I’ve spent a lot of time debunking class-warfare tax policy, and I’ve certainly explained ’til I’m blue in the face that big government facilitates a pernicious form of corruption that enriches powerful and well-connected insiders.
But I haven’t spent much time addressing the topic of income inequality, which is connected to those two other issues.
U.S. News & World Report just weighed in on this issue, citing a leftist video designed to build support for redistributionist policies.
Occupy is by now forgotten (if not gone), but the top 1 percent came roaring back into view this week with a viral video that has been seemingly inescapable for anyone on Facebook or Twitter. The slick, graph-heavy animation shows the results of a 2011 study that found not only that Americans vastly underestimate wealth inequality in the U.S. but that current inequality is very far from what most Americans see as ideal.
I contribute to the discussion, making the point that people should focus on the source of inequality.
…some would argue that not all inequality is created equal. According to one expert, the problem is far worse when it’s a function of bad government than when it’s a function of private industry growth. “If you’re a very corrupt, cronyist type economy like Argentina or Mexico, you have a huge degree of income inequality and it’s driven by the fact that the elites control the levers of power,” says Dan Mitchell, a senior fellow at the Cato Institute, a libertarian think tank. Meanwhile, a less-corrupt, high-inequality, but fast-growing economy–Mitchell uses the example of Hong Kong–might be healthier, more stable, and more likely to have a rising tide of growth lifting all boats, even if it’s lifting some boats more than others. In other words, as long as everyone is benefiting, albeit to different degrees, he says, that’s one key test of whether inequality is “good” or “bad.” …As for the question of where U.S. inequality is coming from, Mitchell says he fears that corporate influence in Washington may be creating inequality of what he might call the Mexican or Argentinian type. That is, he believes that big banks and healthcare companies are skewing the system in their own favor via legislation like Dodd-Frank and healthcare reform.
To get an idea of what I’m talking about, check out this chart comparing economic performance in a nation with capitalism, a nation with cronyism, and a nation with statism.
And since I specifically cited Hong Kong, check out this chart. And click here to see how Argentina has fared with a system where government picks winners and losers.
The article then follows with a sentence that may be true as a political prediction, but completely misreads the point I was trying to make.
If that’s true–that those at the top are able to entrench their places at the top, at the expense of others–it is reason to angrily hit the share button.
NO!!! What I’m pointing out is that we should repeal laws such as Obamacare that promote cronyism and corruption.
But that’s not the only argument against the leftist argument for redistribution. My former grad school colleague, Steve Horwitz, makes the key argument that it is shoddy to compare changes over time for income quintiles without also measuring income mobility.
And you can click this link to hear what one of my professors from grad school, Don Boudreaux, had to say about the notion that wages have stagnated.
if you want even more, here’s something I wrote on income inequality and here’s a debate I did on income mobility. Even better, here’s what Margaret Thatcher said about these topics.
[…] my old grad school colleague Steve Horwitz also has some very sage observations on income inequality and class […]
[…] Inequality, Redistribution, and Class Warfare […]
[…] Inequality, Redistribution, and Class Warfare […]
[…] my old grad school colleague Steve Horwitz also has some very sage observations on income inequality and class […]
[…] my old grad school colleague Steve Horwitz also has some very sage observations on income inequality and class […]
[…] March 9, 2013: This is funny, to me: Some people think just talking about this stuff is “class warfare.” How are they so familiar with class warfare, you wonder? That’s a self-answering […]
Hi Ed, the problem with your statement is that when Margaret Thatcher said that, we actually >had< a productive middle class. It had not been destroyed by poor fiscal and social policy.
Remember, M. Thatcher took over a Socialist nation and turned it around.
My God, you guys are writing your own blog posts here.
Daniel, when Margaret Thatcher said that, a greater percentage of wealth increase went to the productive middle class and poor than in the U.S. today.
There is no indication that taxing the rich decreases their lifetime production. Neither shielding the less productive from the consequences of mediocrity has an effect on ambition and lifetime production.
As a matter of fact, when it comes to the rich, these people are greedy. Addicted to money. So the more you take from them, the harder they work to make up for the shortfall. On the poorer side, the more free stuff you give, the more grateful people become and increase their ambition, so that they can contribute back more.
