The Ignorance of Ocasio-Cortez

Alexandria Ocasio-Cortez, the 29-year old newly elected Congresswoman from New York, demonstrates her ignorance pretty much every single time she opens her mouth.  She is said to have graduated from Boston University with a bachelor’s degree in international relations and economics, but who would guess from reading her statements or listening to her speak.  Ocasio-Cortez’s recent blathering about the immorality of a society that allows the existence of billionaires as she demands higher marginal tax rates well illustrates her cluelessness.

Ocasio-Cortez’s view of the world is not unique, however.  In a recent Salon article (see here), Amanda Marcotte announces that Ocasio-Cortez is right: “There should be no billionaires.”  Marcotte finds the idea that billionaires have been fairly rewarded in view of the massive inequality in the world “defies all common sense.”  In a nice Marxian touch, Marcotte also explains how the extremely rich have built their wealth by exploiting the “labor of people who only take home a fraction of the value they add to the companies they work for.”

Liberals speak of “merit” and seek to tie compensation to ideas of morality and fairness.  Marcotte, for example, writes about “rewarding hard work and social contributions.” But as Friedrich Hayek has explained (see here), it is impossible to ascertain the merit of anyone’s conduct because we lack the knowledge required to determine the extent to which an individual has achieved his potential and acted in a meritorious manner.  The only workable system for compensating individuals is one based on the value that persons create for others as determined by market forces, which is the only system that in reality measures one’s “social contributions.”

In a competitive market system characterized by voluntary exchange, no one gets rich unless he provides goods and services to many other people.  Ocasio-Cortez hastens to point out that billionaires such as Bill Gates are good people (how generous of her), but it’s more than that.  For all the money we have given a Bill Gates or a Steve Jobs, the rest of us have received in return goods and services with greater value to us.  That’s why we make the exchange.  Their compensation is justified.

Marcotte wants higher tax rates so that “resources are distributed more equitably and ordinary people who work hard and drive economic growth can see their effort reflected in their paychecks.”  But she neglects to explain how this is to occur.  Liberals talk as if the rich keep all their money under their mattresses or buried in their backyards and that higher taxes would bring this money out into the economy.  But the assets of the wealthy are already in the economy because – surprise! – the wealthy invest their money.  Which is to say they place it at the disposal of people who use it to provide goods and services to others.

Because the assets of the wealthy already circulate in the economy, the higher taxes that Ocasio-Cortez and Marcotte demand would not add anything new to the economy.  We should understand here that liberals are doing nothing more than demanding that they, rather than other individuals operating in a free market, should control and direct certain spending.  Does anyone actually believe that an ignorant Ocasio-Cortez, acting as an investment banker, would be able to direct investments in the economy that would increase workers’ paychecks?

Because the assets of the wealthy circulate in the economy and they tend to provide goods and services of greater value than what we give them, we might wonder what drives the attacks on the wealthy.  Again, Hayek has the answer:

When we inquire into the justification of these demands, we find that they rest on the discontent that the success of some people often produces in those that are less successful, or, to put it bluntly, on envy.  The modern tendency to gratify this passion and to disguise it in the respectable garment of social justice is developing into a serious threat to freedom.

That sounds about right.

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