Last week, I shared a TV interview about Obama’s budget, but much of the discussion was routine and didn’t warrant special attention.
But there was one small part of the interview, dealing with the silly claim that America became a rich nation because of socialism, that got me all agitated.
Well, to quote the great Yogi Berra, it’s deja vu all over again. Here’s an interview I did with CNBC about labor unrest. As you might expect, I made the standard libertarian argument that it’s not the job of government to pick sides when labor and management have squabbles.
That’s a point I’ve made before (here, here, here, here, here, and here), so there’s no need to elaborate on that issue.
But if you pay attention at the 3:00 mark of the video, you’ll notice that the discussion shifts to income inequality. And this is what got me agitated. I’m completely baffled that some people think that redistribution is more important than growth.
As I point out in the interview, nobody wins in the long run if you have a stagnant economy and politicians are fixated on re-slicing a shrinking pie.
The goal of everyone – including unions and leftist politicians – should be growth. If we get robust growth, that will mean tight labor markets, and that’s a big cause of rising wages.
But here’s my hypothesis to explain why statists don’t support good policies. Simply stated, I think they hate the rich more than they like the poor.
That sounds like a rather bold claim, but is there any other explanation for why they reject the types of tax policies (such as lower corporate rates, reduced double taxation, and expensing) that will increase investment, thus boosting productivity and wages?
Heck, look at this chart showing the relationship between capital formation and labor compensation.
Any decent person, after looking at the link between capital and wages, should be clamoring for the flat tax.
Yet Obama wants to move the tax code in the opposite direction!
I confess that I have no idea if this is because of malice or ignorance, but I do know that no nation has ever generated faster growth with class warfare.
I realize I’m ranting, but the more I think about this topic, the more upset I get. Politicians and their allies are making life harder for workers, and I hope I never stop being outraged when that happens.
P.S. On a totally separate subject, here’s a good joke forwarded to me by a friend this morning. It definitely belongs in my collection of gun control humor.
A state trooper in Kansas made a traffic stop of an elderly lady for speeding on U.S. 166 just East of Sedan, KS. He asked for her driver’s license, registration, and proof of insurance. The lady took out the required information and handed it to him.
In with the cards, he was somewhat surprised (due to her advanced age) to see she had a concealed carry permit. He looked at her and asked if she had a weapon in her possession at this time. She responded that she indeed had a .45 automatic in her glove box.
Something, body language, or the way she said it, made him want to ask if she had any other firearms. She did admit to also having a 9mm Glock in her center console. Now he had to ask one more time if that was all. She responded once again that she did have just one more, a .38 special in her purse.
He then asked her “Ma’am, you sure carry a lot of guns. What are you so afraid of?”
She looked him right in the eye and said, “Not a damn thing!”
You can enjoy other examples of gun control humor by clicking here, here, here, here, here, and here.
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Liberals focus on redistributive economic policies rather than policies that build up everyone.
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…correction: “…today’s luxuries are tomorrow’s staples…”
In simple numbers:
Assume you are a middle class person. Your income “I” relative to growth “G” and redistributive effects “R” as “n” years pass is:
In = I0*R*(1+G)^n
Where I0 is the current income level in year 0 absent any redistribution.
So long as greater redistribution has a negative impact for growth (i.e. so long as R2>R1 is associated with G1>G2) then !ALLWAYS! I1n>I2n for a sufficiently large n. The exact n is given by: n= ln(R2/R1)/ln((1+G1)/(1+G2)) where ln is the natural logarithm.
Let’s work out an example:
-Jurisdiction 1 has basic redistribution of 10% so R1 is 110%. That means that, even under a flat tax, the rich (i.e. the more productive) pay more for common services compared to the mediocre(*). Its annual growth rate is 5%, a little above the world average, as the marginally increased motivation of its citizens allows this jurisdiction to outcompete most other countries on the global stage.
-Jurisdiction 2 has European levels of social democracy redistribution of 50% so R2 is 150%, but its growth rate is 1.5% (actually even that is overstated for today’s Europe).
