The Occupy Wall Street movement has just passed its two-month anniversary. The protesters' calls for greater income redistribution and their denunciations of capitalism have become shriller, and the protests are becoming more violent and destructive.
A major topic of debate in conservative circles these days is how to respond. There are two schools of thought. One advocates the firehoses-and-handcuffs approach. The other is to ignore the movement and hope it fades away.
Neither is correct. Conservatives and free-enterprise advocates should seize the moment to show their own passion for the issues being debated—and, where appropriate, even embrace the protesters' moral critique of America's distorted and depressed system.
The most important area of disagreement concerns what our country needs today. The "We are the 99%" signs at every Occupy rally make it clear the protesters believe greater income equality—not more free enterprise—is what America needs. Unsurprisingly, the White House has found this class-struggle leitmotif quite handy to divert attention from its economic record. Last month White House spokesman Josh Earnest assured the public that the "interests of 99% of Americans are well represented" by Mr. Obama. This came after the president's well-worn attacks on "millionaires and billionaires," who, as we have heard many times, are not paying their "fair share."
"The Occupy protesters are dead wrong on income inequality—but they are not so wrong in indicting our system today for unfairness, and for being wracked with crony capitalism, insider dealings and corruption." Free-enterprise advocates should view this as a rare opportunity to expose mistaken and misleading arguments about income inequality. The dreaded top 1% earns about 20% of income today, we hear. Yes, and they also pay 37% of the federal income taxes, according to the Tax Foundation. Further, as my colleague Jim Pethokoukis has shown, wealth inequality is roughly unchanged from 20 years ago—and from 40, 60 and 80 years ago too, for that matter. According to the Congressional Budget Office, every income quintile has seen a real increase in purchasing power of at least 18% over the past 30 years.
The Occupy protesters are dead wrong on income inequality—but they are not so wrong in indicting our system today for unfairness, and for being wracked with crony capitalism, insider dealings and corruption. What is a fair economic system? Some define it in terms of forced income redistribution. The overwhelming majority of Americans, however, believe fairness means rewarding merit, even if that means some people have a lot more than others.
In 2006, the World Values Survey asked a large sample of Americans to, "Imagine two secretaries, of the same age, doing practically the same job. One finds out that the other earns considerably more than she does. The better paid secretary, however, is quicker, more efficient and more reliable at her job." When asked if it was fair that one secretary be paid more than the other, 88.6% of respondents answered that it was fair indeed.
According to the meritocratic definition of fairness, we have been getting less fair as a nation with every new redistributive policy and regulation that unnecessarily hinders entrepreneurship. Greater fairness means rewarding hard work and innovation—not handing out stimulus cash to politically well-connected corporations and campaign donors. It means lowering disincentives to invest, not trying to squeeze more money out of private entrepreneurs while protecting public-sector unions. Penalizing earned success destroys jobs and lowers growth, which especially hurts the economically vulnerable.
This brings us to a second Occupy goal that free-enterprise advocates can embrace: denouncing crony capitalism. Like statism, crony capitalism is just a way to use government to weaken competition for the sake of those who are powerful yet unwilling or unable to compete.
Indeed, crony capitalism is statism's co-dependent wife: Lurking behind almost every company deemed "too big to fail," you will find close proximity to government power. For example, Washington's auto-industry bailouts and its "Cash for Clunkers" program—handing out government grants to buy new cars—are opposite sides of the same coin. Wall Street malfeasance in the housing market is real and was spawned by the government-sponsored enterprises Fannie Mae and Freddie Mac. Want less crony capitalism, fewer insider deals and a smaller lobbyist-industrial complex in Washington? Then shrink and reform the government.
Capitalism's advocates should not see today's protests as a threat, but rather as an opportunity to express their own core values. The issues the protesters raise invite the champions of free markets to demonstrate their passion for true fairness and their anger toward crony capitalists and statist operators. In this way they can recommit themselves to the free enterprise system that has created more opportunity for more people than any system in the history of the world.
Arthur Brooks is president of the American Enterprise Institute. His latest book is “The Battle: How the Fight Between Free Enterprise and Big Government Will Shape America’s Future” (Basic Books, 2010).