Tag: Economic inequality

Government Doesn’t Fix Inequality Because it Can’t

Vox has one of their usual questions today, asking why our government doesn’t “fix” inequality.

Now before I get into this, I should say that I’m not entirely convinced that inequality is a problem needing fixing. Piketty’s book has been found to have some dubious data and his conclusion — that capital always grows faster than the economy — seems incredibly shaky and simplistic. The contention that inequality is increasing is subject to three assumptions that are all dubious. First, that the cost-of-living is being accounted for correctly. If it has been over-estimated — and there are reasons to believe it has been — then the wages of the middle class have actually grown. Second, most of these calculations are based on pre-tax wages. But wages are only a part of the compensation people get for working nowadays (in my grants, about 20% of the cost of hiring someone is in benefits, not wages and many countries have socialized medicine and other socialized benefits). Moreover, our tax system has been specifically canted to reduce income inequality by paying negative taxes to the poor and charging heavy rates on the wealthy. And most other tax systems are steeply progressive. Finally, a lot of this is based on “per household” data but households have been shrinking (quite drastically in Western Europe).

But let’s say that rising inequality really exists and is a bad thing. Why doesn’t government do anything about it? Please tell us, oh wise Vox:

The decline of labor unions has decreased the political importance of poor voters, because unions were an important “get-out-the-vote” machine. A recent study by Jan Leighley and Jonathan Nagler finds that the decline in union strength has reduced low-income and middle-income turnout. But labor’s influence (or lack thereof) is also important when the voting is done. Research finds that policy outcomes in the United States are heavily mediated by lobbying between interest groups, so organization matters.

Martin Gilens writes, “Given the fact that most Americans have little independent influence on policy outcomes, interest groups like unions may be the only way to forward their economic interests and preference.” His research indicates that unions regularly lobby in favor of policies broadly supported by Americans across the income spectrum, in contrast to business groups, which lobby in favor of policies only supported by the wealthy.

So … special interests. In fact, all five of Vox’s explanation for why government hasn’t dealt with inequality boil down to what I talked about recently — the need of the Left to see their opponents as mentally ill or mislead in some way. So, according to Vox, we overestimate income mobility, inequality ruins the camaraderie of society, we’re not voting enough, special interests control our government and we’re afraid of black people (seriously). If only we were as wise and informed as Vox, we’d embrace a grand redistribution scheme.

It never occurs to them that the reason people don’t support redistribution schemes is because they know that the government would inevitably fuck it up. A couple of weeks ago, George Will issued this you-really-should-read-the-whole-thing cri de coeur:

Resistance to taxation, although normal and healthy, is today also related to the belief that government is thoroughly sunk in self-dealing, indiscriminate meddling and the lunatic spending that lards police forces with devices designed for conquering Fallujah. People know that no normal person can know one-tenth of 1 percent of what the government is doing.

Contempt for government cannot be hermetically sealed; it seeps into everything . Which is why cupcake regulations have foreign policy consequences. Americans, inundated with evidence that government is becoming dumber and more presumptuous, think it cannot be trusted to decipher foreign problems and apply force intelligently.

The collapse of confidence in government is not primarily because many conspicuous leaders are conspicuously dimwitted, although when Joe Biden refers to “the nation of Africa,” or Harry Reid disparages the Supreme Court’s Hobby Lobby decision as rendered by “five white men” (who included Clarence Thomas), Americans understand that their increasingly ludicrous government lacks adult supervision. What they might not understand is that Reids and Bidens come with government so bereft of restraint and so disoriented by delusions of grandeur that it gives fighting knives to police and grief to purveyors of noncompliant cupcakes.

Bingo. Every day, we get examples of how incompetent our government is. From funding companies that can’t make solar cells to bungling wars to a disastrous website launch. In a comment to the last post, Xetrov linked a story about how the government is going to have to un-deport some people because it screwed up their deportation. They can’t even kick illegals out of the country without creating a mess.

So why on Earth would the American people trust this bumbling leviathan to redistribute wealth? And, more to the point, why should they do so when there is every reason to believe that our government has made inequality far far worse.

