Archive for the ‘Economics’ Category

Why Both Left and Right Are Wrong

June 26, 2014

The Left’s calling itself “progressive,” while in some ways annoying, isn’t entirely wrong. A key element is caring about other people, including those outside the traditional ambit of human concern (our own families and tribes), and even sometimes including non-people. UnknownThis is indeed progressive; this widening of human concern, working toward a better, fairer world, with lessening conflict and violence, compared to the past, reflects very real progress. It’s ironic that another typical attribute of the “progressive” temperament is denial of such progress.

It’s because being critical and cynical flatters the Left’s intellectual vanity. Indignation is a satisfying emotion. To be an optimist, on the other hand, to believe well of others, and that we’re making progress, seems just too sappy. It isn’t hip.

The Left views market capitalism with hostility, as though it’s some kind of perverted system artificially imposed by a conspiracy of a few to enrich themselves at the expense of the rest; which could be changed if we wanted to. Not a single element of that catechism reflects reality. A market economy is merely the natural, indeed inevitable, way that any bunch of humans interacts. Yes, with friends and family, we do a lot of sharing. images-1But otherwise if you have something of value – be it an object, or your labor – you won’t give it without getting something in return, indeed the most you can get (bar fraud or cheating). That is in fact merely justice (a word the Left loves). Striving to do well for oneself isn’t wrong; mostly people do that by creating value for others who’ll pay them for it. And this is how we’ve made a better, richer world — by people putting in efforts in order to improve their own situation. Is this the “greed” we hear so much about?

And the Left’s conception of justice tends to omit what ought to be its principal component: deservingness. While they do insist no one deserves to be poor, they meantime seem to deny that anyone deserves to be rich. At least they don’t see any entitlement to keep riches one has earned.

The right is less confused about the economics, but frankly tends to be grinch-hearted. images-2Its conception of justice is flawed in mirror-image of the Left’s – believing that when people don’t succeed it’s because they didn’t deserve to. That the less successful are basically slackers and moochers (this is why Romney’s infamous “47%” comment was so resonant). The right doesn’t sufficiently acknowledge how much luck determines one’s situation. And if the Left is overly obsessed with inequality, the right is too complacent about it.

Even cave people were humane enough to take care of the sick, infirm, or injured. Today’s right no longer seems to regard this as a fundamental societal obligation. Part of the problem is that the whole issue of helping the needy is crapped up by the fact that the great bulk of “help” goes to people who aren’t needy at all (look at the farm program, for example, most of whose subsidies go to millionaires). Unknown-1This blatant milking of the government teat tends to taint all such spending.

But we are a very rich society that can easily afford to take care of those less fortunate – if only we focused on just that.

Piketty Poo

May 20, 2014

                  For to everyone who has, will more be given, and he will have an abundance. But from the one who has not, even what he has will be taken away. — Matthew 25:29

Piketty

Piketty

French economist Thomas Piketty’s Capital in the 21st Century is the latest book sensation. Confession: I haven’t actually read it. But I’ve read plenty about it (both pro and con) — hardly avoidable lately. “Progressives” are gaga over it*, a confirmation bias feeding frenzy. People love having their pre-existing beliefs flattered. Piketty strokes the left’s inequality obsession: he predicts the gap worsening, saying returns on capital tend to outpace economic growth, so wealth tends to concentrate; and to combat this he proposes a worldwide wealth tax and punitively high (80%) income tax rates for the rich.

images-1Piketty’s predictions of slow growth and consequently increasing inequality have been challenged for faulty economic assumptions and analysis. The Left imagines a coming dystopia where a corporate 1% hogs all the wealth and the 99% have nothing. The absurdity is: who would buy all the products and services that make the 1% rich?

Meantime, Piketty’s fans also strangely overlook a glaring political correctness no-no. The book is Western-centric, focusing on the “First World” and pretty much ignoring the rest. But this is no mere cosmetic flaw — it goes to the heart of Piketty’s presentation. Wealth and equality are global matters, and if you only look at part of the globe, you can’t get it right. The big story is that while inequality may indeed be rising in Pikettyland, it’s not rising, in fact it’s falling, globally.

