Free Markets, Free People
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?
Professor Cornel West, who most likely wouldn’t have a job if he an others weren’t able to keep race baiting going, has emphatically stated that entitlements need to be increased, not decreased. And he’s also made the point that if they aren’t, well, those seeking to have them increased may have to take to the streets:
"I think the problem is that the poor children, keep in mind it’s 42% of poor children who live at or near poverty, it’s 25% in poverty. Our audience needs to keep that in mind." Cornel West said on MSNBC this afternoon.
"Poor children need more than just a $1,000 for their family, they need a war against poverty to make it a major priority in the way which we have a priority for Afghanistan, and a priority to bail out banks, and a priority to defend corporate interests when it comes to environmental issues," West said about more and new entitlements for the poor.
Professor West didn’t just call for another war on poverty (the first war was fought by Lyndon B. Johnson), but went on to say that the push for more entitlements "is going to be fought in the streets." West showered the Occupy movement with praise for making people aware of the issue.
"It’s a major question of priorities here. That’s why the Occupy movement is so important because some of this is going to be fought in the streets. Civil disobedience does make a difference," he said.
A few points. Poverty in the US is unlike poverty anywhere else. If you’ve ever traveled outside the US to a third world country you know what real poverty looks like. The Heritage Foundation gives us a little reminder of what those who are deemed “poor” in the US are likely to have (from the Census Bureau):
- 80 percent of poor households have air conditioning
- Nearly three-fourths have a car or truck, and 31 percent have two or more cars or trucks
- Nearly two-thirds have cable or satellite television
- Two-thirds have at least one DVD player and 70 percent have a VCR
- Half have a personal computer, and one in seven have two or more computers
- More than half of poor families with children have a video game system, such as an Xbox or PlayStation
- 43 percent have Internet access
- One-third have a wide-screen plasma or LCD television
- One-fourth have a digital video recorder system, such as a TiVo
As for the claims about hunger and homelessness:
As for hunger and homelessness, Rector and Sheffield point to 2009 statistics from the U.S. Department of Agriculture showing that 96 percent of poor parents stated that their children were never hungry at any time during the year because they could not afford food, 83 percent of poor families reported having enough food to eat, and over the course of a year, only 4 percent of poor persons become temporarily homeless, with 42 percent of poor households actually owning their own homes.
In fact, in the US, poverty is more of a definition than a condition. And that definition is key, because if you fit it, then you are “entitled” to taxpayer largess. So painting a bleak picture of poverty in the US in general terms is important to any argument for increased entitlements, even when everyone should know that we can’t afford them.
Those who’s power is based in their advocacy for the poor see that as a threat. So they’re left with either accepting the fact that their power will be diminished or threatening to resort to “civil disobedience”. The reason West likes OWS is because that’s the sort of action he wants to see. Tantrums in the street designed to get what they want.
And that brings me to point two – civil disobedience in today’s parlance isn’t the same as it was in Dr. King’s day. OWS makes that clear. Any demonstration today, even if the intent is non-violence, always attracts a violent faction. West’s praise of the OWS isn’t just focused on awareness. The methods they’ve used are fine with him too. Provocation which eventually turns to violence.
Finally … it is also about holding corporations hostage. This was a technique refined by Jesse Jackson. Make the villain evil and greedy corporations. Threaten them with direct action. Make ‘em pay.
So what you see West setting up here is part Jesse Jackson sting operation and part poverty pimping. As we know from the previous “war on poverty” which wasted trillions and never moved the poverty percentage down a single percentage point, government intervention has been a failure. So unwilling to be solely dependent on government (taxpayer) largess which, given the sad state of government finances, is unlikely to be increased, West is setting up the next patsy.
The Jesse Jackson model will meet OWS and instead of taxpayers paying the price this time, it will be consumers who will foot the bill while a new generation of poverty pimps use those defined as “poor” as their means of holding up corporations.
But first, the demonization must proceed. And if you’ve been paying attention, you know that is well underway via OWS and the Democrats.
If you’ve ever wondered what the purpose was of the UN’s climate change agenda or where it is going, a new report makes it pretty obvious:
Two years ago, U.N. researchers were claiming that it would cost “as much as $600 billion a year over the next decade” to go green. Now, a new U.N. report has more than tripled that number to $1.9 trillion per year for 40 years.
So let’s do the math: That works out to a grand total of $76 trillion, over 40 years — or more than five times the entire Gross Domestic Product of the United States ($14.66 trillion a year). It’s all part of a “technological overhaul” “on the scale of the first industrial revolution” called for in the annual report. Except that the U.N. will apparently control this next industrial revolution.
The new 251-page report with the benign sounding name of the “World Economic and Social Survey 2011” is rife with goodies calling for “a radically new economic strategy” and “global governance.”