One of Piketty’s claims is that occasional disasters like world wars and economic crises level the playing field, reducing income inequality. Well, we recently had a disaster that should have leveled the playing field — the mortgage bubble and subsequent financial crisis. And what did the government do? By bi-partisan consensus, it bailed out the wealthy bankers and left the rest of us holding the bag.

How does the government deal with global warming? By making our appliances more expensive and shelling out billions to fund companies run by wealthy friends of the President.

How does it stimulate the economy? By borrowing money and spending it on boondoggles run by the wealthy and powerful.

What about job training? Ed Morrissey recently ran a great post showing that only does federal job training fail to place people in jobs, it often leaves them with thousands of dollars of debt from paying for expensive classes that gave them training no one needed.

What about higher education? As I’ve documented on this blog, our government doles out predatory loans that can not be discharged in bankruptcy. These loans help fund seven-figure salaries for university Presidents. (Incidentally, one of the few people who’s doing something about the cost of college? Mitch Daniels, former Republican governor, now President of Purdue).

In the 1960’s, government gave us “urban renewal”, a process by which they bulldozed functional but poor neighborhoods and gave rich developers money to build slums. And as Ta-Nehisi Coates showed, they redlined black neighborhoods to keep federally-guaranteed loans away from working class black people.

This is the government you want to redistribute wealth?

Look at the story below on Chelsea Clinton’s ridiculous salary at NBC. One of my points was that this is not unusual. Our political elite make tons of money telling us how they are going to make society fairer. Sometimes literally. Paul Krugman is getting $250,000 to teach about income inequality at CUNY (in an industry that employs thousands upon thousands of adjunct professors who do most of the teaching and are paid a pittance for it). And the Left vigorously defended how “fair” it was!

In the end, redistribution usually ends up the same way — with a massive class of “equal” serfs and a small class of “more equal” rulers. If you don’t believe that … all you have to do is look at the current system. Vox, like most liberals, is just surprised that the American people are smart enough to realize this.

At Least He’s Honest About It

Building on Alex’s post on income inequality, I note that Mathew Yglesias published this over at Vox. Yglesis advocates for raising the top marginal rate on salaries above $10 million to 90% and the inheritance tax of estates over $10 million to 90%. His argument is that the Laffer Curve is largely bunk and there is no evidence that raising incomes that high would seriously hurt the economy, at least if it were confined to the upper strata of income.

Let’s put aside a few things. Let’s put aside that France tried to raise the top tax rate to 75% and it was a disaster. Let’s ignore that even when that marginal tax rate was 97%, it didn’t stop rich people from being rich*. Let’s ignore that while many economists dispute where the peak of the Laffer Curve is, no one thinks its near 90% or doesn’t exist. Let’s ignore that when you add in state, local and Medicare taxes, this would mean a marginal rate of over 100%. Let’s ignore that previous efforts to tax the evil stinking rich have often resulted in a game of rich person whack-a-mole where they just get income from different sources. In the 90’s, the Democrats put a cap on the amount of CEO pay that could be categorized as a business expense. The result was that CEO’s started getting paid in stock options, which contributed directly to the tech bubble.

No, we’ll put Yglesias’ economic illiteracy aside. Instead I want to applaud him. Because he admits that a 90% marginal rate will bring in little if any revenue. What he argues is that this would stop corporations from paying such huge salaries and therefore pay more to lower level employees. Or something. And high taxes on estates would stop people from inheriting massive wealth. Or something. His argument is that this would address growing income inequality. No word on whether he also thinks cutting the legs off of tall people would help short people dunk basketballs.

I’ve said before that raising taxes on the wealthy isn’t really about revenue. Increases in the marginal rate would increase revenues, although not as much as tax reform would. But that’s a side effect. A huge amount of the motivation for raising taxes on the rich is redistribution. As Barack Obama himself said, it’s about spreading the wealth around. So at least Yglesias is admitting what we all know.

Of course, this won’t go anywhere. Despite the best efforts of the wealth redistributors, the American people don’t want a 90% marginal rate. There is broad support for the rich to pay more, but not at this level. So, in the end, Vox is running an article that is just about as grounded in reality as the most fantastic libertarian fantasy.

