Oxfam, alarmed that two thirds of all new wealth created in 2021 accrued to the richest one percent, called for the super-rich to be taxed back down to earth. As always, it is sorely mistaken.
‘Oxfam has called for immediate action to tackle a post-Covid widening in global inequality after revealing that almost two-thirds of the new wealth amassed since the start of the pandemic has gone to the richest 1%,’ is how the story in The Guardian opens.
Every January, Oxfam publishes a ‘research’ report on inequality to present to what US climate envoy John Kerry self-aggrandisingly described as the ‘select group of human beings … able to sit in a room and come together and actually talk about saving the planet’ at the World Economic Forum in Davos, Switzerland.
I’ve had previous occasions to critique Oxfam’s obsession with inequality – a term invented by Marxists to promote redistribution because they couldn’t point to a crisis of poverty, which free-market capitalism was rapidly reducing.
In particular, I’ve pointed out (and economic research supports the view) that there is good inequality and bad inequality: the good variety arises when the private sector thrives and its rising tide lifts all boats; the bad variety is the result of government intervention that enriches politically connected cronies at the expense of their competitors and customers.
Pound seats
Oxfam uses the donations it receives to pay its senior staff handsome, inequality-raising salaries. Its directors are literally in the pound seats, earning on average over £100 000 (R2.1 million) per year each.
In return, they publish reports that deplore people on similar salaries, are thinly disguised agit-prop for socialist redistribution, are wilfully ignorant of basic economics, and use statistics deliberately to deceive readers.
That the super-rich have pocketed most of the new wealth created since the start of the pandemic, however, is correct.
Oxfam’s CEO, the £120 000-a-year Danny Sriskandarajah, is also correct in pointing out that extreme poverty and world hunger are increasing for the first time in 25 years (although it was pretty tepid in its approval for all those years that poverty and hunger rates were steadily decreasing, exceeding the UN’s Millennium Development Goals handsomely).
Why this happened, or whether taxation is the appropriate remedy, is where Oxfam’s report goes off the rails, however.
Super-rich
For a start, it conflates wealth (the value of assets owned minus liabilities owed) and income (salaries and wages).
It goes on to blame billionaires and the ‘super-rich’, as if they are at fault for the fact that the poor got poorer, or for the fact that their assets increased in value.
The poor got poorer for two reasons, one of which also made the rich richer.
The first is the draconian lockdowns that governments around the world imposed upon their citizens. Banning people from going to work, forcing businesses to close, and shutting down international travel was only ever going to have one outcome, even in rich countries that could shower their citizens in compensatory cash: business bankruptcies and lost jobs. The ripple effects are still being felt today.
The second reason why the poor got poorer and money fell into the laps of the rich is, again, government intervention. In an effort to remedy the catastrophic damage they had wreaked with lockdowns, governments printed new money, and injected it into the economy. Much of it entered the economy at the top of the pyramid, with banks, where it quickly found its way into asset prices.
Stock markets hardly noticed the pandemic. The S&P 500 index, for example, had recovered its early-pandemic losses by July 2020, and kept powering ahead to a peak at the end of 2021 (that peak may also explain why Oxfam’s report picked the end of 2021 as its cut-off date).
House prices, too, rose steadily throughout the pandemic, rising 43% in the US between March 2020 and May 2022. (By end-2021, they were up 26%.)
Inflation
Printing money dilutes the value of money already in circulation. That means that more money chases the same amount of goods and services, which means prices inevitably rise. For years, only asset prices rose significantly in response to ‘stimulus’, but the inflationary effect has now broken through to consumer price inflation around the world.
Inflation makes consumers poorer. Therefore, printing money and stimulus spending is a government policy that effectively takes money from the poor and gives it to the rich.
Even the lockdown relief cheques handed directly to citizens in rich countries rapidly found their way into the hands of the wealthy, because the lower and middle classes are prone to spending, which reduces wealth, rather than saving, which increases it.
Wealth is created by saving and investing, not by spending. When people spend, the assets of the people or companies they spend their money with appreciate instead.
If that money were taxed away from the rich and given to the poor, it would be back in the hands of the rich before you could say ‘Spring Sale!’
Absent lockdowns…
So no matter how governments implemented post-lockdown ‘stimulus’, its aggregate effect was inevitably to make the rich richer, and the poor poorer.
Absent lockdowns and the consequent stimulus binges, the poor would not have become poorer; extreme poverty would have continued to decline as it was doing when it declined from 37.8% in 1990 to 8.4% in 2019.
Absent lockdowns and the consequent stimulus binges, the assets of the rich wouldn’t have grown nearly as quickly.
Oxfam believes that redistribution from the rich to the poor, via a super-tax on wealth, will resolve this problem. It won’t. As I’ve argued before, all this will do is reduce the ability of those who save and invest to produce the goods and services, and employ the people, that make everyone better off.
Instead, Oxfam could do the world a great favour by convincing governments to stop redistributing wealth from the poor to the rich. The problem is not with the capitalist economic system, or with free markets, as the Marxists at Oxfam would have you believe.
Too strong
The problem is not that governments are too weak to keep the rich in check. The problem is the exact opposite: governments are too strong, which enables the rich to abuse this power for their own gain, or at least passively benefit from inflationary monetary policy and economic interventionism, at the expense of the rest of society.
If Oxfam were to argue against policies that strangle economies, and against the instinct of governments to simply throw newly printed money at struggling citizens, they would be doing the poor a real favour. If Oxfam were to argue that governments are too strong and abuse their powers to enrich their big-business cronies, they would be of some use to the rest of us.
But they never will. Charitably, that is because being socialists, they don’t understand economics and just parrot ideological slogans. More cynically, it is because guilt-tripping the rich is more effective at soliciting the donations that keep Oxfam activists living in the lap of luxury.
[Image: Aamir Mohd Khan from Pixabay]
The views of the writer are not necessarily the views of the Daily Friend or the IRR
If you like what you have just read, support the Daily Friend