Posts Tagged ‘inequality’

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?

The Feckless Poor Versus the Selfish Hogs

June 10, 2013

images-2A 2012 worldwide Pew survey asked whether success is due to hard work or forces beyond one’s control. Most Brits, Germans, and Czechs agreed that success can be achieved through your own efforts. Guess who disagreed? The French, Greeks, Italians.

This is important to economic policy debates. We’ve been hearing much about inequality. Now, if you believe prosperity and hard work are correlated, you’re apt to think the best answer for inequality lies in broadening opportunities for people to be productive. images-3But if you’re in the other camp, believing success and wealth are matters of mere luck and not merit or effort, then you may favor just taking from those with more to give to those with less. (Especially if you yourself have less.)

This is indeed the mindset in countries like France, Greece, and Italy. They have simply lost sight of the connection between what’s in their wallets and someone, somewhere, somehow producing something. They march in the streets demanding to be maintained in their lifestyles, regardless.

What about the U.S.? Now here’s real American exceptionalism. Whereas Brits, at 57%, topped Europeans in linking work with success, in America it’s a whopping 77%. This strong consensus cuts across wealth classes and both political parties.

UnknownThis doesn’t mean Americans are social Darwinists who believe the poor should be left to their fate. Nor even, for that matter, do Republicans, despite insistence to the contrary by President Obama and his party. No; Americans of all stripes strongly back the social solidarity of a safety net for those less fortunate (and do recognize that Dame Fortune plays some role). But what Americans mostly do not buy into is the left’s idea of social justice a la Robin Hood, plundering the rich to benefit the poor. Americans don’t think robbery serves justice.

The Pew poll was discussed recently by The Economist’s “Lexington” columnist (who covers America and its politics). Unknown-1Comparing against Europe, Lexington opined that the heart of the Euro problem, with all the bailouts of grasshoppers by ants, is that they don’t like each other enough to make their economic union work. And, Lexington says, “America should fear the spread of the crudest poison paralyzing Europe: mutual dislike between citizens.”

In Europe, it’s regional. The Germans don’t like the Greeks and resent having to bail them out, and the Greeks resent the Germans for bailing them out. images-5In America, it’s ideological; hardened zealots demonizing opponents as motivated by evil, stymieing any compromises to address the nation’s problems.

Both parties are at fault. Republican sin is exemplified by Romney’s “47%” comment, branding almost half of Americans as unwilling to be responsible for themselves. (This in a nation where 77% believes success and hard work are linked!) images-6But Lexington considers Obama and Democrats equally guilty, stirring up division and resentment against richer people cast as selfish hogs.

You don’t have to believe wealth is ill-gotten, and should be equalized, to justify taxing the rich more than the poor and helping the less fortunate. images-1Nor must you deem them feckless and irresponsible, to justify believing that a society where the successful can enjoy wealth is a better society for everyone.

Inequality, and a True Progressivism

October 23, 2012

I have discussed inequality before, but apparently haven’t succeeded in ending debate. The Economist (10/13) has published an analysis by its economics editor, Zanny Minton Beddoes, which I recommend highly. (Click here; and here for a related editorial). Beddoes addresses inequality in depth and concludes by calling for a true progressivism – not mindless capitalism-bashing (nor government-bashing) but a program for reforming government’s role to better spread capitalism’s benefits.*

I have argued that fixating on inequality per se is misguided (and reflects, frankly, a big dollop of envy). What counts most is your absolute quality of life, not how it compares to others’. The problem of the poor is not plutocrats. Wealth is earned not at the expense of the poor but, by and large, by profiting from contributions toward the betterment of all. And the poor can be raised up – by boosting their ability to so contribute – without dragging down the rich.

A lot of inequality is merely the difference between mature people in the prime of their working lives, with accumulated assets, and young whippersnappers just starting out. Yet classic rich-versus-poor inequality of course exists too. It’s mitigated if the poor have reasonable opportunities to rise – the American ideal. But such social mobility isn’t what it once was. We’ll return to this.

Beddoes elucidates that while inequality is indeed growing in many countries (ours included), worldwide it is falling. That’s not contradictory. Global inequality is indisputably falling simply because less developed (and poorer) nations (mainly China and India) have much higher economic growth than advanced nations. Within those fast growing countries, the rich outrace the poor, increasing intra-country inequality, yet still those poor are outracing rich country populations.

Less affluent Americans are falling behind, in part, because some wealth is now being redirected from them to poorer people in Asia. Bad for us; good for them (at least equally deserving human beings). Thus, again, rising local inequality actually translates into falling global inequality.