(*It’s a funny thing. Jjust as wealth and income inequality are coming back into vogue thanks to Picketty’s new book, I am growing more and more suspicious of it. I am beginning to suspect that the “equality” of the mid-20th-century was a product of how we measure it, not a real phenomenon. Rich people don’t get rich by letting the government take their money; they find ways to shelter it. The 97% marginal tax rate we enjoyed until the 1960’s came with a lot of shelters so that very few people actually paid it — and often it was someone who’d made a new fortune and was trying to raise themselves up into the ranks of the rich. The 97% rate was mainly a way of beating down rising stars so that the rich would remain pure and blue-blooded.

Liberals understand this to some extent. When conservatives point out that capital gains revenue boomed after the tax rate cut, they correctly reply that the taxes reaped from ordinary income fell by a greater amount. The rich just changed how they were getting paid. I suspect the supposed happy valley of income equality was similar but don’t have the resources to do the research.

I am also growing dubious of using income and wealth as pure measures of inequality. It makes things convenient for economists, but doesn’t necessarily tie to reality. Housing and food, relative to income, are much cheaper now for poor and middle class people than they used to be. Most of the working class can now afford homes; they used to almost all rent. Measures of leisure time show that the poor and middle class have more of it than they used to. Just to take examples from my own family: one set of grandparents were middle class. They had a maid, as almost everyone in their social stratum did. No one has maids anymore because they are paid too much (and, it should be noted, other opportunities have opened up to the working class). On the flip side, my other grandfather worked two jobs and had a working farm just to stay functionally poor.

I suspect we are focusing too much on money measures and not enough one thing in life that really matters: time. This is one of the big reasons that I suspect Picketty’s trendy book — like Das Kapital before it — will eventually be unravelled by better minds.)

The State of Inequality

Rumors are that the President’s taxpayer-funded political speech State of the Union Address will focus on rising income and wealth inequality in the United States. As with almost everything this Administration does, I think this is misguided.

First, at least part of the problem of inequality is social. Poor people are much more likely to get divorced, much more likely to have children out of wedlock, much more likely to drop out of high school, much more likely to engage in criminal activity and more likely to have substance abuse problems. Wealthy people are far less likely to have those problems. The divorce problem is especially important because inequality is usually measured per household and having split households means split wealth. Inequality in America is as much a reflection of a social divide as it is an economic one.

Of course, it’s difficult to untangle social and economic problems: growing up in poverty can make it harder to persevere in school, for example. But I still think poverty is, to some extent, a symptom of larger social diseases. Treating those social diseases — through school choice, through ending the drug war, establishing free enterprise zones — would be a much more productive approach than throwing money at it.

But second, I think the idea of “inequality” is a fundamentally flawed way of looking at things. The problem with America is not that Bill Gates is making too much money. The problem is that millions of people are unemployed or marginally employed and that trillions of dollar of their wealth was eradicated by a government-supported real estate bubble (and trillions more will soon vanish in a government-supported education bubble). When people talk about “inequality”, that tends to devolve to the misguided idea of eating the rich. We should instead be focusing more on poverty, on unemployment and on education. Tearing down Bill Gates will help no one. We need to lift everyone else up so that they can aspire to be Bill Gates.

But how do we do that? Well, we can start by not following Democratic prescriptions. As I noted in an earlier post, Democrat-controlled California has the most massive income inequality in the nation, one so bad that pundits are calling it a “liberal apartheid”. Today, there was a report that the District of Columbia, an exclusively Democratic fiefdom, also suffers from catastrophic inequality, mostly because of the extraordinary gains in wealth for the areas in and around DC where government employees and contractors live and work.

And that’s the rub. Liberals think inequality is a result of not having a high enough minimum wage (and Obama, as Rich noted, just raised federal contract minimum wages by fiat). But we’ve had lower inequality with a lower minimum wage. California has a high minimum wage and massive inequality. They also think it’s a result of taxes being too low on the rich. But the rich are paying almost all the income taxes already. The lower classes pay payroll taxes, but almost no income tax. They think it’s because we’re not doing enough. But we’ve poured trillions into the War on Poverty (and, it should be noted, that many measures of inequality and poverty exclude this kind of federal aid. So liberals are ignoring the existing impact of anti-poverty programs in their call for more of the same).

