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JP Floru: The inequality debate has shown Ed Miliband to be a relic of our socialist past

JP Floru is the Director of Programmes at the Adam Smith Institute.

Government should stop overruling its peoples’ choices. That is what the current assault on capitalism is about. After all, what is capitalism, but the millions of decisions people make every day? We are all capitalists: when we buy a pint of milk; when we earn a salary for going to work; when we sell our used car. All these different acts create the price system and the free market. This spontaneous order is called capitalism. Every one of our 62 million individuals decides on the basis of their own information. These 62 million individual minds are infinitely better suited to dealing with reality than one single government mind is. This is why the market succeeds, while government action usually fails. Centralised government simply does not have all the information the 62 million have: this is FA Hayek’s famous Knowledge Problem. When the state acts, the unwanted side-effects become the main effect. 

Market success benefits everybody; it is the source of the advance of civilisation itself. The only responsible action a government can take is to leave people free to deal with reality as they see fit. It can tweak at the corners, to provide for the few of us who cannot cope with daily life, or to provide the legal certainty necessary for the market to operate (e.g. a legal system, and the protection of property rights) – but when it tries to protect people against themselves it is basically saying: “You are too stupid to take care of yourself. Big Brother knows what’s good for you!”. When the state spends 52% of GDP we are way beyond tweaking.

Today’s announcements by Cameron and Milliband show sharply contrasting views. Cameron’s view is moderate; probably inspired by an intuitive belief in people’s free will and choices. Milliband is of the old guard: centralised authoritarianism, as in “The State Knows Best”. Cameron rides towards the future; Milliband is a time capsule from our socialist past. The best Conservative election strategy is to make sure Milliband stays in his job. Take the inequality debate. Income inequality is a complete red herring: it is perfectly possible for income inequality to decrease, while more and more people become poor. Poverty is absolute, not relative. Being poor is about not having enough food; having no clothes, and/or no shelter. Whether or not your neighbour drives a Rolls Royce has absolutely nothing to do with it.

The Inequalitynistas are not even using poverty as an argument. They try to mobilise mainstream public opinion by pointing workers at their bosses’ pay. That is just plain envy, and has nothing to do with social justice. In fact, inequality has a number of very important advantages: it shows people what to do. If you stay in bed, you earn nothing. If you get on your bike, you do. Capital accumulation provides means to start businesses and enterprise. Unequal spending means that rich people buy products while they are still scarce and expensive – the profit motive will make entrepreneurs mass produce those same products so they become available to all.

That taxpayers bailed out bankers is another argument to subject capitalism, that is, to overrule our own free decisions. Bankers did not bail out themselves. Government bailed out banks. It was not the
bankers’ decision – it was the government’s. Labour bailed out the failing banks which were very strong in its electoral heartlands. That was a political decision. I remember vividly how, at the height of the credit crunch, my own (responsible) bank HSBC, increased its capital by raising money in the market, rather than to ask for a state hand-out. THAT is responsible capitalism. The responsibility of capitalism rests in the morality of its actors. That is: the individual decisions of 62 million people (or, should we say, the nearly 7 billion humans). Believing that one single state mind has a higher morality than 62 million is patronising and insulting.


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