Governments around the Western world have convinced themselves that the cure for inequality is bigger deficits, more spending and more redistribution.
The problem is that accounting, like gravity, has no ideology.
One sector’s deficit is another sector’s surplus.
Government deficits don’t disappear into thin air. They become financial surpluses somewhere else in the economy.
Now ask yourself this.
Who spends every dollar they earn?
Generally, the less affluent.
Who saves and invests a large proportion of their income?
Generally, the wealthy.
So, when deficit spending boosts company revenues, lifts profits and inflates the value of financial and real assets, who benefits most?
Not the people living from pay cheque to pay cheque.
The people who already own the assets.
And so begins a wonderfully perverse cycle.
Government borrows to help struggling households.
The spending supports corporate earnings and rental income.
These in turn support higher share prices and property values.
The wealthy, who own most of those assets, become wealthier.
Meanwhile, many lower-income households have consumed today’s assistance and tomorrow’s borrowing capacity.
Then politicians look at the widening wealth gap and announce…
…another spending package.
Repeat.
The irony is almost Shakespearean.
Policies designed to reduce inequality are making it worse.
None of this is an argument against a genuine safety net. Every prosperous society should protect those who cannot protect themselves.
But there is a world of difference between helping people through hardship and trying to engineer equality through debt.
There is only one durable way to lift living standards:
Create an environment where productive people can produce.
Reward effort.
Encourage entrepreneurship.
Reduce unnecessary regulation.
Allow capital to flow towards innovation rather than political priorities.
Will that create inequality?
Absolutely.
But it is healthy inequality.
The inventor who creates something extraordinary should become wealthier.
The entrepreneur who builds a business employing thousands should become wealthier.
The investor who allocates capital wisely should be rewarded.
That isn’t a flaw in capitalism.
It’s the engine that raises living standards for everyone.
Unfortunately, Australia seems determined to head the other way. Increasingly, politics revolves around identifying new victims, creating new entitlements and funding them with borrowed money.
It wins elections.
But you don’t build a more equal society through welfare and wealth distribution.
You build one by making opportunity more abundant.
Ball is in your court, Jimmy C.
Dani Peer
Head of Capital at Monark Property Partners