Frankly, if you want to know why inequality is rising, look no further than the solutions Obama will propose tonight. Doubtless, we will get another “jobs bill”. This bill will shovel more money to rich connected friends of politicians while doing almost nothing to create sustainable job growth. He will doubtless push for a hike in the federal minimum wage, which will likely increase unemployment among the people who are the poorest. He will gloss over the federally-fueled housing bubble and bailout that poured billions into Wall Street while bankrupting the rest of us. He will doubtless ignore the regulatory capture that cripples small businesses while pouring wealth into those with armies of lobbyists. I am dubious that we will hear anything about the critical need to reform the tax and regulatory systems that are paralyzing our businesses.

In short, I think that Washington and the policies it has pursued for the last 15 years is the major contributor to inequality. And I think it is likely that we will hear tonight is a clarion call for more of the same. We will continue to push people down while claiming we’re helping them. We’ll continue to give money to special interests while pretending we’re fighting them. We will continue to do everything but the one thing government needs to do if it ever really wants to combat income and wealth inequality:

Stop creating it.

Inequality gap got bigger under… Obama?

Yup, you heard that right. In fact, it is even more damning because, well read for yourself:

In his weekend radio address, President Obama decried that “over the past three decades, the middle class has lost ground while the wealthiest few have become even wealthier.” Although he was trying to leverage the Occupy Wall Street movement, the income gap has been a longstanding concern of his.

During the 2008 campaign, Obama said, “The project of the next president is figuring out how do you create bottom-up economic growth, as opposed to the trickle-down economic growth that George Bush has been so enamored with.”

But it turns out that the rich actually got poorer under President Bush, and the income gap has been climbing under Obama. What’s more, the biggest increase in income inequality over the past three decades took place when Democrat Bill Clinton was in the White House.

Frankly, when you understand what the leftist politicians definition of “social justice” really translates into – they pick who wins and who loses – it comes as no surprise that their friends & donors, the ones pushing whatever idiotic things the left tells us are the must have of the future, end up getting enormous amount of wealth transferred from the US tax payers to them.

Solyndra was just an obvious example of what the left’s “social justice” politics does: it throws other people’s money at bad things, enriching those that cozy up to the leftists. There is a reason that companies like GE and money bundlers like that Kaiser fella behind Solyndra love leftist big government types.

The wealthiest 5% of U.S. households saw incomes fall 7% after inflation in Bush’s eight years in office, according to an IBD analysis of Census Bureau data. A widely used household income inequality measure, the Gini index, was essentially flat over that span. Another inequality gauge, the Theil index, showed a decline.

In contrast, the Gini index rose — slightly — in Obama’s first two years. Another Census measure of inequality shows it’s climbed 5.7% since he took office.

Meanwhile, during Clinton’s eight years, the wealthiest 5% of American households saw their incomes jump 45% vs. 26% under Reagan. The Gini index shot up 6.7% under Clinton, more than any other president since 1980.

Want to know what else has grown disproportionally during the Obama years? The misery index. The dollar is worth shit, US debt is up $5 trillion in a short 3 years, people sucking at the government’s teat are at a record high, and those looking for something paid by other people now don’t even feel shame when they demand more and are called on it. But the LSM isn’t going to report that. Not when the guy in the WH has a (D) next to his name, and certainly not when they rigged the candidate coverage during that election to get him there.

To the extent that income inequality is a problem, it’s not clear what can be done to resolve it. Among the contributing factors:

Here is a hint: income inequality isn’t a problem. Admit that we are not all equal and work from that. We are never ever, all going to cross the finish line at the same time because human nature makes that impossible. Some people think that shit like this is what should determine income, while others, the ones with the income, actually feel work – and yes, work that doesn’t involve manual labor is work and not ignoble as you Marxists fuckwads want to pretend it is – makes the difference. The later are right. The former are envious and greedy. How much wealth is enough? None of you fucking business. Espeically when it is crooks in government trying in an obscene way to dictate that. Class warfare sucks ass.