Free Markets, Free People
Mickey Kaus finds this from Tim Noah at The New Republic:
If you omit government redistribution from the calculations in the previous paragraph then four countries that previously were more equal in incomes than the U.S.—Portugal, Italy, Israel, and Germany—become less equal than the U.S.
Oh my. And Kaus reacts with the qotd:
Wait. You mean that social-democratic, union-heavy, solidaristic Germany has worse income inequality, before taxes and transfers, than the cowboy capitalistic U.S., with its large underclass and out-of-control Wall Street greedheads? Don’t tell the narrative. …
Say it ain’t so!
James Q Wilson makes many of the same points that have been made here over the last few months concerning the argument about income inequality that the left has been trying to use as a reason to tax the rich even more than they’re taxed now. In sum, most of the left’s arguments rest in the premise that the economy is a zero sum game and that the income the “rich” are taking had to come from someone else’s slice.
That argument, much like the climate change debate, depends on a measure of ignorance among those they’re trying to influence.
In reality, income inequality is nothing to be concerned about when it meets certain conditions. Or, in other words, it isn’t a zero sum game and everyone has an opportunity to do better.
The first measure as we’ve noted before, is income mobility. Wilson:
The “rich” in America are not a monolithic, unchanging class. A study by Thomas A. Garrett, economist at the Federal Reserve Bank of St. Louis, found that less than half of people in the top 1 percent in 1996 were still there in 2005. Such mobility is hardly surprising: A business school student, for instance, may have little money and high debts, but nine years later he or she could be earning a big Wall Street salary and bonus.
Mobility is not limited to the top-earning households. A study by economists at the Federal Reserve Bank of Minneapolis found that nearly half of the families in the lowest fifth of income earners in 2001 had moved up within six years. Over the same period, more than a third of those in the highest fifth of income-earners had moved down. Certainly, there are people such as Warren Buffett and Bill Gates who are ensconced in the top tier, but far more common are people who are rich for short periods.
In sum, you have both the top and bottom quintiles changing constantly as income earners move up or down fairly regularly. That means those moving up must be getting the opportunity to do so somewhere, and the fact that there is a change of about half in the period studied says many are succeeding.
Who are these people that get ahead? Well as Wilson mentions, a poor (I’m talking income here) student who graduates and gets a job in his or her field most likely won’t be poor in the sense of income very long. And that goes for most of the “rich”:
Affluent people, compared with poor ones, tend to have greater education and spouses who work full time. The past three decades have seen significant increases in real earnings for people with advanced degrees. The Bureau of Labor Statistics found that between 1979 and 2010, hourly wages for men and women with at least a college degree rose by 33 percent and 20 percent, respectively, while they fell for all people with less than a high school diploma — by 9 percent for women and 31 percent for men.
Also, households with two earners have seen their incomes rise. This trend is driven in part by women’s increasing workforce participation, which doubled from 1950 to 2005 and which began to place women in well-paid jobs by the early 1980s.
Preparation, delayed gratification and a work ethic. The old Puritan ideal. Amazing the staying power it has, no? That and adding a spouse with similar traits has a tendency to boost income to the household significantly. Yet for some reason, the left (who, btw, are all about workplace equality and equal pay) now want you be jealous of those accomplishments.
If, as the left would prefer, we should be concerned with income inequality and the mechanism that advances it, the solution is simple:
We could reduce income inequality by trying to curtail the financial returns of education and the number of women in the workforce — but who would want to do that?
Well certainly not the left, who doesn’t want the rich to go away. Instead it simply wants to make you hate them so they can justify taking more of their money. But Wilson’s point is spot on. This once was the key to the door of the American dream. Now it’s the key to a class of citizen who is vilified and called greedy and accused of not paying their “fair share”. If anyone is killing the American dream, it is the American left.
The tax on the rich is offered as a panacea to all that ails us. It will help pay down the debt and it will “level the playing” field. One assumes that means that it will somehow help the poor not be poor.
But Wilson points out, poverty in the US isn’t a function of the rich making a greater percentage of the national income. Poverty is a cultural problem that has nothing to do with the rich or taxing them:
The real income problem in this country is not a question of who is rich, but rather of who is poor. Among the bottom fifth of income earners, many people, especially men, stay there their whole lives. Low education and unwed motherhood only exacerbate poverty, which is particularly acute among racial minorities. Brookings Institution economist Scott Winship has argued that two-thirds of black children in America experience a level of poverty that only 6 percent of white children will ever see, calling it a “national tragedy.”