Throw in possible national energy use caps and a massive redistribution of wealth and the survey is trying to remake the entire globe. The report has the imprimatur of the U.N., with the preface signed by U.N. Secretary-General Ban Ki-Moon – all part of the “goal of full decarbonization of the global energy system by 2050.”
Make no mistake, much of this has nothing to do with climate.
I couldn’t agree more with the last sentence. This has never been about climate. World governance, however, is and always has been the end game of the “Third World Debating Club”, also known as the UN.
Dan Gainor, who wrote the piece being quoted, then cites the press release from the UN concerning the report:
The press release for the report discusses the need “to achieve a decent living standard for people in developing countries, especially the 1.4 billion still living in extreme poverty, and the additional 2 billion people expected worldwide by 2050.” That sounds more like global redistribution of wealth than worrying about the earth’s thermostat.
Well if you really understand how this is being approached, Gainor is exactly right. Let me explain. Those living in “extreme poverty” – the 1.4 billion cited – live mostly without running water and electricity. Anyone – what is the fastest way to remedy that situation? Well on the power side, fossil fueled (i.e coal fired) power plants. You can build them relatively cheaply and quickly and they can begin to provide the requisite power necessary to begin to lift these people out of poverty.
But of course, the UN couldn’t control that, could they? Instead, it has decided the way to do this is through going green with complete “decarbonization” by 2050. That is can control, because it has been the initiator of most of this nonsense about global warming and the absurd treaties that have gone with it. If it can find a way to convince governments that the threat is real and to have them self-impose carbon restrictions on themselves based on the UN agenda, it will be the UN calling the shots.
So essentially the UN is holding these 1.4 billion hostage to their agenda by refusing to budge on their push for global “decarbonization” by 2050. In essence they’re telling the extremely poor that they’re stuck with that condition because the simple and immediately available solution is unacceptable to them since it poses a threat to the environment. They’ll just have to wait while the UN engineers this agenda to the detriment of economies everywhere and we all end up in poverty of some sort.
An example of where this could head can be found in the UK right now as Christopher Booker explains:
Three years ago, when the hysteria over global warming was still at its height, our own British politicians voted almost unanimously for the Climate Change Act committing us, uniquely in the world, to cut our CO2 emissions by 80 per cent within 40 years. Even on the Government’s own figures, show that this will cost us up to £18 billion every year until 2050 – it is by far the most expensive law ever passed by Parliament. As our politicians continually impose on us ever higher taxes and other costs supposedly in the cause of ‘fighting climate change’ they have been carried away by a collective fantasy that has no parallel in history.
The result has been quite predictable:
As energy prices go through the roof, shocking figures reveal one in four families has been plunged into fuel poverty. Consumer Focus warns as many as 6 million could be forced to choose between a hot meal or heating their homes this winter.
Here are the numbers:
As energy prices go through the roof, shocking figures reveal one in four families has been plunged into fuel poverty.
The figures are higher than the one in five first estimated and show for the first time wealthier families have also been hammered by spiralling fuel costs with 15% of middle classes now fuel poor.
Research from price comparison website uSwitch found the number would leap to one in three if housing costs were added in.
It means at least 18 million people are spending 10% or more of their take home pay on energy bills. Based on the new way of calculating fuel poverty, 47% of working class families and 22% of the middle classes fall into this bracket.
A quarter of families with a stay-at-home parent are fuel poor but uSwitch argues this figure would soar to 44% if mortgages or rents were included. The number of fuel poor single parent families would jump from 39% to 52% while pensioner numbers would rise from 33% to 36%.
According to the website, fuel bills have rocketed by 71% in the past five years rising from £660 a year in 2006 to £1,131 today.
In other words, the UK’s self-imposed carbon caps and attempts to use not-ready-for-primetime alternative and renewable energy sources has driven up energy costs to such a level that it has put 1 in 4 in the UK into what is known as “fuel poverty”.
William Baker, Head of Fuel Poverty Policy added: “Rising energy prices will lead to a bigger bills and a huge upswing in fuel poverty. This will mean an increasing percentage of our population, especially those on low incomes, are more likely to live in colder or damp houses or face higher debt.”
Most who have taken the time to do some study of the subject of climate change have come to the conclusion the science supporting it is suspect and that the UN’s IPCC is a political organization, not a scientific one. This new UN report just puts an exclamation on
that point. The UN has, for years, concocted various plans and schemes to give it a larger role in world governance. Not satisfied with being a deliberative body with the aim of keeping the peace, it now is attempting to find ways to direct revenue via this, their most ambitious scheme to date, to who they choose should receive it. It is indeed a revenue redistribution scheme.
The end result of enacting this plan would be disastrous to the world’s economies, would keep those 1.4 billion in extreme poverty in the same state and, as is being demonstrated in the UK, put even more of the world’s population in “fuel poverty”.
Time to kill this monster now, before it gets any further out of its cage.