Some Americans are losing out because they are becoming less competitive not only in what is more and more a global labor market, but even within America, where economic rewards increasingly go to the more skilled and educated.** Wealth is unequal not chiefly because the rich are hogs, or the game is rigged, but primarily because educational attainment is unequal, and its importance is growing. Once, anyone could earn good pay in factories without a college degree; but that’s sooo twentieth-century, an inexorably shrinking part of the economic landscape. (The President’s “manufacturing” obsession as a jobs panacea is retrograde.)

Drop out of high school, or even college, and you’re likely to have a low-wage job, or none, with your situation often aggravated by lack of marriage, and single-parent children, who grow up to repeat the syndrome. Whereas better educated people are likely to have better jobs, marriages with equally educated partners, and two-parent children who go on to repeat that model.

This is the nub of America’s inequality and declining social mobility.

Government isn’t helping. Our first battleground is in the schools, where entrenched teacher unions fight real reform of a system disgracefully disserving the disadvantaged, trapping them in their plight. And as for wealth redistribution, Beddoes highlights that it’s largely from the affluent to the affluent, especially the affluent elderly (through programs like Medicare, Social Security, and a host of tax preferences like the mortgage deduction). Such welfare for the rich dwarfs any redistribution to the needy.

And government’s interventions in the economy aren’t helping either. I recently listened to anti-capitalist crusader Arundhati Roy rail against a litany of alleged evils of free market economics in India. I kept thinking: she’s missing it completely. Nothing she denounced is actually free market economics; to the contrary, it’s non-free market economics, it’s India’s culture of cronyism, corruption, and over-regulation that stifles competition and economic opportunity; it’s government perverting the free market. So fixated was Roy on demonizing “capitalism” that she couldn’t see this Indian elephant in the room.

This is a key element in the “true progressivism” Beddoes argues for. She says governments can narrow inequality without large-scale redistribution or an engorged state. Beddoes invokes Teddy Roosevelt’s trust-busting – instead of helping favored businesses, which often means hobbling their competitors, government should be removing barriers to competition (many of them erected by government itself). That expands economic opportunity and the size of the pie for everyone. While such an assault on cronyism and corruption is particularly vital for countries like India and China (where the state itself is directly in business), Beddoes says rich nations “also need more competition in traditionally mollycoddled sectors such as education.”

Health care too, in America. And (sorry, Lefties) we are increasingly over-regulated. Reviewing the regulatory picture, the same Economist issue quips that “If banks once did banking, now they practice law.” Fine for the biggest ones (maybe), but ruinously costly for all other businesses, again undermining competition, economic dynamism, and equality of opportunity. (A friend yesterday alerted me to a 1992 Wall Street Journal op-ed by a hotel owner telling how government regulation contributed to destroying his business. The author: George McGovern!)

Beddoes’s second point is to recognize that the gigantic edifice of state social spending has gotten grossly out of whack, directing the lion’s share of subsidies to the affluent and elderly, rather than toward investing in the young and the disadvantaged, to boost their contributions to future economic progress. Not to mention that out-of-control entitlement spending threatens to wreck our economy altogether.

Beddoes’s third priority is to reform taxes, to improve efficiency and fairness. While the rich do already pay a disproportionately high share of income taxes, our crazy-quilt of loopholes and special interest giveaways is loaded with unfairness and distortions of economic activity that seriously harm the nation’s welfare. Just the sheer cost in man-hours of coping with tax complexity is a huge economic liability.

All these policies would help reduce inequality and broaden economic opportunity; but of course they are good not just for the disadvantaged, but for society as a whole.

Beddoes concludes by noting that some rising countries are progressing on parts of this agenda (one reason why they are rising); but not the richer nations, and “the most shocking shortcomings are in America, the rich country where income gaps are biggest and have increased fastest.”

America’s to-do list should also include fixing immigration, particularly our suicidal near lock-out of the world’s best-and-brightest. This exemplifies today’s American Disease: people’s narrow idea of self-interest short-sightedly undermining their true long-term good. The same applies to all the government subsidies everyone stubbornly clings to, which will ultimately sink our whole ship.

I remain a great optimist about the future for humanity as a whole. But while America is still blessed with a vast reservoir of human creative energy, God has not somehow decreed that we will maintain our privileged status even while refusing to adapt to a changing world. I’m not optimistic about America biting Beddoes’s bullets.

It surely will never happen in a second Obama term. With Romney, and a fresh shuffle of the political cards, maybe there’s at least a chance.

* The blogosphere’s Lefties have mounted the predictable shrill attacks on The Economist for daring to call its prescriptions “progressive.”

** Broadened educational opportunity was probably the key reason why American inequality fell significantly in the last century.


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