One Thing The French, Greeks And Other Europeans Cannot Get Right

Wealth creation, not wealth distribution, should top the list of economic priorities of a society.

Back in the late 1970s, Andreas Papandreou, a Greek economist educated in the US, ran a political campaign to save Greeks from three evils — NATO, EU, and social injustice.

Fortunately, by the time he assumed office in 1981, he forgot all about the first two goals and Greece remained in NATO and EU. But he made good on the third promise, attempting to correct social justice by imposing a big tax on large estates.

But where did the proceeds from the tax go?

To finance the expansion of an already oversized government sector, creating a temporary economic stimulus that benefited government bureaucrats, and union activists and their membership and clientele — rather than the truly poor and needy.

But Papandreou’s “social justice” agenda didn’t stop with the big wealth tax. It extended to all sorts of rules and regulations that made it virtually impossible for Greek people to start and sustain a business. Worse, as tax revenues were insufficient to support a growing government bureaucracy, he appealed to debt financing—distributing somebody else’s wealth–a tradition his successors continued up to the early 2000s.

Papandreou’s quest for social justice found plenty of company among the leaders of France, Spain, Italy, and Portugal, all of which launched their own social justice initiatives.

The rest is history. Thirty years later most of Europe is floundering in a swamp of stagnation, with high sovereign indebtess, soaring unemployment rates and declining incomes.

A social justice agenda that set out to redistribute prosperity ended up redistributing misery.

Have Greeks, French, and other Europeans learned the lesson?

Not really. In fact, they now have an ideological backing for the policies that brought some of these countries near collapse—the best-selling book Capital In The Twenty-First Century.

Written by French economist Thomas Piketty, the book advocates a big tax on high incomes, to solve the problem of rising wealth inequality. Never mind that French people leave France in droves to escape from taxation and tight government regulations (France occupies the 70th position in the Index of Economic Freedom, below Turkey, Kazakhstan, and Ghana).

“Whether or not one is convinced by Mr. Piketty’s data—and there are reasons for skepticism, given the author’s own caveats and the fact that many early statistics are based on extremely limited samples of estate tax records and dubious extrapolation—is ultimately of little consequence,” writes Daniel Shuchman in a book review published in The Wall Street Journal under the title “To Have and Have Not.” “For this book is less a work of economic analysis than a bizarre ideological screed.”

I wouldn’t go that far, as I understand very well the limitations of empirical work on controversial issues, from the definitions of the variables to be measured to data collection, processing and interpretation.

Nonetheless, the result is the same: Capital In The Twenty-First Century has provided ammunition to liberals of all stripes who want to revive and advance an old political agenda that kills economic growth and prosperity in the name of economic equality.

The bottom line: Wealth creation is a far more important economic objective than wealth distribution. Living with prosperity is better than living with misery, even if prosperity is unequally distributed.