The True Enemy Is Cronyism

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http://watchingamerica.com/News/229917/the-true-enemy-is-cronyism/

The True Enemy Is Cronyism
El Universo, Ecuador
By Paola Ycaza Oneto
Translated By Miken Trogdon
6 January 2014
Edited by Gillian Palmer

In the past, Barack Obama said that his priority is to put an end to income inequality. This political rhetoric, used in Latin America for decades, is today promulgated by the U.S. president, whose country’s economic success is due to almost nonexistent equalizing interventionism of income during its beginnings.

It’s evident that the American economy, and in general all economies, would be better off if there were less poverty. Nevertheless, what really appears to inconvenience Obama and many Latin American leaders is not so much poverty, but what they call “offensive wealth.” It’s true that inequality and immobility of income is a problem, but it’s not right to state that wealth is that problem. In effect, no relationship exists between inequality of income and the fact that a small fraction of the population is richer. The only exception to this rule is if the wealth of these “privileged ones” comes from the government.

A recent study at the University of Michigan and Columbia University suggests that an increase in income inequality is detrimental to economies when the wealthy obtain their wealth through government connections; that is to say, when a large part of the national wealth is in the hands of a small number of families with political connections. Although in the beginning this sounds very Latin American, there are many millionaires in the U.S. today that would not be so if government favoritism did not exist.

When the government tries to equalize incomes through subsidies, taxes or tariffs, it complicates the dynamics of the economy. But when the government shamelessly moves money from state holdings into the bank accounts of citizens whose only merit was to make friends with politicians, the gap between rich and poor grows even more, but without making the economy more dynamic. So where does the inequality rhetoric end up then?