Jeff Deist - So, Joe, I noticed that recently this topic of income inequality seems  to be all over the news. President's been talking about it as a sort of a  touchstone of his second term.  

Joseph Salerno - Right.  

Jeff Deist - The new very left-wing mayor of New York City has called it a  priority. Even the Pope has been out there speaking publicly about income  inequality. So I'd like to just ask you, sort of generally, what would be an Austrian perspective on this? How should we think about the topic as it's being presented in the news?  

Joseph Salerno - I think the Austrian perspective is one in which we distinguish  between inequality that's generated by consumers and consumer demand, and  inequality that's generated by what we might call government income  plundering. So let's take the case of of the first type of inequality generated by  consumer demand. The reason why, for example, Sam Walton, Steve Jobs, Bill  Gates, and going back a ways, Ray Kroc, who was the founder of McDonald's.  Why they became multimillionaires and billionaires was because they produce  products efficiently that best serve consumer wants. So consumers determine  their incomes. Now, if we move on to government plundering, what Happens is  governments tax, and they take those revenues, and they take a cut for  themselves, and then bureaucrats, and then they distribute them. They distribute them to different firms. They distribute them in the form of subsidies, contracts,  and bailouts. So companies like agribusiness companies like Monsanto,  defense companies, United Technologies, Honeywell International, Halliburton,  and and company you know financial institutions like AIG and Citibank, they are  all the recipients of incomes that have result you know that result from this  income plundering, so that puts another layer of inequality on the market, or  actually changes how incomes are. We might use the word distributed, but but  on the market, incomes really aren't distributed. I'll make a point about that later. 

Jeff Deist - Okay. Now earlier this week, we had a piece as a Mises Daily article by Frank Hollenbeck talking about how central banks, in particular, our Federal  Reserve, caused huge amounts of of wealth disparity, and Tom Woods has  written about this as well. But there seems to be sort of a blind spot in the media because both the left and the right seem to be in favor of central banks and the  Fed generally. So can you talk a little bit about how conceptually and also  mechanically how a central bank creates wealth inequality in the U.S.  

Joseph Salerno - Yeah, what what happens is that it really starts with  government deficits. Governments always want to spend more than they take in.

When they increase their spending, their constituencies are are benefited, and  they get more votes, the administration in power, and so on. So increasing  spending is great, but if you increase taxes to finance that spending, what you're going to find is that the you know the populace becomes you know they  recognize this as as taking money directly from them and putting it into the  pockets of others. So there's a third way, or rather a second way, and that is to  run government deficits, and when the government runs deficits, it will drive  interest rates up if it borrows directly from the public, and that has its own  negative effects on the public. It becomes more expensive to buy houses and  automobiles and so on. So finally, we have the Fed, the central bank. If the Fed  finances those deficits by buying government bonds, either directly or, in the  case of the United States, they can only buy them indirect. Indirectly, that keeps  interest rates down. It also serves to allow the government to spend more  money than it's taking in tax revenues. When that happens, the new money gets into the system through the banking system, for the most part, and that expands credits, expands the amount that banks can can lend, and the money flows  through credit markets. It benefits those who receive it first. It benefits the banks themselves, who now have reserves created out of thin air that they can now  loan out at interest. It it causes a lot of interest gyrations, exchange rate  gyrations, and so it benefits hedge funds and other types of firms. So you have  a lot of hedging against movements in interest rates and exchange rates that  would never occur on a market that was based on a gold standard or sound  money of some type.  

Jeff Deist - Okay. Well, so Frank Hollenbeck identifies this process that central  banks engage in is almost reverse Robinhood. You mentioned sort of the early  recipients of newly created Fed monetary expansion. Talk about the effect on  the late recipients. In other words, the inflation tax and and how the Fed process punishes savers and how that adds to sure.  