That’s unarguable fact, because for some time, Western economic growth rates have been materially exceeded in the poorer countries, notably India and especially China (together comprising over a third of world population). That means the global gap between rich and poor must be narrowing (even if within countries it’s not).

Moreover (fatal to Piketty), trends in rich nations and poor ones are not unrelated. As we know well in America, a big reason for rising inequality is the disappearance of high-paying factory jobs that used to raise up the less affluent. images-2Many of those jobs have gone to poorer countries — raising up their lower classes. In other words, global inequality is shrinking because wealth is shifting from richer countries to poorer ones; though it’s flowing from the less wealthy people in the rich countries which thus become more internally unequal. So the U.S. lower and middle classes are being hurt more by poor foreigners than rich Americans.

Piketty calls rising inequality “terrifying.” It would be, if the poor were getting poorer; yet they’re not. While the rich are getting richer, so are the world’s poor, albeit not as fast, but with hundreds of millions rising out of poverty in recent decades. Even in advanced countries, the poor are not falling, what with all the social safety nets. (Entitlements to Social Security, Medicare, and other government benefits are a form of wealth Piketty seems to ignore.) And poverty ain’t what it used to be: the living standard of Americans now classed as “poor” would have been considered solidly middle class a few decades ago (and would be considered rich in much of the world today).

But inequality is really the wrong concern, because the problem of the poor is not that others are rich. The problem of the poor is instead their poverty, which cutting down the rich won’t solve. images-2The left’s big error is thinking the rich “extract” their wealth from the rest; that there’s a lump of wealth to be divided up. Not so; wealth is created by productive effort. Steve Jobs got rich because people gladly paid more for his products than they cost to make. That added value made everyone richer. Had Jobs and his products never existed, his wealth would not have been spread among everyone else; it would not have existed either!

True, if you simply grab money from the rich and hand it to the poor, they’d be less poor and unequal — for the moment. But it won’t solve why they’re poor in the first place. What’s needed is not redistribution of wealth, but of the ability to earn wealth. That would be good for everyone, and without taking anything away from anyone; but it’s a much tougher problem. (Piketty does acknowledge that expanding education must be part of the answer.)

UnknownYet the left’s inequality obsession is not truly a social conscience thing. It’s not so much compassion for the poor as envy and hatred for the rich. It’s wealth and the power it brings that they find so intolerable (because they lack it), and are so rabid to tear down. Thus their swoon for Piketty’s global wealth tax proposal (how innovative). How to use the tax revenues, to raise incomes at the bottom, is barely a concern; it’s mainly to make the rich less rich.** And of course Piketty and his fans ignore how their vendetta against the rich, if enacted, would gum up the economic growth machine. Now that would really be terrifying — for rich and poor alike.

But in a commentary on Piketty, in Salon, Jesse Myerson says the solution to inequality is really simple. Instead of letting the returns on capital assets flow to their owners, we can just have the returns flow “democratically” to, well, everybody! imagesAs Red Green would say, “It’s just that easy!” Why didn’t Piketty think of that?

If you don’t find Myerson enlightening, you might try more of Robinson: here, and here.

* Visiting SF’s famed City Lights bookstore last week, the guy ahead of me was buying their last copy.

**This was demonstrated by the string of hostile comments to a version of this review on Amazon. It was all “the rich this” and “the rich that” and why they should be made less rich, with nary a word about making anyone less poor. Will there be similar comments here?

Cheryl Strayed: Wild

April 16, 2014

imagesThis best-selling memoir relates Cheryl Strayed’s 1995 1100-mile Pacific Crest Trail hike, from lower California through Oregon. I’d urged it on one of my book groups, but an outdoorsy member objected vehemently: “You don’t go on such a hike as unprepared as she was. It’s just stupid.”

I finally persuaded her that the stupidity was actually what the book was partly about, so we read it.Unknown-2

Strayed, then 26, was kind of messed up, from her mother’s death, her recent divorce, and a heavy heroin bout. She embarked on this extreme hike – without much relevant experience – hoping to find herself. Or something.

Well, she wasn’t totally unprepared; in fact, did quite a lot of planning and prep work, including acquiring a ton of gear, and arranging a series of resupply boxes to be mailed to her along the route. But for all the actually meticulous planning, she did stupidly omit something obvious: a trial run.

