Tag: Redistribution of wealth

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.)

Can’t say I am surpised to find out that…

The Reuters is reporting that is sure is suspicious that analysis of the class warriors’ efforts indicate that the federal government has emerged as one of the most potent factors driving income inequality in the United States – especially in the nation’s capital:

In the town that launched the War on Poverty 48 years ago, the poor are getting poorer despite the government’s help. And the rich are getting richer because of it.

The top 5 percent of households in Washington, D.C., made more than $500,000 on average last year, while the bottom 20 percent earned less than $9,500 – a ratio of 54 to 1.

That gap is up from 39 to 1 two decades ago. It’s wider than in any of the 50 states and all but two major cities. This at a time when income inequality in the United States as a whole has risen to levels last seen in the years before the Great Depression.

Americans have just emerged from a close presidential election in which the government’s role as a leveling force was fiercely debated. The right argued the state does too much; the left, too little. The issue is now at the center of tense negotiations over whose taxes to raise and what social programs to cut before a Jan. 1 deadline. And the government’s role will be paramount again next year if Congress takes up tax reform.

The federal government does redistribute wealth down to struggling Americans. But in the years since President Lyndon Johnson took aim at poverty in his first State of the Union address, there has been an increasingly strong crosscurrent: The government is redistributing wealth up, too – especially in the nation’s capital.

The beneficiaries are not the billionaire financiers and celebrities who have come to personify income inequality in the 21st century. Yet the Washington elite are just as much part of the trend, having influenced laws and decisions that alter the entire country’s distribution of income.


Look, call me cynical, but wherever this class warfare shit has played itself out the results have been the same. These crooks pretend they want to help, but the agenda, and it is one that is millennia old, is for the “liberators” to become the new aristocracy. In the process they steal the wealth from the people that previously had it and kill them off. In the olden days one group killed the other through some revolution or war, then took power to fix things, but nothing got fixed. Practically every single time the new masters where orders of magnitudes worse than the previous masters.

This overthrowing of the old order by the new one reached its pinnacle with the recent collectivist revolutions – from communism to fascism– where the new masters brutally murdered the old order to take power, then proceeded to murder over 100 million of their own, hold billions hostage, and killed countless millions more in the wars of ideological expansion. For some ungodly reason the left convinced everyone that fascism was right wing, and thus made it the epitome of evil, while even today we have people making apologies for communism, which by far was the more evil and murderous of the two collectivist brands.

Today we no longer have the brutal collectivist revolutions of the old days. But the soft socialism of the declining western world is not any better than what came before it. The new masters now buy their allegiance by pretending to be doing it for the little people, and yet, they have become another aristocracy. Just like those that came before them, they feel entitled to their new station and wealth, and they have no compunction in making sure you know your place.

So this brings us to the last 4 or so years and the massive government spending that was supposed to lift all boats, stop the rising of the oceans, and finally give us some serious social justice to correct the evil of the Boosh years. How did that play out?

Two decades of record federal spending and expanding regulation have fostered a growing upper class of federal contractors, lobbyists and lawyers in the District of Columbia area. The federal government funneled $83.5 billion their way in defense and other work in 2010 – an increase of more than 300 percent since 1989, even after adjusting for inflation. Private industry poured more than $3 billion into lobbying to influence the government, nearly double what it spent a decade ago.

Like spokes on a wheel, the high-rise offices of this elite radiate out from Capitol Hill along major arteries deep into suburban Maryland and Virginia. The latest Census figures placed 10 of the capital’s surrounding counties in the top 20 nationwide for median household income – up from six in 1990.

There probably isn’t much society can do to stop some causes of the spreading class divide, such as technological change. But there’s one factor that is changeable – public policy. This series of articles explores how government is exacerbating or alleviating the causes and consequences of inequality, by examining three places where the rich-poor gap has widened.

Yeah, we have had 2 decades of record spending, but the last 4 top the list for sure, and then by such wide margins of difference with anything that came before, that it should have been mentioned. I wonder why Reuters didn’t? Not really. That’s sarcasm there on my part. The point here is that all this extra wealth the collectivists supposedly where going to funnel to help the little guy ended up with their buddies. It is not an accident that while welfare spending has gone up by insane numbers under these new masters, supposedly to help the disenfranchised cope with the shitty economy the tax and spenders always stick us with, the counties with the largest amount of wealth in the US, and growing, are donkey strongholds.

So while the takers are making out good, the rich are getting insanely richer, and the middle class is getting hammered. This is not an accident. Collectivist societies are always 2 tier ones. The miserable serfs, and their masters. We are just being worked into that system slowly. It’s not coincidental that our political class and thier buddies are ending up as the masters, while the rest of us end up as serfs, either. That’s the way this system works.