Joseph Salerno - What happens that the the money that is is either loan that  loan low interest rates to to to financial firms and so on, and they loan the  money out, or it's it's it's paid in the form of government contract subsidies and  so on to to firms. Now those firms are able to use those funds to purchase  things before prices have risen, before there has been an inflation, so they  benefit. They're the early recipients that you just talked about. They then pay  their workers, who also benefit because most prices have not gone up yet. Their stockholders received higher dividends and so on, and capital gains, and they're able to spend the money prior to a general increase in prices. Eventually,  though, let's say Joe Salerno sitting in New York City on a fixed or on on an  income that's given by a university, which doesn't change very frequently,  changes once a year. I see prices going up all around me, and so do other 

people whose incomes aren't initially affected by the new money, and so they're  paying higher prices for 12 months, 18 months. Eventually, their incomes will  rise and will catch up. But during that period of time, the real purchasing power  of their incomes have actually shrunk because if prices have gone up by 10%  they can purchase 10% less. Even if they catch up 16 months later, 18 months  later, they have lost real income during that 18-month period, so so they they  were they were victimized by this inflationary process.  

Jeff Deist - So obviously there there are particular Austrian viewpoints on this.  When Mises was writing Socialism, his treatise, which I believe he wrote and  finished in the early 30 s, of course that was a time of great upheaval, and he  described sort of the socialist left's obsession with this income equality as what  he called an ethical postulate. In other words, saying that the left, the socialist  left at the time in Europe and also later in America, had sort of a big blind spot  and made a grave error with respect to not understanding the cost of income  equality, so-called, and that cost being that you have a total amount of income in a country, and you can't just assume that you can divide that up differently, and  that the total amount of income won't shrink as a result.  

Joseph Salerno - Yeah, so you have to take a step back. What the left sees,  and what the Marxist-oriented economists of the 1930s saw was or believe they  saw was that there was a distribution process under the market that that income could be distributed either fairly or unfairly. But the point is, with the market,  there is no distribution of income. So, for example, if I hire a babysitter for 20  hours a week and pay her $10 an hour, then there's only production and  exchange. There's no distribution. There's no separate distribution process. All  that has happened is that she's produced 20 hours of babysitting services, and  exchange them for $10 an hour or $200. There is no distribution. The distribution occurs when the government taxes away, let's say, 1/3 of her $200, and then  distributes it to agribusiness, to defense contractors, and so on. So the  distribution process comes in with with with government. Now, to get to your  other point, in if you if you begin to to tax and incomes, what happens is that you you set up a system of of incentives and disincentives. You you raise costs to  firms. Firms produce less. Workers will work less if if they're they're taxed.  Investors will will find that a lot of their investments are being taxed away, and  it's not worth the risk to invest. So what's going to happen is that you're going to  have a shrinking pie. Okay, so you're not just going to get the distribution, but  you're also going to get-it's really a zero, rather a negative sum game. It's not  just a zero sum game, and and the socialists don't understand that.  

Jeff Deist - Well, when we're making the case for markets, 

Joseph Salerno - yes,  

Jeff Deist - we like to consider the the notion that entrepreneurs put capital at  risk, and that they create goods and services that benefit all of society, all of  mankind, and some of them lose all, lose everything. Others create things like  iPhones and Cadillacs and things that we all want and become very wealthy in  the process. So we like to think of this in terms of sort of creative destruction  and new technology that benefits us. But today we find ourselves in an age that  a lot of people view as more crony capitalism. In other words, we have  subsidies, we have bailouts, we have a lot of regulatory capture. So, as  Austrians, how do we sort of make the distinction between government  favoritism, which creates inequality of wealth, the Fed process you talked about  earlier, and and favorable inequality of wealth, which derives from entrepreneurs taking risks and making society better off.  