“Ton of gear” was a slight overstatement, but only slight. The book describes her organizing it in her motel room the day before starting out, cataloguing all the items. While reading, I’m thinking, “how much does all this weigh?”

Unknown-1So she gets it all packed into (and dangling from) her huge backpack, which is sitting on the floor, and only now, for the first time, tries to lift it. Guess what? Can’t budge it an inch.

Well, somehow Strayed did manage to maneuver what she dubbed “Monster” onto her back, and even to stand up, and walk with it. Eventually a more experienced hiker she meets on the trail persuades her to offload some of her excess burden.

The other obvious (even to me) thing you’d want to test out beforehand is how the boots fit. Fairly critical, you’d think. They seemed to fit fine, in the store. On the trail, not so much.

In fact, the book startlingly opens with her accidentally losing a boot over a cliff edge. One boot being useless, she then throws the other over too.images-1

But later we learn this wasn’t as disastrous as it might seem. The ill-fitting boots were from a company called REI, and after suffering in them for hundreds of miles, wrecking her feet, another hiker tells Strayed to call REI and they’ll send her a larger pair, free. She did, and they did. So after losing the first pair, she managed to hobble on makeshift duct-taped sandals to the next settlement to collect the replacement boots.

Unsurprisingly, Strayed has some glowing words for REI and its customer service. This points up something I’ve stressed often. With all the “corporate-this, corporate-that” invective, many people view businesses in general as impersonal malefactors caring only for profits. And admittedly some are. But this ignores a basic aspect of the human character, and businesses are human enterprises. Most people don’t want to see themselves as evil but, rather, as doing good.

Thus REI’s kind of customer service is not in fact uncommon. (I’ve mentioned my terrific experience with 48 Hour Books.) Many businesses realize it’s actually good for the bottom line. In the long run, it’s those behaving like REI and 48 Hour that succeed and prosper. And, if you think about it, the great majority of your interactions with businesses are altogether positive.

But competition is a crucial factor here. I’ve also written of my less-than-terrific experience with enterprises that don’t really have to compete for my dollar (eBay and the Postal Service). That’s why I’m a believer in free market economics. Any government intervention should aim at greater competition, but too often actually undermines it (by aiding some businesses to the detriment of others).

Unknown-3Another company Strayed lauds is Snapple, whose lemonade was a sublime treat at civilization stops after long hiking stretches. Likewise she makes the reader almost salivate at how luscious a cheeseburger tasted on such occasions. images-2This points up another of my pet themes: how we take civilization and its benefits for granted. Cheryl Strayed, after a couple of weeks roughing it, most certainly did not. Coming out of the woods, a Snapple lemonade and a cheeseburger were for her a Very Big Deal.

So, did the hike straighten out her life? As we used to say in grade school book reports, read Wild and find out.

Finally, you might ask, is there any sex in it? There is. Only one episode, really. But hot enough that it made me put the book down and go looking for my wife.

Do Women Earn Less Than Men?

April 12, 2014

President Obama’s been loudly hitting the supposed pay gap between women and men. All too typically, this is a phony issue distracting from our true economic problems he should be tackling.

Unknown-1Obama dismisses pay gap deniers by saying, “It’s just math.” I’m reminded of the old line, “figures don’t lie, but liars can figure.”

True, if you average all American women, and all men, women earn less. But what’s the significance of this? Not much – because it ignores differences in jobs, industries, career paths, etc. The fact is that women and men don’t have comparable working lives. Women – for a host of reasons (many having to do with differences in psychology and temperament; male and female brains don’t work identically; not to mention divergent parenting roles) – tend to have different talents and proclivities, to want different things, and to choose different careers and jobs than men. They tend to interrupt their career paths more often. And to be less aggressive in seeking advancement.

Such factors explain why, on average, women earn less. But – studies have found that if you control for these factors – that is, you analyze women and men following comparable career paths in comparable jobs – the pay gap is practically zero.

The President might reply that, well, women can’t necessarily get the jobs men get. But that’s wrong for the same reason that pay for comparable jobs really is virtually equal. imagesBecause in today’s highly competitive globalized economy, businesses cannot afford to discriminate against women, instead needing to get the best talent, irrespective of gender. In fact, if it really were true that firms could hire women with equal qualifications for less pay than men – why would they hire any men?