Making the poor more economically mobile has nothing to do with taxing the rich and everything to do with finding and implementing ways to encourage parental marriage, teach the poor marketable skills and induce them to join the legitimate workforce. It is easy to suppose that raising taxes on the rich would provide more money to help the poor. But the problem facing the poor is not too little money, but too few skills and opportunities to advance themselves.
Most of the lack of economic opportunity and dearth of skills comes not from the rich making too much, but those in that condition making poor choices early in their lives. Combine that with some of the less desirable cultural aspects of poverty and you end up with a fairly permanent underclass with little hope of advancing.
But that has nothing to do with the rich or how much they make. Problem? Yes. A product of income inequality. No.
And even then, poverty in this country is a relative thing:
Between 1970 and 2010, the net worth of American households more than doubled, as did the number of television sets and air-conditioning units per home. In his book “The Poverty of the Poverty Rate,” Nicholas Eberstadt shows that over the past 30 or so years, the percentage of low-income children in the United States who are underweight has gone down, the share of low-income households lacking complete plumbing facilities has declined, and the area of their homes adequately heated has gone up. The fraction of poor households with a telephone, a television set and a clothes dryer has risen sharply.
In other words, the country has become more prosperous, as measured not by income but by consumption: In constant dollars, consumption by people in the lowest quintile rose by more than 40 percent over the past four decades.
Income as measured by the federal government is not a reliable indicator of well-being, but consumption is. Though poverty is a problem, it has become less of one.
I always think of my mother when I read things like this. She was defined as “poor” after retirement and my father’s death. House paid for, cars paid for, and had more money in retirement (very large savings account) than she could spend, but when measured against the arbitrary income line, you’d have thought she was eating cat food and living in a cardboard box. She lived very well, but her “income” – all she received a year from Social Security – put her under the poverty line.
So Wilson’s point is correct – measuring consumption paints a completely different picture, and that picture says things are getting relatively better for the “poor” in this country even while the rich seem to be getting richer. Something about “lifting all boats” in there.
All of this is, simply, class war populism. President Obama said in his State of the Union address, “call it class warfare if you want.” Okay, I will. That’s precisely what it is. It is the demonization of a class designed to shift blame from one entity (in this case the Obama administration) to another (the rich) and blame them for all the problems now extant.
The fact remains that income inequality isn’t a problem. It is certainly not even a major problem. And for the most part, American’s reject the argument:
American views about inequality have not changed much in the past quarter-century. In their 2009 book “Class War? What Americans Really Think About Economic Inequality,” political scientists Benjamin Page and Lawrence Jacobs report that big majorities, including poor people, agree that “it is ‘still possible’ to start out poor in this country, work hard, and become rich,” and reject the view that it is the government’s job to narrow the income gap. More recently, a December Gallup poll showed that 52 percent of Americans say inequality is “an acceptable part” of the nation’s economic system, compared with 45 percent who deemed it a “problem that needs to be fixed.” Similarly, 82 percent said economic growth is “extremely important” or “very important,” compared with 46 percent saying that reducing the gap between rich and poor is extremely or very important.
So why does the left continue to pursue it? Well, one of the reasons is, as mentioned, a need to blame someone else for the perceived failings of this administration. “It’s not our fault. If only the rich would pay their fair share. But the Republicans won’t allow it”.
The second, of course, is that left – champions of progressive taxation – see this as an opportunity to advance that ideal again. Wilson asks the pregnant question which you’ll never get the left to agree too:
But what is the morally fair way to determine tax rates — other than taxing everyone at the same rate?
The case for progressive tax rates is far from settled; just read Kip Hagopian’s recent essay in Policy Review, which makes a powerful argument against progressive taxation because it fails to take into account aptitude and work effort.
Those are traits that can never be made “equal”. Those are what propel some out of the lowest quintile and keep others in the highest quintile. Since you can’t make people work harder or increase their natural aptitude for work, the only way to make things “equal” is to do what?
Penalize those who excel.
That’s precisely what the progressive tax system does. In the case of this country, it then subsidizes those who don’t excel, thereby getting exactly what those subsides pay for – a permanent underclass, or at least the basis for one.
So, income inequality isn’t our problem. Poverty is. Or at least the American version of poverty. And taxing the rich won’t do a thing to solve that problem. Nope, the answer is much more complex and involved than that. That’s what the left doesn’t want to face. Because if it does, it is likely to find the root of the current problem of poverty in this country directly in programs leftists have touted for decades.