Joseph Salerno - Yes, I mean, look, any investment is is a risk. It's a leap into  the not completely unknown future, but into a future that's uncertain. Let's say,  so for example, when IBM was riding high in the 1960s and 1970s, and. And  their president at the time, his name may have been Watson, when they already  had the technology for personal computers, and you know he made a statement that well this will never go anywhere. This will only be a household toy or you  know a way to keep your you know your budget in a household. It'll never  spread to business. Companies like Apple said that's wrong. I don't care if the  biggest company in you know the biggest tech company is not taking a bet on  that. I'm going to take a bet on that, and eventually, IBM almost went out of  business in 89 and 90, suffering the largest losses up to that point for an  industrial for a private industrial company, whereas whereas Apple, Microsoft,  Intel, who had taken the bets that that the tech industries would be changing,  they they earned high profits. The point is, was that if that lure of profits were not there, would they have gone up against IBM? I don't think so, and the  consumers would have been much poorer for it all, and so would business, and  and productivity and investment that that this this high tech revolution brought  about.  

Jeff Deist - Well, it's interesting. You know, Mises has talked about economics  or described economics as a value free science, as in terms of methodology and outlook. But when we're but when we're talking about income inequality, it  almost seems that a lot of our statements and assumptions are very value laden, and they're full of ethical components. So, is it important for us as  Austrians to sort of separate our economic analysis from our value judgments  and our value prescriptions about how society ought to look? 

Joseph Salerno - Sure. I mean, I mean, I think it's important just to stress that  income inequality, in the positive sense, is a part of the market. That is, as  consumers change their demands for various products, they are the ones that  create the winners and the losers. They are the ones that create high incomes  for, let's say, tennis players and lower incomes for pizza delivery men. There is  no no one else is there distributing something. We don't just produce all goods  and throw them into a pile and then distribute them. Okay, it's consumers and  their demands and and and they're abstaining from buying certain products and  buying other products that creates this income inequality. If you try to interfere  with that, you're really interfering with the price system. You're changing relative  prices and you're distorting the market. On the other hand, I think we don't have  to make a value judgment that that's good or bad. But if you're in favor of  prosperity, I think as an economist you can say then you're in favor of the  income inequality generated by the market. You are not in favor of income  plundering that is generated by government, where income is taken from some  people and distributed to other people. That is a negative sum game. That that  leads to poverty, impoverishment. It leads to degeneration of the capital stock.  It's not replaced, and it just it just leads to an economy that is regressing and not progressing.  

Jeff Deist - So, Joe, to wrap up, let's go a little bit deeper into this concept of  government plundering. Can you sort of define it a little more deeply and give us some examples?  

Joseph Salerno - Yes, the word plundering, used in this sense, comes from  Frederick Bastiat, the great 19th-century free market economist. We can think of it as it as follows: there are producers in society, and we call them they're the  taxpayers. Without production, there could be no payment of taxes, and there  are those who consume taxes. Okay, and they're the government bureaucrats  and and and the favorite the favored firms of politicians and bureaucrats.  They're the ones that receive the subsidies, bailouts, contracts. So the  plundering occurs when when when government takes money from from the  producers, from the from the the taxpayers, and and distributes that money to  tax consumers. These people do not earn their wages from from and and other  incomes from simply producing and exchanging, they they earn it by having their hands out to the bureaucrats and and and so on. Let me give you an example of of the effect of of what we call government plundering or income plundering from 2000 to 2012. the real median household income throughout the United States  fell by 6% and stands stands at about $51,000 again at the end of 2012. In D.C.  the real median household income with all the poor people in D.C. it still went up by 23% to around $66,000. If you take the D.C. metro area, which includes the  Virginia, Maryland, and West Virginia suburbs where the bureaucrats, 

contractors, and lobbyists live, it jumped up to $88,000. That's a difference  between 88,000 -51,000 for median income for the country as a whole, and the  that puts Washington D.C. and its metro area at the top of the 25 most populous metropolitan areas at the very top for median household income, so that I think  is is one example of of how the market's distorted, how how money always  flows, how income flows to the imperial center, we might call it.  

Jeff Deist - Well, maybe the real topic we should be discussing when it comes  to income inequality is the inequality between federal government workers and  average Americans.  

Joseph Salerno - Yeah, that's that's a good index.  

Jeff Deist - Thanks very much.  

Joseph Salerno - You're welcome. 



Modifié le: mercredi 9 septembre 2026, 13:45