By D. Pontoppidan, Summer Fellow at the Mackinac Center
Here is a letter I sent to the editor of the Financial Times a couple of days ago.
The second coming of Marx
Sir, on June 30 Ben Funnell engaged in editorial divination, channeling Karl Marx’s financial beliefs from the grave. In the pink pages of Financial Times, no less. Claiming that the benefits of economic growth go into the pockets of plutocrats and increases inequality, Funnell warned of impending revolution.
But what the rising Gini coefficients don’t explain, however, is that while the rich naturally gain most, everyone benefits from capitalism. A study from the U.S. Census Bureau published in 2003 examined various income groups in the years 1996-99. In this period, 38 percent of the people who were in the poorest fifth of the population climbed the social ladder. A similar study undertaken by the Sphere Institute in California, America’s largest economy, showed that out of 187,000 employees who were examined between 1988 and 2000, 80 percent who started in the poorest fifth had advanced socially.
Funnell mentions Société Générale’s study of the inflation-adjusted income of the highest-paid fifth of American earners in 1970, and that it has risen by 60 percent since then, while it has fallen by more than 10 percent for the rest. Actually, it islikely that the inflation-adjusted income of the highest-paid fifth of earners in 1970 is zero today. One earns the most money as one retires, and in the long run after, we all die as Keynes famously predicted.
While we are dead in the long run, we benefit in the short run. Take the mass distribution today of products that only a few years ago were luxury item: ipods, mobile phones, laptops, high speed internet connections and comfortable cars. All the result of financial innovation that is unique to the free market, and even in a financial crisis have not succumbed to a falling rate of profit as Marx would have had us believe.