Why Protect the Rich from Competition?
by Jacob G. Hornberger
One of the things that drive statists batty is the fact that some people have more wealth than other people. They think that life’s just unfair in that sense. They feel that everyone should have the same amount of wealth. They let the sins of envy and covetousness get the best of them.
And so the statists have the federal government, specifically the IRS, confiscate money from the rich in order to distribute it to the poor (including poor foreign dictatorial regimes, such as the one in Egypt).
At the same time, the statists have the federal government implement and enforce a broad array of economic regulations that are purportedly intended to protect the poor from exploitation or abuse by the rich.
One big problem, however, is that the measures that the government takes to equalize wealth and to protect the poor actually do the precise opposite. They actually serve as devices that protect the rich from competition from those at the bottom of the economic ladder.
Consider income taxation. The more one makes, the more the IRS confiscates. That obviously makes it much more difficult for a poor person to accumulate the capital nest egg to start a business and compete against the businesses that have already made it.
Sure, it’s true that income taxation also inhibits the established businesses from accumulating more wealth but at least they don’t have to concern themselves with a multitude of new businesses that are opening up in competition against them. With competition inhibited through income taxation, the big, already-established firms are more easily able to retain their share of the market.
The same type of thing happens with minimum-wage laws, which ostensibly are intended to protect the poor from exploitation by employers. Actually, minimum-wage laws, like income taxation, serve to provide the already-established firms with a privileged position — that is, a position where they have to be less concerned about the possibility of competition from those at the bottom of the economic ladder.
Let’s assume that there is a person in the inner city who has an idea for a new business, but he lacks the capital to get it going. He approaches several young people in the neighborhood and offers them $1 an hour, with the understanding that when the business takes off, he’ll increase their pay commensurate with how well the business is doing — and give them some stock options as well.
The people he approaches, all of whom are unemployed, say yes. They’re willing to settle for $1 an hour and stock options in the hopes of being on the ground floor of a business that has the potential of taking off.
One big problem: The federal government won’t let them do it. If the person who is starting the business doesn’t pay those unemployed guys the minimum wage, he can’t start his business.
Who celebrates this state of affairs? Certainly not the unemployed guys. They’re not going to say, “Yah, we are going to get paid a higher wage than $1 an hour, thanks to our federal officials.” The reason they’re not going to celebrate is that they’re still not going to have jobs. They are going to remain unemployed, thanks to their federal government.
The people who are going to celebrate are the big, already-established firms because now they don’t have to concern themselves with the possibility that a new upstart company will be taking customers away from them through competition.
In fact, the minimum wage also ensures that multitudes of young people, especially African-American teenagers, will not be able to get a job in their formative years, where they could be learning a trade, a work ethic, and how to run a business. That’s because the minimum-wage locks them out of the labor market. That’s why there is a 40%-50% unemployment rate among black teenagers.
Consider licensing laws, which state and local governments issue, supposedly to protect people from being abused or taken advantage of by unscrupulous or unethical people. Actually, occupational licensure is nothing more than a protection racket to protect the rich from competition from the poor.
That’s because getting a licensure is an expensive process, by design. To get a license, the state requires things like a college degree, or a post-graduate degree, or a degree from an expensive training school. The expense ensures that lots of poor people are winnowed out. Many of them stay away from those occupations that require a license, and they have no idea that it’s all just a protection racket that keeps the poor from competing against those who have the privilege of having a state-issued license.
In 19th-century America, there was no income taxation, minimum-wage laws, or licensing laws. In fact, there were few economic regulations and other barriers to opening new businesses. That economic freedom enabled many poor people to become rich people. Big, already-established businesses were constantly having to contend with new businesses that were offering better goods and services to consumers. Unless they could continue satisfying customers, the big businesses would lose market share or even go out of business. Lots of poor people were going from rags to riches in one, two, or three generations.
Thus, there was no need to “equalize” wealth because the free market — that is, a market free from income taxation and government regulations — was already building and redistributing wealth on a massive scale. The consumer, not the government, was the sovereign in this process.
All that came to an end when American statists in the 20th century abandoned a free-market system and adopted the income tax, the minimum wage, occupational licensure, and economic regulations. As their system proceeded to fortify the position of the rich by inhibiting the ability of the poor to compete, rather than admit what they had done and repeal it, the statists instead began plundering and looting the rich and putting the poor on the government welfare dole. Of course, that only made the situation worse.
The best way to help the poor is by prohibiting the government from helping the poor. A good way to start is by repealing the income tax and abolishing the IRS and by repealing minimum-wage laws, occupational-licensure laws, and all other economic regulations.