So now that we are finally on the cusp of free healthcare, and knowing that taxes have no effect on production and growth, we should vote ourselves more of the essential stuff that make for a bare minimum decent life. I mean healthcare is fine but what about housing? Everyone needs a roof, and you should not have to work twenty years just to put a roof over your head. So free housing seems essential to me. And what about food? Who can live without food? So free food. And what kind of life would it be if you had food and shelter but stayed trapped at home? Need transportation. Free transportation. Shouldn’t have to work just to get the transportation money to get to work. That’s ridiculous. And who can just work and work and work all the time? In our day and age a five week vacation is part of any decent human’s life. So a free vacation is within the bare minimum of decency. And don’t tell me the rich cannot of pay for some vacation for all of us.
Now I admit that when we do get all that, there might just be some effect on total production. But then we’ll call Krugman. He’s got “the multiplier” which can be put to work to make up for lost ground. To be honest, I don’t personally know how it works, but smart scientists got that stuff figured out. That’s why we have government grants and why the rich should contribute more towards these grants.
And the crazy thing is, why did it take us, the people, so long to figure this out? That taxing the rich is a way to a better life? I mean, the US has had incredible luck in becoming the wealthiest country on earth — where its oppressed middle class is in the top ten percent worldwide — given all these headwinds of selfishness that made the US a world renowned consistent laggard in social programs throughout its history. But whatever elves and perhaps even supranatural forces are at work, the US did become rich. So we should use this wealth to serve the people, not the rich. The awakening is finally here!
I know the feeling. Try as I might I cannot get some otherwise intelligent people to understand that punishing productive behavior by giving the proceeds to the wealthy instead of to the productive, is just bad policy. They fall back on their magic words, “free enterprise.”
They fail to understand that the root of free enterprise is in fairness, in a man’s being able to get a fair day’s wage for a fair day’s work, and that capital, that stuff that is the essence of the capitalist systems of economics, does not exist without the labor to take raw material and make it into capital.
That is the root, heart, core and nucleus of the difficulty of income maldistribution, that it is the absolute worst of the comedic portrait of capitalism as “one man getting rich off the labors of other men.”
You appear to assume that anything short of this gross injustice is injustice to the rich.
Look up “fair” sometime, and see what it means, particularly with respect to free enterprise and opportunity. Wealth maldistribution chokes off opportunity for the many, and that opportunity is swallowed up by the very, very rich. These are the evils which, if not corrected, result in stormings of Bastilles, protests outside the Winter Palaces, and which require that we endure Sumter-to-Appomattox.
Make the system fair, or suffer the consequences of the whirlwind, then, is our choice.
Which would be most advantageous, economically, politically, and morally?
You cannot punish the productive behaviors of the many under a pretense of protecting the productivity of the wealthy few; humans do not tolerate such unfairness forever.
But this inequality is the result of bad government, of policies designed to transfer wealth from the middle class and poor to the rich — reverse Robin Hood.
Robin Hood’s virtue was that he was helping restore some justice, in his stealing. In this case, since the maldistribution of wealth is injustice itself, there is no virtue.
[…] March 9, 2013: This is funny, to me: Some people think just talking about this stuff is “class warfare.” How are they so familiar with class warfare, you wonder? That’s a self-answering […]
Reblogged this on Public Secrets and commented:
Try as I might, I just cannot get some of my liberal friends to understand that punishing productive behavior with higher taxes is just bad policy. They just fall back behind their magic word, “fairness.” Sigh.
Libertarians got it wrong. When the pitchforks come out, people don’t go Galt. They go Taggart.
The death march of the voter-lemmings can be summed up in one phrase:
“We will take from the rich to shield ourselves from the competition of three billion liberalizing emerging world souls”.
For how long? A dose of redistribution, even if it works, might address this year’s 3% convergence towards the world average (US growth 2%, the new norm, minus the average world growth of 5% makes a 3% deficit). Next year? How wiil you counter the new convergence towards the average? The year after? Not to mention, when the growth deficit will be even wider (euro-like) because your flatter effort-reward curves result in even less growth? How will you address perpetually compounding convergence towards the worldwide average with redistribution that is inherently limited? (You cannot redistribute more than 100%).
But lemmings don’t know arithmetic. So,
Genghis Khan will make quick lunch of the lemmings. An emerging world where average per capita income rises to even a mere half the western world’s, will be twice the size of the USA and Europe combined.
So, Lemmings, on your way to your decline, come to uncle Zorba! He’s lived in Europe, he knows how to make the best of a bad situation and capitalize on your HopNChange.
“That Zorba! One of these days well just corner him with our legislative pitchforks!”