Undoubtedly, at one time women did face severe career limitations. images-3But that time is long past, and so this latest presidential crusade is disgracefully bogus; a cynical political ploy to posture as the champion of women (against a purported Republican “war on women”) and to perpetuate a gender gap that really does exist – in voting.

But it actually sends women a bad message, falsely warning that they face workplace discrimination. How many young women will thereby be discouraged in their career choices? Wrongly imagining they’d be blocked in their true ambitions, and choosing lesser ones instead? And I don’t think the politics of stoking resentments is good for the country.

Nor are the remedies Obama seeks for this largely nonexistent bugaboo of discrimination. All would reduce flexibility while adding bureaucratic and paperwork burdens for businesses, and pretexts for proliferating litigation, making it harder and costlier for firms to function. Yet again we see a president who constantly whines about jobs and pay yet constantly does things that handicap the businesses that provide jobs and their ability to pay workers.

images-4Meantime he ignores what is surely our biggest economic problem: ever more retirees soaking up pensions and health care, with an ever shrinking percentage of working people taxed to pay for it. That’s our real pay gap, and borrowing cannot bridge it forever. It will end in an equal-opportunity catastrophe, for all Americans – working and nonworking – and women as well as men.

Our Dubai Trip: Shopping Mecca

March 29, 2014

Unknown-1Dubai’s main attraction is shopping. Maybe not an obvious vacation choice for us non-shoppers.

Luckily, there was a big international art fair, with worldwide dealers exhibiting cool modern work. Almost as cool was ogling the other attendees.

Dubai is not a place of historicity. IMG_3215It has the feel of one that arose from the desert yesterday, which is pretty much true. Patches of desert remain, among the skyscrapers. Dubai is also one of the most internationalized of countries – indeed, the natives are a small minority of the population, which is not even mostly Middle Eastern, a great many inhabitants being from India, Pakistan, the Philippines, and elsewhere.

But back to shopping. The Dubai Mall is the world’s largest, with 1200 stores (and it sprouts the world’s tallest building, the Burj Khalifa). imagesRight inside the entrance we were greeted by a dinosaur, and her handler. The dino was a full size fossil skeleton of an 80 footer. The handler was an attractive young Filipina whose job was to explain about the dinosaur to passing visitors like us. UnknownShe was well schooled in all things dinosaurian, properly scientific; but at the end sweetly confided that she had trouble reconciling that science stuff with her “beliefs.”

We spent an hour sauntering through The Mall of the Emirates, though without setting foot inside a single store. The anchor attraction there is the indoor skiing facility – yes, in fact, an entire enclosed snowy winterland, with the temperature kept below freezing. Visitors can rent cold weather gear – padded jackets, woolen caps, mittens, boots. Sure amused us, coming to Dubai to escape such weather in Albany, NY. In Dubai, they pay to experience it.

Dubai is a wealthy country and the glitz of its malls makes ours here seem almost shabby in comparison. This is not a place for Abdul Sixpack to shop. images-1As my wife remarked, “You’d think the world runs on shoes and handbags.” Designer shoes and bags at that. Are there enough wealthy people to keep so many upscale stores in business? Apparently. Wearing a full burqa is not incompatible with carrying the most chic designer handbag. Not to mention a bag of purchases from Victoria’s Secret.

Sinful you might call this conspicuous consumption, no doubt bringing in the word “inequality” and drawing invidious contrast between the pampered, privileged folks buying Hermès bags and Prada shoes, and the unwashed masses who can’t feed their children. As if (many imagine) children go hungry because others have wealth they spend on luxuries.

Also in Dubai (photo by Elizabeth Robinson)

Also in Dubai (photo by Elizabeth Robinson)

But that’s not how the world works. In fact such spending by the rich supports a slew of jobs that make the poor less poor. Sneer if you like at the trophy wives buying Prada, but be careful what you wish for – without that spending, the poor would be a lot worse off. And don’t imagine that if the rich had less in the first place, others would have more. The world doesn’t work that way either.

