: People with fewer financial means would tend increasingly to lack education and an understanding of the rules of society that permit people to get jobs and function successfully. They would face higher fees, "rent to own" costs, and higher interest rates than the wealthy. They would have to cope with a much higher percentage of their income consumed by the need for services like automobiles, heating costs, and child care. They would increasingly have to resort to short-term measures to meet their needs (taking out loans or ignoring preventative health care, for instance), leading to higher costs in the long run. They would have to deal increasingly with the greater cost of renting (as opposed to owning). The wealthy, on the other hand, would be able to lend out their extra money in order to become wealthier. Eventually, we would again have a society of vastly rich and desperately poor. All this suggests that—though government intervention could make income disparities worse if we design it to do so—the mechanisms of capitalism are quite sufficient to create these disparities on their own.

If you don't understand why income disparities are a problem for a society, check out these Myths elsewhere in this essay:
Myth: Theres no reason we shouldn't allow people to get extremely rich.
Myth: Rich people and powerful private institutions are held accountable by a public who buys their products, rendering them largely incapable of using the power of their wealth to hurt others.
Myth: Unethical behaviors perpetrated by rich institutions are rare.
Myth: A rising tide raises all boats—even the poor are getting richer as time goes on. Because people are able to buy expensive things like cars and cable television, they must not be suffering from poverty.
Myth: Income disparities don't matter; only absolute poverty matters.

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[GoingGoingGalt]

According to the Fraser Institute's survey of economic freedom of countries, there is no correlation between the economic freedom of a country and income share of the bottom 10%. Also, stealing a line from Margaret Thatcher, "You'd rather have the poor be poorer provided the rich were less rich."

[Beingism]

@GoingGoingGalt I'll tell you what, though: There's definitely a correlation between the number of collectively-funded research-based programs that aim to end poverty/homelessness/etc and the amount of poverty and homelessness. You and Thatcher might think we're megalomaniacal and bent on reducing the world to poverty, but doesn't it seem more likely that we have a different idea about how to address it? Please, go find another set of videos to troll. You've used up your goodwill here.

[FreeEcon]

Correct, but you assume that income disparities are problematic, which is incorrect. If everyone's income tripled, disparity remains the same, but everyone is objectively better off.

[JohnColt]

@ineptsegue Anybody who argues that, under true L.F there would be no income disparity, doesn't know what they're saying; but I've never heard anybody say that, so I would appreciate it if you would provide a citation to support that claim.

However, it IS argued that under L.F there would be less income disparity than there is now.

As for so called "economic coercion", Libertarians argue that L.F. is the system under which people have the MOST choice - that's the WHOLE POINT :D

[JohnColt]

That quote at the beginning - where is it from? I've certainly never heard anybody argue that laissez fair would mean no income disparity.

The important questions are: as long as A isn't coercing B out of his or her money, why shouldn't A be wealthier than B? And, if B is less wealthy than A, is he justified in coercing A out of his or her money?

[Ibnmazin101]

@ineptsegue Thats your assumption. Corporatism only exists with government intervention.

You can give government the role to incentivize things, but you have to explicitly provide situations where the private market doesn't institute enough incentives

[Islam781]

@ineptsegue Thats not the issue. The issue is that governments often end up getting in the way by not accurately gauging human needs, while the free market comes closest to solving the issue.

[Islam781]

@ineptsegue Where am I insulting you? Have you not insulted me by calling me a person of "great privilege" in a sneering way?

Youre mentioning a lot of things but not providing a single example. I don't nitpick. I just respond to the little concrete material you have.

[Islam781]

@ineptsegue And you continue to ignore the statistics, which shows that economic freedom is 54 times more correlated with peace than political freedom.

Let me make this very clear to you. Corporatism is not Capitalism. If you can't grasp the distinction, review your understanding of political economics.

Now, what other situations does government perform a better job than the market?

[Islam781]

@ineptsegue Maybe this subject is a little over your head.

People are dying of malaria because governments are not permitted to use DDT to kill mosquitos. The Minister of Health from Uganda went on 20/20 a few years ago and said that international bans on DDT is killing his people. So, yes, how arrogant of you to say that people shouldn't decide for themselves what they prefer

[Islam781]

@ineptsegue A superficiality in the case that youre suggesting the government understands our interests better than we do. The money that goes into fighting malaria and into ice cream is determined by how much of a priority each is to the consumers. If malaria is not considered a problem, people won't pay to fight it. You think you know how to take care of people better than they do. YOU are a speaking like a person of great privilege.

[Islam781]

@ineptsegue Capitalism is undermined by war, but at the same time is, according to the Fraser Institute, 54 times more correlated with peace than political freedom (using economic freedom and comparing the data with Freedom House and the UN's World Peace Index).

Yes, governments can do good when they limit themselves to the tasks I laid out.