Assuming that the middle classes in both jurisdictions start from the same baseline prosperity levels “I0”, the middle class of the more redistributive jurisdiction 2 are wealthier by 36% in the first year (hurray!). But then using the expression for n above, we find that the middle class of jurisdiction 1 surpasses the middle class of jurisdiction 2 by the 9th year (more precisely, year 9.14 is the time given by the solution for n).
But it does not stop there. Jurisdiction 1 keeps getting exponentially wealthier than jurisdiction 2. By year 20, the middle class of jurisdiction 1 is 44% wealthier than its more redistributive (compassionate) counterpart. By year 30, jurisdiction 1 is 103% wealthier than jurisdiction 1, by year 50 299%. Yesterday’s luxuries are today’s stales, so while jurisdiction 2 is still a little wealthier than it was 50 years earlier, (three times wealthier), jurisdiction 2 is over 12 times wealthier. Jurisdiction 2 has only 1/4 the income of jurisdiction 1 and life there is comparatively pretty wretched. Ironically, the end result of compassion turns out to be pretty cruel in the end. Just look at Cuba.
You can change the R1, R2, G1, G2 numbers, it does not matter. In the end, so long as grater redistribution results in lower growth, the equation always solves for greater prosperity for the less redistributive jurisdiction, after enough years into the future.
Faced with this simple arithmetic, redistributionists have to resort to fairy tales. Tales that say that redistribution leads to higher growth (see newly elected Greek government and their closet supporters inside the Brussels bureaucracy majority). These continents are doomed!
But it all this discussion goes down the drain. Because for the average voter-lemming the immediate effect of redistribution at the polls is simply irresistible. Hence, for the developed democracy voter-lemming:
“A redistribution dollar today, is worth five perpetually growing and compounding dollars in the future”
Hence, world average prosperity will continue to relentlessly march towards absorbing and eventually drowning the prosperity of developed democracy voter-lemmings.
—————————————————
(*) Yes, even under a flat tax the rich pay more, but proportionately. For example, even under a flat tax, a CEO may pay 100 times more for police compared to a blue collar worker, even though his police needs are not 100 times that of the blue collar worker. In other words, even under the flat tax he is paying disproportionately more. The same argument applies to the military as the CEO does not really need 100 times the military protection of a blue collar worker. We can argue how much more but the factor is definitely not 100.
P.S. calling it a “shrinking pie” is technically incorrect. The pie always expands, albeit at dramatically different rates. Even in Cuba today life is better than it was sixty years ago, the pie HAS expanded, even in Cuba. But it has expanded exponentially more so in other countries, establishing new standards for human decency which the Cubans cannot match. So when the rest of the world has turned their pie into caviar, and all you managed to do is add a few sugar sprinkles to yours, then you’ll be living a wretched life in relative terms (leftists should be ideologically very aware of this relativity indeed). Put in another way, striving for imposed equality at the national level, leads to systemic structural inequality on the world stage. This is, after all, why the OECD wants to slow down everyone’s growth trajectory. So that the western world voter-lemmings are unable to see what they missed. But it won’t work in the long term. Even if the OECD totalitarian cartel is successful at subduing most of the world in the beginning (a big if) eventually the benefits of breaking free will outweigh the vindictive group punishment of the cartel. Evolution, even economic evolution, cannot be stopped forever. The battles of the future are not easy to predict. Our descendants will think we acted as idiots, as typically happens through the generations. But for now, sitting at Starbucks with your liberal friends and contemplating your next move against tobacco, while loaded on caffeine, is hip, is modern, the way of the future…
You don’t know for sure that Obama is filled with malice? Do you need to have a grand piano drop on your head to know it’s heavy?
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The title to this article should be:
“Focus on Growth Rather than Theft and Redistribution”.
Taxes are after all theft.
Taking from deserving earners and giving that to the less deserving.
That is not a Christian nor an American ideal. ©2015
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The argument about income inequality was disingenuous. It’s my understanding that the average west coast dock worker makes $154,000 in annual salary. [If that figure is not right, it is my mis-remembering. I know the reported figure was a six figure one.]
Income inequality is always code for “more for me”. If they really wanted income equality, it would be set at the world average of around $10,000.
Great joke!