Anyway, I wasn’t put off by watching Dubaians thronging to the malls to shop till they drop. I love it. Better this than grim-faced austerity (and poverty). images-2And I couldn’t help thinking, strolling the mall while the news was full of Crimea, that this is a far better model for how life should be.

Gucci, not guns. Make money, not war.

Freetards

March 11, 2014

Paul Rapp is a local lawyer who writes a column on intellectual property in an “alternative” newspaper, Metroland. One of his 2013 columns started with a vicious tirade against free market economics (or, typically, a caricature thereof) — and its defenders (encompassing virtually 100% of serious economists). Prominent in Rapp’s rant were words like “obscene,” “racist,” “bullshit,” “cretins,” and “freetards.”Unknown

But his main point was to argue that internet service should be a public utility — like telephone and electric service, which society has decided should be universal. And in furtherance of that goal,  some people’s service gets subsidized by others.

However, what Rapp was really concerned about was his own internet service. Massachusetts, he said, “has some public/private thing going on” to run fast connection wires along main roads. But who, he asked, will run the cable (quite expensively) two and a half miles from the main road up to his house — and how will it be paid for? (Not by him, God forbid.)

Unknown-1Paul Rapp is an attorney (who charges for his services) and is presumably not economically disadvantaged. Choosing to live miles from a main road, why does he think he’s somehow entitled to have his costly internet connection paid for by anyone but himself? What would you call someone who wants service provided to him for free?

A freetard?

21st Century Socialism and the War on (Small) Business

March 8, 2014

UnknownWhen I wrote about the “war on business,” some commenters dismissed this, saying profits have been strong, while it’s middle class jobholders who are hurting. True, up to a point. Big, established corporations, that can work the political system, and get government subsidies and protection against competitors, are indeed doing well. But smaller, newer firms face ever mounting obstacles. They’re tied in knots by complex regulatory schemes like Sarbanes-Oxley and Dodd-Frank (which big firms can cope with). And we get roughly all our net job growth from small businesses. If they’re struggling, and big firms needn’t compete with them for labor, no wonder worker pay is anemic.

California is a poster-boy for the war on (small) business. While the Silicon Valley scene is humming, because those firms gotta be there, many other companies are fleeing (or not starting). Exemplifying California’s business landscape is CEQA, an environmental review law that allows anybody to sue to stall any project. So if you want to open a new gas station, one nearby can sue to block you. Anybody with a financial motive can hold any project hostage by threatening to sue under CEQA, to extract concessions. Unknown-1Labor unions do this all the time. A recent issue of The Economist quoted a California observer about the state’s attitude toward business: “fuck you, fuck you, fuck you, fuck you, fuck you, and fuck you.”

But California is a business paradise compared to Venezuela, which the late President Hugo Chavez brayingly set on a path to “Twenty-first Century Socialism.” Among Venezuela’s “worker’s protection” laws is one effectively making it impossible for a business to fire anybody. There’s always the law of unintended consequences, but here the consequences are entirely predictable: workers who can’t be fired don’t work very hard. Or, for that matter, at all; absenteeism is rampant. Firms have to bribe employees to leave. And meantime the government laments sagging productivity!

Unknown-2You might think such “worker protections” applicable to the private sector would also cover government workers. Don’t be silly. Typical of authoritarian “socialist” regimes, in the Venezuelan worker’s paradise government workers have almost no rights at all, can be fired peremptorily (better stay politically correct), and don’t even think about organizing a strike or protest because they’ll throw your ass in jail.

Venezuela’s disaster may be approaching a climax, as the dysfunction of its “Twenty-first Century Socialism” wrecks the country. The regime, blinded by its twisted ideology, responds with even more counterproductive policies. I’m almost sorry Hugo Chavez didn’t live to see the denouement.

Socialism might be benign if people were angels. But they are not, power corrupts, and giving government so much economic and social power is a very bad idea. Twenty-first Century socialism isn’t any upgrade on the Twentieth Century version.

