Don't Give Up on Capitalism, Fix It

However, it is also clear that there has been egregious behavior by market players. The right way to handle this bad behavior is to identify the individuals and companies that are responsible and bring them to justice. If frauds were committed, the people and companies that engaged in that behavior need to be punished with financial penalties and possibly jail time.

Senior executives at all of the major Wall Street firms, insurance companies, banks and hedge funds should be investigated and prosecuted vigorously for any misconduct. Unfortunately, the easier thing for politicians to do is to blame the whole system.

The public, for its part, is desperately seeking an easy solution to its economic pain. They say desperate people will believe almost anything, even the ridiculous idea that you can simply redistribute wealth to create prosperity. This has been tried many times in many different societies and has always failed.

Redistributing wealth through the government does four things.

First, it makes everyone worse off financially, except government employees, because the government inevitably spends a lot of money just administering the redistribution with its bureaucracy.

Second, it discourages people whose taxes are going up from producing more income. Despite what certain politicians may tell you, this is a very real and inevitable result of higher marginal income tax rates.

Third, it encourages the beneficiaries of the redistribution to work less and spend more. This creates more inflation, which also makes everyone worse off economically.

Fourth, it encourages special interests and their lobbyists to fight for a piece of that money sent to the government. Because rich interest groups have more money and more lobbyists, the ironic result is that it is often the richest among us who end up getting the biggest slice of the money sent to the government.