The chart below from my book, Why Capitalism?, shows that income inequality declined in all countries during the early- and mid-20th century. Until 1930, the federal government in the United States ran budget surpluses in two-thirds of the non-war years. It spent no more than three or four percent of GDP. There was very little welfare state in those early years, so causation must have run from growth to greater equality.

The mechanism was training. Capitalism expands opportunities for low income individuals to join the labor force. At first they earn relatively low wages. But they acquire skills, increase their productivity, and move up the income ladder. And they send their children to school to learn greater skills.

That process that worked so well for mainly European immigrants to the United States during the 19th and early 20th century worked again for Koreans and Latinos in the 20th and 21st. And it worked also in China, Hong Kong, and Singapore, to cite a few other examples.

The proponents of redistribution and higher tax rates at the IMF and elsewhere have the causal direction wrong. Where is the shining example of growth and opportunity generated by a welfare state? France? Italy?

After 1980, the share of the top 1 percent rises in the United States, Britain, Canada, Sweden and Australia, but not in France. A likely reason is that in addition to sports stars and rock musicians, these countries have an educated elite that contributes to growth and innovation. But France remains more egalitarian. The welfare state provides food, shelter, healthcare, and income. Many leave the labor force to work in the hidden parts of the economy where the main skill they develop is ways to increase their benefits. Their productivity does not increase. Their economy stagnates.

We are adopting the noxious French practices: hatred of capitalism and increased demands for more welfare. Before we kill the system that made us the richest country in the world, we should stop and ask: would you rather be in stagnant France or the dynamic America we could have again?

Allan H. Meltzer is the Allan Meltzer University Professor of Political Economy at Carnegie Mellon University, Distinguished Visiting Fellow of the Hoover Institution, and author of A History of the Federal Reserve (University of Chicago Press, 2003 and 2009).