Yet lefties enjoy making mock of righties for throwing around the word “socialism,” as though it’s a bogeyman either imaginary or harmless. imagesI recently heard a re-broadcast interview with the late Pete Seeger, the folk singer who never really repented his Communist past, nor ever let a cross word pass his lips about any “socialist” regime (like Castro’s). The word “socialism” came up, with the usual sniggers, and Seeger said (paraphrasing), You know, the Post Office is a totally socialist thing, it’s textbook socialism, entirely owned and run by government; and of course everybody loves it.

Unknown-3Then Seeger surprised me by adding: But you know, no government-run post office in the world ever thought up anything like Federal Express; it took the private sector to come up with it; such innovation just isn’t in the DNA of a stodgy government bureaucracy.

Obamacare, Jobs, and La-La Land

February 19, 2014

So you’ve heard that the Congressional Budget Office (CBO) now estimates 2.3 million fewer people working by 2021, due to Obamacare.

imagesRepublicans gleefully said, “See? It’s a job-killer.” Wrong, retorted Democrats, the jobs are not going away – rather, it’s people being able to leave those jobs, and still get health insurance.

In fact, Democrats like Nancy Pelosi and White House spokesman Jay Carney positively rhapsodized about this, as a wonderful liberation. No longer would folks be shackled to their jobs (to have health insurance), they’d gain the freedom to quit and pursue their hearts’ desires, like poetry and art; or, indeed, to retire early and do nothing at all. Economist Paul Krugman says people making this choice are to be congratulated. After all, aren’t conservatives always prattling about freedom of choice? Welcome to Nirvana!

images-1Or is it La-La Land? Sorry to be the skunk at this party – and I’m all for poetry and art – but who is going to support these 2.3 million new poets and artists? UnknownAssuming it won’t likely be consumers of their oeuvre, it will have to be – guess who – people still actually working dreary old jobs.

Think about it. Ultimately all the people getting pensions and Social Security and Medicare (no, you did not pay for it throughout your working life; not much of it anyway) and Disability and welfare and food stamps and child support and Temporary Assistance to Needy Families and now subsidized health insurance and poets-and-artists-benefit and so on and so forth – all that must be paid for by people still creating wealth to be taxed, by doing productive work. If any are left.

This is what the Pelosis and Carneys and Krugmans, et al, living in their liberal La-La Land, don’t get. images-2Their recent absurd spin on the CBO report shows how mixed up they are. The self-styled party of working people actually thinks people not working is a good thing. The more the better.

I have shouted myself hoarse about America’s key economic problem: a decreasing percentage of people in productive employment supporting a growing percentage not working. This imbalance can only worsen as Baby Boomers retire and longevity continues rising. This will mean government shelling out ever more and collecting less in taxes, with borrowings hence rising to unsustainably ruinous levels.

Unknown-1We cross our fingers that somehow, economic growth will rev up to get us out of this mess. But where will economic growth come from with an ever smaller population segment that’s working? (You may say we lack the jobs. Not exactly true. What we increasingly lack is the skills needed to work productively in today’s world. That’s why “Disability” rolls keep growing, as I’ve discussed.)

Willfully ignoring the true predicament makes President Obama’s reign disastrous. Indeed, his “signature” policy achievement worsens the problem. Obamacare will raise government spending (increasingly, as the young and healthy refuse to overpay to subsidize the old and sick); while incentivizing businesses to limit payrolls (in order to avoid some onerous requirements that kick in at 50 full-time employees) – and disincentivizing work, by tying more government benefits to income, and also (per the CBO report), by giving folks cheap government-subsidized health insurance without having a job at all. If it pays less to work, people will do less of it. (And raising minimum wages isn’t the answer, as I’ve explained. Where’s the money for that to come from, if not other working people’s pockets?)

Incidentally, what would help is immigration reform. Ironically, many Americans hate immigration because they think it’s bad for jobs, when in fact we desperately need more young workers. I’m not talking about Mexican lawn-mowers; it’s much more about technology hot-shots from India, kept out by our suicidally restrictive immigration regime.

images-4I’m still an optimist – about humanity as a whole. About America – not so much. I love this wonderful country deeply, and weep at how we’re sleepwalking to its destruction.

“Inequality For All”

February 6, 2014

Unknown-2Robert Reich’s film, Inequality For All, spotlights a problem that’s real. But it’s very complex, with no simple answers (“tax the rich;” raise minimum wages).