Sure, yes, no problem! Quack quack! I’m sitting duck! All you got to do is get in the voting booth, mark the X and you’ll have Zorba bagged. But you hardly have time for that. You gotta go work as I’m about to assert my birthright to tap into your income and pay for my ObamaCare. Don’t forget your HopNChange flag. Great days of high growth you have ahead lemming.
The wealth imbalance is almost entirely due to government regulatory influence. Let me give a good example. Steve and Dan’s car company had as good a chance as any of coming into business in the early 20th century. With increased regulations, the very cost of even considering developing an automobile company from your garage, as happened with Henry Ford, Ransom Olds, and others is unthinkable. The entry fee is simply too large. And the bigger companies, while complaining about oppressive regulations actually encourage it to a large degree.
I call this a form of “selective toxicity” a subject on which I have always planned to write a book. The point is that a larger organism is willing to accept the introduction of a poison to the system because it will survive, and the lesser organisms will be killed off. This is, for instance, how you cure a dog of heartworm. And it occurs in our business climates every day.Tthere are very few areas where government has not regulated to a degree to discourage entreprenurial experimentation. The invention boom of the mid-20th century can NEVER be repeated with this structure in place. Too many lawyers and lawsuits stand between me and my ability to develop a new and better mouse trap, or find a better way to travel to outer space, or even to make a better cooking utensile.
Add to this a phenomenon that I call the “lottery syndrome” in which everybody in the USA seems to want to get rich overnight with very little or no work (also encouraged by the government through state lotteries and gambling houses) and you have our current situation. Nobody wants to work hard to get ahead anymore as did the Europeans who arrive on our shores when America was the land of opportunity. Instead, they want to invent a “pet rock” or win a lottery, or invest in the right stock, or win a large lawsuit, or ingerit a large sum of money. None of these are healthy American values that our grandparents would have respected. But given the oppressive environment toward entrepreneurship, and encouragement of hoping for a windfall, and we are stuck in a hole awaiting the next major scientific breakthrough by the very scientists who have no incentive to look for one.
The last leg of this stool, is, of course easy money for those who want it. That vccould easily be solved by creatin “true fairness”. If they want my money, they shoudl also have to work 40 hours a week to get it. Let them clean up roadsides, repair government buildings, clean toilets, etc. So what if you have kids or loved ones that need to be watched? I deal with that every day. This would probably reduce our welfare roles by 70%.
Until we are willing to band together and remove those from office who set this system in motion, we cannot expect things to change. Perhaps God will intervene and save us from ourselves? Rand Paul. Ted Cruz. Go get em.
Dan,
I am not the least bit surprised your comment got turned upon its head in pursuit of the equity for all and equality of opportunity vision now driving all of education, K-12 under the Common Core and especially higher ed. And equality of opportunity is being redefined as equality of results and life chances.
I have been tracking the social, economic, and political visions for the future associated with these changes in the purpose of education. The part parents, taxpayers are not being told. http://www.invisibleserfscollar.com/who-needs-pitchforks-to-get-political-and-economic-revolution-education-and-time-will-do-fine/ lays out these radically new visions for capitalism. That is not capitalism at all in the sense of any individual freedom.
We have a full-scale assault going on and most of its is hidden behind Orwellian definitions and what these graduates are being led to believe and feel and value. With the always dangerous combo of unrealistic expectations driving planned future behaviors.
I am an entrepreneur without large capital at my personal disposal – when discussing income inequality, which is a big problem in this country, I take the same position. It is a problem; but the very politicians who claim to care about resolving the gap only make it worse! High regulatory cost make starting new businesses in many industries impossible for anyone other than large corps or wealthy individuals to attempt. Access to private capital raising is so overly expensive and burdened with regulation that in most cases it is not even worth trying. The government makes “investments” in projects, especially energy, that in large part go to high net worth individuals or companies at who’s expense? The taxpayers which are largely made up of people in lower classes than those receiving. Throw in all of the people who have quit trying and are just mooching the system the guy in the middle gets the squeeze. Growing a business takes renewed investment and cash and sadly many entrepreneurs need to decide between taking a salary and paying taxes for the first several years of their venture. This keeps many entrepreneurs on the sidelines for far too long. Take the shackles off the under-funded and over-regulated entrepreneur and you will reduce the gap of income inequality. Companies will have to pay high-performing individuals more to keep them from going solo and entrepreneurs will have equal access to opportunities thereby advancing their personal net worth and growing the economy around them. Is this concept really that hard to understand?