And we can’t have that, can we?
This is important because it has become clear that the populist class warfare approach is how the Democrats intend to focus their national campaign. If what Obama is doing out on the campaign trail right now (and make no mistake about it, he is campaigning) is any indication, they’re going to talk about haves and have nots, try to place the majority in the have not camp and then demonize the haves.
It may not be the best of strategies if this Gallup poll is any indicator:
Americans are now less likely to see U.S. society as divided into the "haves" and "have nots" than they were in 2008, returning to their views prior to that point. A clear majority, 58%, say they do not think of America in this way, after Americans were divided 49% to 49% in the summer of 2008.
That last phrase is key. It points to one of the reasons Obama won in 2008. The campaign, while more subtle about it, was able to play off an America which had been convinced enough that such was the case, to provide a divided house – 49% to 49%. Advantage Obama campaign.
This time around? It doesn’t seem to be resonating this time, which may surprise some:
Americans’ views of their own position as "haves" or "have nots" have been remarkably stable, even as the nation’s economic problems have intensified. Still, the finding that fewer Americans now than in 2008 consider U.S. society as divided into "haves" and "have nots" suggests a decreasing — rather than increasing — level of worry about unfair income distribution in the U.S. at this time.
So what’s a populist politician who has committed himself to version 2.0 of the shtick that worked so well the last time to do? Again the good sense of the American people has emerged and the game has changed. Adaptation in politics is key to success. How does an Axlerod, who has obviously helped engineer this return to the old and familiar that served them so well previously view such a poll?
Is it an outlier. Hardly … it’s a poll this organization has been doing for years.
So does this mean the populist class warfare approach is going to backfire on them? That it simply won’t have the resonance it had in 2008? Or is it, more simply, an growing rejection of the Obama administration and what they’ve tried to sell as the “dirty little secret” of our country’s reality?
Even with the bad financial situation, record unemployment and a concerted propaganda effort to demonize the “rich” (not to mention the OWS nonsense), Americans, in growing numbers nonetheless, are rejecting the premise.
That’s got to worry someone in the Obama campaign, wouldn’t you think?
This week, Bruce Michael, and Dale record talk about China, illegal immigration, and Egypt.
The direct link to the podcast can be found here.
As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.
The valuable James Pethakoukis weighs in with some new numbers to again shatter one of the myths that surround the “income inequality” nonsense that OWS and its ilk (*cough* Democrats *cough*) are pushing. One of those myths is that middle class income has “stagnated” in the last 40 years. And that’s because, per the OWS crowd, the rich have basically
stolen taken ended up with the money generated. Those pushing that premise are citing economists Thomas Piketty and Emanuel Saez study which claims the taxable income of the bottom 99 percent increased by just 12 percent from 1970 to 2008.
That premise and those claims are under serious assault. In fact, the University of Chicago’s Tino Sanandaji finds that there has been pretty significant growth in middle class income. His summary of what he found:
My simple method is combining the best income-distribution estimate (from Pickety&Saez) with the best income-growth estimates (from GDP numbers). This method shows that that between 1970-2008 the real per capita income of the “Bottom 99 Percent” grew by 80%, and the income of the “Bottom 90 Percent” grew by 60%.
80%? Last time I looked that was a bit higher than 12%. Oh, and plenty of charts, etc., to explain the difference at Pethakoukis’ site.
And there is statistical backup for Sanandaji’s findings:
From 1975-2009, real per capita GDP increased by 90 percent vs. 17 percent growth in real median household income, as measured by the Census Bureau.
On top of that:
These calculations are in line with new research from University of Chicago’s Bruce Meyer and Notre Dame’s James Sullivan, who find that “median income and consumption both rose by more than 50 percent in real terms between 1980 and 2009.”
Conclusion? If the premise is that one of the reasons that upper income increased in that period is because middle class income stagnated, the premise just isn’t supported by reality. Income is not a zero-sum game. And one of the points on the pro side of capitalism is it lifts all boats – as demonstrated here.
Apparently income inequality is the new cult of the left. And they intend upon exploiting it to their advantage. Never mind the fact that It makes the same sort of erroneous assumptions as does global warming: A) that there’s a perfect temperature for the earth and B) man is screwing it up.
Income inequality makes two such assumptions: A) economics is a zero sum game so when the rich get more the poor get less, B) income classes are static.