I noted yesterday that one of the more prolific hacks left off of Alex Pareene list (link in previous post) at Salon was Paul Krugman.
QandO has a long history of examining Krugman’s political thoughts and finding them mostly wanting. That’s not to say he’s a bust at everything he does – when he just talked economics he had some interesting things to say. But his venture into political advocacy has, shall we say, not helped his overall reputation in the least. One of the reasons is he’s prone to saying things like this:
The rich don’t necessarily deserve their wealth, and the poor certainly don’t deserve their poverty.
Don’t “deserve” wealth or poverty according to whom and by what standard, Mr. Krugman?
Who gets to decide what is or isn’t “deserved” if earned or obtained legally? And how does one make the blanket statement that “the poor certainly don’t deserve their poverty?” That, in many cases, is demonstrably false.
If we agree we are the sum of our choices in life, and those who’ve made consistently bad choices (drop out of school, take up drug use, commit criminal acts) end up in poverty, how is it they don’t “deserve” what they now suffer? Certainly I can think of examples of the poor who may be poor through no real fault of their own – the mentally deficient who haven’t the skills to earn high wages, etc. But for the most part, if everyone is offered essentially the same opportunities as others and they choose not to take advantage of them, how does one relegate their descent into poverty as “undeserved”? Especially when others in precisely the same circumstances make different decisions that raise them out of poverty?
What, in fact, that statement is meant to reflect is Krugman’s apparent belief that wealth is unequally distributed not because it is earned, but by an immoral and unfair system that needs to be fixed.
The market, in Krugman’s world, arbitrarily picks winners and losers and rewards them at whim apparently. Thus most of the rich and none of the poor “deserve” their financial status.
So this should come as not surprise:
Allow me to make a point: Economics is not a morality play. It’s not a happy story in which virtue is rewarded and vice punished.
The market economy is a system for organizing activity — a pretty good system most of the time, though not always — but not according to any moral significance.
Really? So nowhere in such an economy is honesty, fairness, good customer service rewarded with business over competitors who exhibit none of those virtues? Instead, it’s just a “system for organizing” where consumers buy from which ever vendor they first come upon without ever once considering those virtues as a reason for buying? Does the system punish those who act in what one could consider an “economically immoral” manner – i.e. in violation of the laws of economics” or screwing over customers? Does it not mostly reward those who act in a manner that most pleases their customers and helps their reputation?
How is that not evidence of a moral code operating within a given market?
Well of course it is – but such a code is inconvenient to the Krugman’s of the world, because admitting that markets, unimpeded by government intrusion, would reward or punish those who transgress its laws would mean the argument for more government intrusion would fall flat. And certainly, admitting that the rich “deserve” their riches as much as many in poverty “deserve” their poverty would again admit to a morality that precluded government making everything “fair” by it’s attempts to redistribute that “undeserved” wealth.
Those key premises are what Krugman and much of the left base their criticism of capitalism on, never once admitting that a) capitalism as it should exist doesn’t and b) the reason the markets may not seem to be “working” is because of the amount of distortion they already suffer from government intrusion.
Of course, it is the age old cycle many of us have come to understand – government declares something to be a problem, declares it is the solution, exacerbates the problem and again declares only it can fix it with even more intrusion.
“Morality” is, at a base level, “good and bad”. We label what we deem “good” as moral. The bad stuff is “immoral”. How one can observe real markets at work, where the basic transaction is a voluntary exchange of goods for money between two people (entities) and not recognize the basic morality of such an act wouldn’t understand morality if it bit them on the leg. Billions of those transactions will happen on this, Black Friday. Consumers will go to stores they trust from experience, buy from vendors with good reputations and the best customer service and reward them with their business. That decision is one based in morality in which the consumer weighs the options and picks the vendor who best exemplifies their moral ideal in the marketplace. If they’ve been burned in the past by store X, that store most likely will not get their business – a decision based on the moral judgment of the consumer.
How a so-called economist doesn’t understand the basic morality of markets seems a bit beyond me. Which is why I put Krugman in the hack category. That morality, which is plainly evident to me, is inconvenient to Krugman’s thesis that government must intervene in the economy. He can’t really point to any success stories (well he tries by saying, finally, that massive government spending for WWII brought us out of the Depression and that’s suspect), so he’s left trying to explain why it is government’s job to save us from the inherent unfairness of the market.
You have to leave a whole bunch of stuff out to do that. And you have to establish nonsensical premises like “the rich don’t necessarily deserve their wealth, and the poor certainly don’t deserve their poverty”, in order to advance your government intrusion thesis.
Thus the cycle repeats – government is again the only solution to the problem government created. After all, the markets put us 14 trillion in debt, not the profligacy of government – or so I fully expect Krugman to explain in some future bit of nonsense in the New York Times. It would make about as much sense as this nonsense.