Classical Liberals on Inequality

How do Classical Liberals explain inequality?

• Ownership: Productive assets vary in quantity and quality, and those with assets able to produce goods valued by consumers will be rewarded.

• Individual Preference: Changes in consumer preference influence the value of assets - poverty is the result of choices made by those who value leisure more than work.

• Intervention: True competition is limited by government intervention - unemployment is exacerbated by minimum wage laws, and welfare programmes disincentive work.

Why do Classical Liberals defend inequality?

• Freedom: Inequality is natural, and fighting it would curtail freedom through redistribution of income.

• Justice: Inequality resulting from competition is fair and just - individuals are rewarded for hard work.

• Efficiency: Inequality provides a powerful incentive for productive behaviour.

• Growth: Efforts by government to stem inequality slow growth, harming both rich and poor. Saving by the rich increases funds available for lending and investment.

How do Classical Liberals respond to poverty?

• Economic growth - ‘A rising tide lifts all boats’.

• Reductions in welfare - Welfare creates poverty through a ‘dependency culture’.

• Private charity - Charitable donations are given freely and are consistent with individual liberty.

• Enterprise zones - Areas with lower taxes and fewer regulations should be created in cities to encourage entrepreneurship and job creation.

What is the negative income tax?

Individuals below a certain threshold receive money from the IRS, with individuals deciding exactly how to spend this money.