Finally, in the case of both, the solution is government intervention. In the case of global warming the solution is to tax us back into the stone age to prevent the production of CO2 and maintain whatever temperature target they’re gunning for. In the case of income inequality, the solution is government taxing the “rich” and redistributing their income to ensure the rich don’t get more than their “fair share”. That’s sort of like that perfect temperature I was talking about .. who gets to decide what is a “fair share?”
Of course it plays into the left’s love of class warfare. Such warfare allows the left, which seems to have an ingrained guilt about succeeding and being richer or better off than others, to use these issues to a) assuage that guilt and b) use government as an instrument of utopian change (social engineering).
One of the most attractive aspects of this nation’s founding was the fact that government was formed to fulfill and entirely different role than it had traditionally to that point. It was chartered to be an institution that protected the rights of the people who were the sovereigns and in charge. Government was to be a sort of “night watchman” who protected us from force and fraud both internally and externally. And to discharge those duties the government was given certainly powers to do so.
But never envisioned or entertained was the idea that government would intrude to such an extent as it has today. That’s because those who wrote the founding document understood what freedom and liberty meant. And they also realized that any intrusion by government in areas other than that of protecting rights actually meant violating rights. Certainly not the rights of all, but it must violate rights, such as that to property, to take from one and give to another under such flimsy pretexts such as those presented by income inequality and global warming.
Government intrusion and cronyism (both economic and political) are rampant now (and not just on the left). The system is horribly corrupted, the government far too intrusive and the left continues to try to change government’s focus from night watchman to Candyman.
Unfortunately, they seem to have had far more success than they should have or we wouldn’t be discussing this right now or noting the seriousness which one has to take these issues.
The level of intrusion and cronyism (both economic and political) will end up destroying this country. It is well on its way now. And all of it being done in the name of fairness, equality and compassion.
There is no fairness involved in taking something someone earned and giving it to someone who hasn’t earned it. There’s no equality involved in shackling one person to the needs of another. And it certainly isn’t compassionate to make someone dependent on another.
But that’s where the left wants to take us.
’m not sure what else to call it but it does indeed seem a fitting example of a discussion we recently had here about colleges failing to teach critical thinking.
Think Progress (of course) has a blog post headlined with “Income inequality in US worse than Egypt”. Never let a crisis go to waste, huh?
First you are asked to believe that it is “income inequality” which is leading the pack of reasons the country wants Mubarak gone. If not, what’s the purpose of the headline?
Secondly, there’s the equivalence this writer makes between the US and Egypt. My guess Pat Garafalo has never been to Egypt (or perhaps even out of the US to a nation in which “poor” actually means poor) so he has no frame of reference in his comparison. Its all about income inequality, that’s always "bad" and that is the leading reason for unrest, or so the reasoning, such that it is, seems to conclude.
Usually “income inequality” isn’t even on the radar screen when these sorts of things happen. The grievances are more focused more generally on “freedom”, “liberty”, “oppression” and/or “democracy”. You may, as you have in the case of Egypt, even hear “economic opportunity” as a reason.
No, “income inequality” is one of those terms the left likes to use as a sort of euphemism for “capitalist exploiters” – a part of their perpetual war on business. “Capitalist exploiters” include any corporation and most business owners. Of course they can’t use “capitalist exploiters” without revealing their game (and being dismissed out of hand), so “income inequality” has to do. The implication, of course, is if we just took the money from those capitalist exploiters and spread it around (because, you know, those folks collect it and bury it in a coffee can in the back yard or stuff their mattress with it), all would be lovely.
The fact remains that economic opportunity is lacking in Egypt not because of “capitalist exploiters” but because of government oppression and favoritism.
Somehow though, and certainly there are problems with government intrusion here, what has gone on in Egypt is relevant to what is going on here and the proof is “income inequality”. Make the connection for heaven sake – what’s wrong with you?
Garafalo takes a wave at trying to sound fair about his point, but remember, to swallow this whole you have to believe two things – one, that economics is a zero-sum game, so if the rich are getting richer the poor must get poorer and two, there is no opportunity for the poor to better their condition. The rich are just making it worse and worse for the poor by
earning taking more than their “fair share”.
Anyway, Garafalo says:
The Gini coefficient is used to measure inequality: the lower a country’s score, the more equal it is. Obviously, there are many things about the U.S. economy that make it far preferable to that in Egypt, including lower poverty rates, higher incomes, significantly better infrastructure, and a much higher standard of living overall. But income inequality in the U.S. is the worst it has been since the 1920′s, which is a real problem.
