Liberals and conservatives argue that the income-tax, welfare-state way of life is necessary to redistribute wealth so that people will be more “equal.” The free market, they have long suggested, results in enormous concentrations of power in which the rich get richer and poor get poorer.
They might want to ask Stan O’Neal, who “retired” as CEO for Merrill Lynch this morning, whether he agrees with that political and economic philosophy.
Because under his leadership, Merrill Lynch recently lost around $8 billion as a result of bad investments of Merrill’s money. That’s billions, with a “b,” a sizable amount of money for even one of the world’s biggest financial firms. In fact, the amount is so large that O’Neal was ousted from office this morning by Merrill’s board of directors.
Question for liberals and conservatives: If the free market guarantees ever-growing concentrations of wealth, would you please explain how it is that Merrill Lynch just suffered a billion-dollar diminution of wealth? In fact, wouldn’t the Merrill financial debacle reflect that the free market is a rather effective means of redistributing wealth, without the intervention of the IRS and the federal government’s multitude of welfare-state agencies?
Take a look at the ten top companies in the Fortune 500 in the year 1980. My bet is that very few of them are in the current top 10. But if conservatives and liberals are correct, how could this be? Under their theory, wouldn’t the top 10 companies in 1980 have just continued getting bigger and wealthier, thereby guaranteeing their top-10 status in 2007?
The truth is that the market is an enormous redistributor of wealth. Every day, fortunes are made and lost in the marketplace. There are no guarantees for anyone, not even the wealthiest people in society.
The process is especially brutal not only in the investor marketplace but also in the consumer marketplace. Why? Because consumers generally are among the most ruthless people you would ever find. If you don’t believe me, go watch, for example, a housewife shopping in a grocery store. Hardly ever will she stop and ask whether the store employees need help with their medical bills, car payments, or mortgage expenses. All she is interested in is finding the lowest possible price to pay for her grocery items rather than paying higher prices that could help store employees or even the store owner with their personal financial problems. (Keep in mind that all of us fall into the role of consumers and that as consumers, all of us fall into the ruthless category.)
What liberals and conservatives fail to understand is that in the marketplace, it is the consumer, not the producer or seller, who is the sovereign. The consumer, through his buying decisions, decides whether enterprises are going to stay in business or not. Those businesses that successfully satisfy consumers stay in business. Those that do not satisfy consumers go out of business. And the principle operates no matter how wealthy or successful a business currently is. If it fails to please consumers, there will be a massive shift of wealth as consumers move their business elsewhere.
The income tax and the welfare state are not needed to confiscate and redistribute wealth. The free market does that all by itself. Just ask Stan O’Neal and Merrill Lynch.