I’ll start with some points of agreement. Moneyed interests, because their money inevitably confers political power, corruptly milk the government teat to extract still more wealth from the economy. But the answer is not to restrict political participation (via campaign money). That would be incompatible with our free democratic society. Instead we must broaden participation, with a campaign finance reform like a tax credit for small political contributions, so they’ll proliferate and counter the impact of big donors.

imagesI also agree with Reich that CEO pay is out of whack. It’s set by the corporate board of directors – which tends to be packed with fellow CEOs. What’s wrong with that system?

And I agree that the rich should pay their fair share of taxes — though it’s far from clear they don’t already. The top 5% of taxpayers pay half of all income tax; the top 1% pay over 30% of it. UnknownStill, too many rich folks do get off too lightly; and tax rates in general must rise if we want  to continue funding Social Security and Medicare (which should be curbed for the rich).

Now, Reich maintains (like several recent books, e.g., The Spirit Level) that rising inequality is bad not just for the losers but for everyone. An oft-heard theme is that it tears society apart; however, in America at least, resentment against the rich is uncommon. Most still believe the American dream of upward mobility, and (rightly) don’t buy the left’s idea that the rich get wealth at others’ expense. Reich does make a fair point that the rich spend less of their income on consumer goods (you only need one car, even if a Porsche), so wealth concentrated in fewer hands means less consumer spending, hurting the economy. However, the rich do invest their money (economically beneficial; though not necessarily in the U.S.), and ultimately give away gobs of it. And it’s a dubious assumption that if the rich had less money, others would have more.

This is important. The left thinks there is a lump of wealth to be (more fairly) divided up. Not so; wealth is created by productive effort. Steve Jobs’s wealth essentially represented the difference between what his products cost to make and the prices people gladly paid for them. That added value made everyone richer. Had Jobs never existed, his wealth would not have been spread among the rest of us; it would never have existed either!

images-1A centerpiece of Reich’s case is a graph showing that until the 1970s, productivity and wages rose in tandem, but since then wages have stagnated even while productivity continued upward. Thus working people stopped benefiting from new productivity gains.

It’s not exactly true. One problem is that wages are only part of employee compensation. “Fringe” benefits are ignored, the biggie being health care. What’s happened is that a major part of earnings has taken the form of increasingly costly and valuable health benefits. If those are counted, incomes have not stagnated.

Secondly, the graph shows inflation-adjusted wages. As it should – except that economists know standard government indices tend to overstate the true inflation rate. (This is behind current battles over how to calculate cost-of-living adjustments.) Those indices don’t keep up with the changing mix of what people buy and, importantly, ignore changing quality. For example, the inflation rate might reflect rising car prices, but not improved safety, fuel efficiency, and durability, over the decades. A truer (and smaller) inflation adjustment would show real-dollar wages rising more than on Reich’s chart.

Another way to see it is even if wages haven’t risen, average living standards have: all that health care translates into a better quality (and length!) of life; cars are better as noted; and just look at the explosion in what people do with rising computer power and other communications and technological advances. All this amounts to a very real wealth gain, missed by a simple graph of wages.

A further element missing from Reich’s picture is pensions and related benefits. He suggests that in the postwar decades, strong labor unions were able to capture for workers a fair share of productivity gains; but then union power waned. However, during that period of labor strength, not only fat pay packets were negotiated, but fat pensions too. With rising longevity, we’re still paying for them. images-2I’ve written before about our growing imbalance between working and non-working people. In fact we’re seeing a massive wealth transfer from the former to the latter, in the form of pensions, Social Security, Disability, Medicare, and so forth. If Reich is right that workers are capturing a smaller slice of the economic pie, one key factor is non-working people capturing a larger slice!

This is relevant to a further aspect of Reich’s presentation. He stresses that in the halcyon period, government invested heavily in infrastructure and, particularly, education; with positive economic benefits, raising incomes, and hence tax takes, to be used for more investment: a virtuous circle. Now he sees a vicious circle of declining investments of that kind. But a huge reason why governments at all levels can’t do what they used to is pensions and health benefits and so forth soaking up all the available money (in fact, more than that). It’s exemplified by Detroit’s bankruptcy.