Using that, I’d have to guess that the former Soviet Union and it’s bloc of Eastern European satellites had very low Gini coefficient scores, wouldn’t you?
See, this is “equality” for equality’s sake. It’s nonsense. It is the turning of a concept from a positive to a negative. We have all been promised something very profound in the country – equal protection under the law and equal opportunity to pursue “happiness”. Yet it is something the left constantly and consistently pushes as a different message. It doesn’t just want equality in opportunity – it want’s equality of outcome.
That’s why you continue to see long boring posts written about the subject of “income inequality”. It is how the left justifies further intrusion by government and taking from those who “have” to give to those who “don’t have”. It’s about time we made it clear that other than the leftist chorus, no one else is buying into their preaching.
Oh and the big finish to the Garafalo piece?
Yale economist Robert Shiller has said that income inequality “is potentially the big problem, which is bigger than this whole financial crisis.” “If these trends that we’ve seen for 30 years now in inequality continue for another 30 years…it’s going to create resentment and hostility,” he said. But tax and spending policies that provide adequate services and allow for economic mobility — along with a robust social safety net — can head off trouble that may come down the road.
“Bigger than this whole financial crisis”. It will create “resentment and hostility”. There may be “trouble … down the road”.
Have you freakin’ people looked around you and figured out yet how well everyone – in comparison with most of the rest of world – live here? This constant refrain from the left is as tiresome as it is wrong. It’s nonsense on a stick. But you will continue to hear them whine about it for the foreseeable future because it is a way for them to justify taking your money for their purposes and sounding noble about it.
For those of you who believe that you can spend yourself out of debt and enjoy the same level of taxation, a little dose of economic cold water is in order, appropriately on the day after tax day.
Many economists, including some who voted for Obama, do not believe that he can indefinitely avoid imposing tax increases much further down the income scale — on the middle class.
“You just simply can’t tax the rich enough to make this all up,” said Martin A. Sullivan, a former economic aide in the Reagan administration who said he backed Obama last fall.
“Especially just for getting the budget to a sustainable level, there needs to be a broad-based tax increase,” said Sullivan, now a contributing editor at Tax Analysts publications. “If you want to do healthcare on top of that, almost certainly, it just makes [a middle-class tax increase] all the more certain.”
And toss a little “cap-and-trade” on top of that, and whoa Nellie, the sky is the limit when it comes to the taxation necessary to support all of that.
How about those that believe that taxes should be used for “income equality” (also known as “tax the rich”)?
But even economists sympathetic to tackling income inequality say it will be difficult to avoid other tax hikes.
“There’s no way we’re going to be able to pay for government 10, 20 years from now without coming up with a new revenue source,” said Leonard Burman, director of the Tax Policy Center, during a forum on Obama’s tax proposals earlier this month.
Burman said a value-added tax is “inevitable.” Burman, deputy assistant Treasury secretary during the Clinton administration, said Obama should consider using revenue from the broad-based VAT to fund his healthcare plan. That would give middle-class and lower-income people incentive to keep taxes and health costs low, he said.
Translation for those who didn’t pick up on Burman’s last point – the “incentive” provided by the VAT (or Value Added Tax) is it will discourage “middle and lower income people” from using the medical system thereby keeping “health costs low”. If you want the real short version – rationing by price, the price being the cost of a visit plus the tax. Naturally, as a percentage of income, that would hit the middle and lower income levels much harder than the higher income levels.
And that 95% tax cut for Americans?
The president’s overall tax proposals, including perpetuating most of Bush’s tax cuts rather than allowing them to expire, will lead to $3 trillion in lost tax revenue over the next decade, according to an estimate by the Joint Committee on Taxes, which provides independent projections to congressional tax writers.
So $3 trillion in lost tax revenue, but an increase in the debt and debt service requirements:
More revenue will be needed to service the growing national debt. Because annual deficits are expected to remain above $500 billion for the next decade, Sullivan expects debt payments to more than double, from about 1.2 percent of GDP to more than 3 percent.
What does that mean for that “permanent” tax cut for the 95%?
Obama’s budget proposed that his signature Making Work Pay tax credit be made permanent, but it was not included in either the House or Senate budget blueprints, partly because doing so would have increased the size of the deficit on paper.
Lies, damn lies and “permanent” tax cuts.
All the promises are BS, folks – and that’s not because I want them to be, its simply how the law of economics works. We will end up paying for all of this fiscal profligacy somewhere in the very near future. And anyone that says differently or promises otherwise is blowing smoke up your skirt.