The president ran on clear ideals of a fairer and more just society,  ultimately meaning redistribution of income. He saw the gaps between the rich and the poor widening.  He has been demonized by his opposition for being socialist, communist , corporatists, and fascist. Such pejoratives cloud the issues even if in elements of policy they may be true.

The gap between rich and poor is subject to clarification. If you measure the difference between the top 20% and the bottom 20% as a group the disparity is widening, but this ignores both the social mobility happening between the groups and  the cultural changes that affect the result.  Few in the bottom group remain there,  most of them rise into the middle class.  And  many in the top groups drop into lower groups as businesses fail and the values of financial assets drop. Bernie Madoff has done more to equalize income than the intentional policies that attempt to flatten income distribution.

The rise of capitalism upset the social order of European aristocracy because it achieved redistribution in a radically new way.  Capital was deployed based on merit, productivity, and innovation rather than power and status. Capitalism proved to be the most just, unbiased, efficient, and productive form of redistribution ever attempted.

The free flow of capital helped Samuel Mayer, born in poverty, create the movie industry; Scottish born Andrew Carnegie create the steel industry; and Russian born Sergie Brin create Google.  Each of these and thousands of others like them created millions of jobs and benefits because capital was allowed to seek its productive use.

But capitalism is brutal when you are on the losing end of the reallocation of capital. Just as the aristocrats of Europe tried to fight this “creative destruction”, we have a new aristocracy that seeks political power to help keep them from losing their economic power.

We hear that social justice is necessary to preserve our capitalist system.  Even George Bush commented during the crisis “We must destroy free market capitalism to save it.”  FDR uttered similar comments after the Great Depression.

Under some examination the free market did not fall of the cliff,  it was driven off, less by reckless deregulation than by specific regulations that precipitated and aggravated the crisis. Markets, like human nature, are driven to excesses, but they are also driven to correction.  Government intervention is often like a weak chemotherapy  that is used even though it is ineffective because it causes less discomfort.

In our effort to redistribute in the name of social justice rather than productivity, we risk serious damage to the machine that creates the wealth to distribute. It is a fine balance to extract enough to bribe the less productive to let the more productive enjoy the fruits of their success, without burdening them with such costs that they can no longer produce. The more radical and drastic the change the more likely this destructive outcome is to be.

The wealthy are driven by more than money. They measure risk as hazard plus outrage. They can quickly cease production if their capital is treated poorly.  The can move capital to different industries and to different countries. As the other developing countries are developing their own consumer base this becomes an easier option.

High taxes and more misguided regulation on capital will make the income discrepancies larger and eliminate the social mobility that neuters  these differences.  Reducing the allocation of capital to its most productive, though occasionally painful, use also reduces the creation of capital and the economic growth that raises everyone’s living standards, even if it doesn’t do it equally.

We would all be much better off with a growing economy even with its occasional bubbles than with a stagnant economy with a ‘fairer’ distribution decided by political power.

Do not confuse capitalism with the crony capitalism of Wall Street and the corporatist bailout of Washington.  Crony capitalism is to capitalism what national socialism is to socialism.

We cannot have success without failure, not just in the philosophical sense but in the real sense that without failure capital cannot be reallocated to more productive use. Exchanging the productive re-allocation of capitalism for political based redistribution will only make us all poorer.