Reich thinks the problem is working people not earning enough. I think it’s not enough people working.

But he’s right about this: education is crucial. A major factor (if not the major factor) in rising inequality is that the rewards for high education and skill levels are growing, as are the penalties for low levels. While the rap is that corporations fatten profits by keeping pay down, they can’t be expected to pay anyone more than they have to. Hot-shots with valuable skills command high pay, but for low-skilled work it’s a buyer’s market. There are more such workers than are needed; they bring nothing to the table to make businesses compete for their labor. Raising minimum wages is not some magic wand that will change this economic reality. Making low-skill labor more costly would only hasten the trend to substitute technology for it.

Unknown-1Thus our society is increasingly divided between a highly educated, skilled, affluent elite, and a less educated, unskilled proletariat that cannot be productive in today’s increasingly technological and globalized world. That’s the inequality we must combat.

The Inequality Obsession

February 3, 2014

imagesContinuing my discussion of George Kennan’s book (see previous post), he also addressed inequality.  So have I (here, here, and here; maybe thus my own obsession). And we recently viewed ex-Labor Secretary Robert Reich’s film, Inequality For All. See how open-minded I am? It’s actually a good film and I’m in sympathy with much of it. I’ll discuss it in a separate post.

George Kennan said nothing has been more “totally disproved by actual experience than the assumption that if a few people could be prevented from living well everyone would live better.” This derived from his observing (as a diplomat) communist countries, where eliminating the rich was accompanied by impoverishing the rest. Yet that poverty was, for most people, made endurable by its being widely shared. And, after communism’s collapse, anyone’s effort to better their situation through enterprise was widely resented and opposed, as illegitimate.

UnknownI was reminded of the old Russian tale of the peasant granted one wish – with the proviso that whatever he got, his neighbor would get double. After long thought, the peasant says: “Take out one eye!” That psychology is relevant to the inequality obsession.

Is it unjust for one person to have more than another? Some seem to think so, or at least talk that way. But if the concept of justice means anything, it means outcomes earned and deserved, rather than meted out arbitrarily – and pure egalitarianism would entail the latter rather than the former. I recognize that there’s inevitably some element of luck in outcomes; but egalitarian obsessives seem unwilling to recognize an element of deservingness; that a person who works harder and/or smarter and lives more prudently should be richer.

images-1In fact, there’s a widespread idea (here’s an example) that wealth and deservingness are inversely correlated – that not only don’t the rich deserve what they have, it’s actually the fruit of evil. All the more reason to see redistribution as social justice.

However, while of course a few people are thieves, most rich folks get their money through making a societal contribution of one sort or another. Unknown-1When you buy a yogurt at the grocery, you’re not ripped off; you’re getting something worth more to you than the price paid (or else you wouldn’t buy it). The grocer, and the yogurt maker (and everyone else involved, e.g., in transporting it), who give you this boon, profit justly. That’s the reality of most economic transactions and relations.

images-3We recently saw a TV documentary showing all that goes into manufacturing a certain monster truck. So many people working with such skill and attention to detail, to make sure that truck will do its job safely and well. It was really impressive. If they earn good pay, and their company earns good profits, they deserve it. This is the true face of business. It’s why all the rantings about the “evils of capitalism,” and the idea that wealth is obtained at the expense of the poor or society, miss the mark. The businesses you get yogurt from don’t profit at your expense, but by satisfying your needs and wants. Same for the truck manufacturer.

Inequality is rising not because more people are becoming poor, but because more are becoming rich; in particular, more very rich. That’s not a problem as long as everyone has a decent living standard. This we can achieve without exterminating great wealth. Indeed, the wealthy pay a disproportionate share of taxes that fund the social safety net.

Yet the obsession over inequality is not mainly a concern for the welfare of the poor. It is instead all about the rich. Lefties cannot stand it that they, with all their social consciousness and moral virtue, have less wealth, and consequently less power and influence, than benighted toads who (they think) are ethically inferior and get rich through grubby commerce. images-4To quote Kennan: “one cannot evade the occasional suspicion that it is not such much sympathy for the underdog that inspires much of this critical enthusiasm as a desire to tear down those who preempt the pinnacles of status to which they themselves aspire.”

(To be continued)


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