People, Not Ratios: Why the Debate Over Income Inequality Asks the Wrong Questions

A monomaniacal focus on relative poverty has led to misguided public policy proposals. The proposed global tax on capital would do nothing to relieve absolute poverty. It would also slow down or even stop its steady eradication. We consider this a moral issue, and capital tax supporters are on the wrong side of it. For the first time in human history, it is possible to end global poverty altogether. The fight to do so will be one of the 21st century’s defining issues. To win that fight, policymakers will need to recognize relative poverty’s insignificance compared to absolute poverty. Focusing on inequality instead of wealth creation actively harms the poor.

The way to end absolute poverty is not to smooth out income ratios with redistribution, wage controls, and extensive regulation, but to free people to innovate, and honor the entrepreneurial spirit. There is “a certain propensity in human nature to truck, barter, and exchange,” which makes each person better off over time—but only when they’re to cooperate and exchange. As Competitive Enterprise Institute founder Fred Smith likes to say, you don’t have to teach grass to grow; you just need to move the rocks off of it. That makes economic rock removal among the world’s most pressing matters, and the proper focus of everyone who wants to help the poor.

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