The American Class War

President Obama likes to talk about class warfare, a lot. In nearly every one of his speeches he blames the “millionaires and billionaires” for America’s economic woes, champions confiscatory policies of taking and redistributing wealth in order to combat the upper class and provide to the lower class, and he even went so far in his rhetoric as to call Ronald Reagan “that wild-eyed socialist, tax-hiking class warrior” in an attempt to legitimize his own class war.

Looking at the statistics being bandied around by politicians Obama does, at first glance, seem correct. The top 1% of Americans own 35% of America’s wealth while the bottom 80 percent only possess 11%. That gap was not always so large and seems to have trended in favor of the rich for many years. Americans are not created equal: the gap between the rich and the poor is an ever increasing chasm that, in practice, results in two distinct classes at war with one another.

Statistics, however, can be very elusive and the reality is often far more complex and even very different than what a few numbers might suggest. Relating income brackets are one thing but what about real, flesh and blood people? The fallacy of redistribution ignores the reality of mobility: something that does not exist in a totalitarian, collectivist or monarchical society but is very much present in a free market or even a somewhat free market like what we have in the United States.

Economist Thomas Sowell explains:

The Internal Revenue Service can follow individual people over the years because they can identify individuals from their Social Security numbers. During recent years, when “the top one percent” as an income category has been getting a growing share of the nation’s income, IRS data show that actual flesh and blood people who were in the top one percent in 1996 had their incomes go down — repeat, DOWN — by a whopping 26 percent by 2005.

How can both sets of statistics be true at the same time? Because most people who are in the top one percent in a given year do not stay in that bracket over the years.

If we are being serious — as distinguished from being political — then our concern should be with what is happening to actual flesh and blood human beings, not what is happening to abstract income brackets.

There is the same statistical problem when talking about “the poor” as there is when talking about “the rich.”

A University of Michigan study showed that most of the working people who were in the bottom 20 percent of income earners in 1975 were also in the top 40 percent at some point by 1991. Only 5 percent of those in the bottom quintile in 1975 were still there in 1991, while 29 percent of them were now in the top quintile.

There will always be a “bottom 20%” but the people who make up that bottom income bracket change on a daily basis. The millionaires and billionaires do not usually remain that way for long and the poor is mostly young people with little experience and few assets who almost always rise up to join the middle or even the upper classes. As long as people can freely move from one “class” to another then what we have, effectively, is but one all-embracing class of American citizens. This mobility, a very good thing, is in jeopardy, however. Class warfare as President Obama defines it, between the rich and the poor, may not exist but we are in danger nonetheless of creating a multi-class system here in the United States and it is, to a large degree, redistributive policies like those suggested by Obama (and, although to a lesser degree, Romney as well who has a long history of supporting the welfare state as well as the bailouts.) that are responsible.

Consider the following: When one adds the 107 million Americans already receiving some form of means-tested government welfare, to the 46 million seniors collecting Medicare and 22 million government employees at the federal, state and local level suddenly, over 165 million people, a clear majority of the 308 million Americans counted by the U.S. Census Bureau in 2010, are at least partially dependents of the state.

As Alexis de Tocqueville famously stated: “The American Republic will endure, until politicians realize they can bribe the people with their own money.” We have created a nanny state in which millions of able-bodied men and women are at least partially dependent on a few political and corporate leaders for their livelihood. That kind of dependence is unsustainable. Our national debt is over 16 trillion but that is just the tip of the iceberg. The unfunded liabilities of our welfare programs are over 120 trillion dollars – or over one million dollars per taxpayer. Let me repeat that: if you pay taxes then you are over one million dollars in the red. So whether you are one of the dependents or one of the taxpayers (or both, which is often the case) then the government owns you. The Democratic National Committee wasn’t kidding when it said that “government is the only thing that we all belong to.” If this trend continues for much longer then we will have as the end result two firmly established classes: the corporate and political elite who make the rules and then everyone else – the working poor; we will have the insiders and the outsiders and what will distinguish them will not be income but those who gets to decide how to plunder and redistribute the wealth and those who actually toil and sweat to produce it.

The moment that the United States becomes a two-class system is the moment that our democratic republic ends and totalitarianism begins. Poverty is terrible but destroying people’s economic mobility and shackling them to the state is worse. The solution to our economic woes is not for central planners to decide how to take and redistribute finite resources but to work towards “redistributing” the infinite and far more valuable resource known as “human capital.” That is, knowledge, skills and productive experience: in a word, education.

Once again, Thomas Sowell succinctly explains:

We have all heard the old saying that giving a man a fish feeds him only for a day, while teaching him to fish feeds him for a lifetime. Redistributionists give him a fish and leave him dependent on the government for more fish in the future.

If the redistributionists were serious, what they would want to distribute is the ability to fish, or to be productive in other ways. Knowledge is one of the few things that can be distributed to people without reducing the amount held by others.

That would better serve the interests of the poor, but it would not serve the interests of politicians who want to exercise power, and to get the votes of people who are dependent on them.

The best way to protect a single-class system and to thereby defend our precious freedom is not to make everyone equal in wealth with decrees from on high but to equally defend their liberties and to zealously protect and promote “human capital” – especially among the lower classes. Only then can we have a mobile lower and middle class capable of improving their situation. Government must work to remove its own obstacles preventing the poor and the young from obtaining the invaluable skills and experience necessary to produce wealth effectively, leading to their own personal economic benefit and to the benefit of the greater economy as a whole.

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