Socialists have long used the rhetoric of morality to defend their economic point of view. People are by and large decent and care for the poor, so when words like compassion and justice and equality are bandied about, they evoke a visceral reaction, a natural sympathy for those to whom the least has been given. On it's own, this is not a bad thing. I do not advocate questioning their good intentions. If you genuinely care for the poor, however, then the question you are most concerned about answering is the question of what is the best, most effective way of helping people. It is here that I do not disagree with the ideals of socialism, per se. I disagree with their program of action.

There is a strong moral case to be made for free markets. The data supports free markets and argues strongly against the usual socialist proposals. Advocates of free markets are not very good at articulating the moral case for them. Perhaps it's because they are "numbers people", not themselves easily persuaded by emotional arguments that they themselves are lousy at constructing and communicating them effectively. I teach business classes and have asked students to write about the proposed social security reforms. When I make the assignment I tell them I want them to explain both sides of the issue. My goal is not to persuade them of one point of view versus another; my goal is to make sure they understand both sides of the issue.

I have learned two things by doing this. First is that many students have a strong mistrust of Republicans and have a knee-jerk reaction to any proposal that comes from their camp. The second is that there are a lot of people who really have no idea what George Bush is talking about. I would like to write a larger work on the moral case for free markets, but in the meantime, let me make one moral argument in favor of private investment accounts.

The goal of these accounts are to encourage savings. Savings is good; our lack of savings is a significant contributor to the trade deficit. At this point, the middle class and the wealthy have more opportunities to save (or invest, which is the same thing) than do the poor. The biggest act of charity is the deduction of interest on home mortgages. When a person buys a house, they are making an investment in an asset that will appreciate in value over time. At the same time, they get to make a significant proportion of this investment on a tax free basis, not unlike IRAs and 401(k)s and proposed private investment accounts.

Home ownership serves as the bedrock of middle class wealth. It not only provides a means of wealth accumulation that can be access when the home is sold, it also provides access to low interest loans for college education and payment of those unexpected bills that seem to come up from time to time. Poor people don't get this benefit. They don't get to own a home. They don't get to own anything and this, more than anything else, keeps them poor. Lack of home ownership makes access to credit much more expensive and every month they pay rent instead of make a mortgage payment they are throwing that money away. If you own a house, every mortgage payment is an investment in your savings. Not so when renting. The best thing about ownership is that the money is yours and you get to pass it on to your children. This makes it much easier for each successive generation to do better than the previous generation. Without the passing on of wealth, each generation of poor have to start all over again. There are two ways to correct this inequity. Socialists tend to want to take away the deductions that the rich and middle class have and hand over the cash to the poor. The second way to do this is to find ways to give the poor the same benefit. Private accounts are one way to do this. Loan guarantees (not unlike student loans) should be provided for low income people to buy homes. This provides a long term solution to poverty, one that is based on respect and dignity.

Originally published April 6, 2005.