Wednesday, April 18, 2012

Government-Sponsored Inequality

Envy and Equality are recurring themes in Left Blogistan...

Shaw Kenawe is the latest to address it, and she does it in her usual expert way.  We rarely agree, but I respect her.

She opens her post by asking:
"Do We Really Want to Become a Third World Country?
Incredibly, we're on our way to that sorry situation because of our income inequality--the highest since before the Great Depression"
There are two sides to every story.  Of course we have income and wealth inequality.  What society in the entire history of the planet does not?  Are the rich making their gains at the expense of the poor? Studies have not shown that.

Inequality in Perspective

Matt Zwolinski at Bleeding Heart Libertarians does a good job putting it all in perspective. He goes point by point, and I won't reprint them here, but there is context behind the raw numbers that includes changing factors like household size, education, and immigration.

We are also an economically mobile society, with people moving both up and down. We commoners also enjoy a cornucopia of luxuries that were only available to the rich back in the 50's. Most measures of inequality also fail to take into account the direct government transfer payments to the poor in the form of food, housing and cash assistance.

Income inequality is a natural result of a free market where people of various skills participate and bring products of various values into it. The services of a doctor or plumber are more valuable than those of a janitor, so doctors and plumbers enjoy greater remuneration than janitors.

A Tale of Two Liberals

Inequality?  Try this on for size:  OWS protesters were swept up and jailed in cities all over America for the misdemeanor of stinking up the place and refusing to pack up their tents. Meanwhile, well-connected liberal Democrat Jon Corzine walks free and easy after "misplacing" billions of investor dollars. You can bet he's not nervously looking over his shoulder--Washington's got his back.

The real inequality problem we have is caused by government. Rich people, big biz, big education, big pharma and wealthy financiers now own the US government. Having bought and paid for it, these rent-seekers are enjoying the best government money can buy, while the rest of us are subject to Big Sis Brigades wanding our crotches and confiscating our possessions.

The Silverfiddle Solution

In good times and bad, high taxation and low, federal government revenue collection averages about 17% of GDP per year. We need to design the federal government around that number. Collapsing useless departments like Education, HUD, Labor and selling the buildings would be a good start.  Shrinking and combining the remaining gargantuan tangle of departments and agencies would be a good next step.  Budget to that 17% target every year and cut what don't fit. It's what responsible states do.

Set a flat tax. Wipe out all exemptions, incentives and special favors for everybody, across the board, and call off the regulatory hounds that only the rich can afford to keep at bay. Burn down the Code of Federal Regulations and restore the rule of law so that the law is understandable by all and applicable to all.

Cut away the comfy taxpayer-provided safety nets protecting the phony captains of industry. A system that welds the escape hatches shut, forcing them to pay for their irresponsibility and malfeasance, will do more to tame the gamblers and pirates than the libraries full of regulations we now have.

Get the government out of health care and education. These are the two markets most penetrated by government, and not coincidentally, the two most inefficient markets with the greatest rates of inflation.

We need economic liberty and an education system that is not gouging us at every turn. As Hayek reminded us, it is a fatal conceit to believe that since we can't imagine our economic future, the government must plan it. There lies failure. Entrepreneurship is the way out.

Walter Russel Mead explains the way out of this mess much more intelligently than I do. Please go read Post-Blue Jobs pt 2.

Holman Jenkins has a handy rebuttal to the Income Inequality charge as well:  The Inequality Obsession


Ducky's here said...

We are also an economically mobile society, with people moving both up and down.


Social mobility is declining in America. Rapidly.

Were you home schooled by an Austrian?

Ducky's here said...

Income inequality is a natural result of a free market


Which means that when the disparity becomes so large that it works to the detriment of society we just do it the von Mise way and let the invisible hand fist us up the butt?

Always On Watch said...

We commoners also enjoy a cornucopia of luxuries that were only available to the rich back in the 50's.

No doubt.

For example -- and I'm not kidding -- no more outhouses here in Northern Virginia. As recently as 1980, some houses here did not have inside lavatories -- and central heat, for that matter.

I agree with the idea of the flat tax. To a certain extent, my position on this issue is a selfish one: I've never been able to avail myself of any of the loopholes (except recently with soaring medical bills). Hell, I've never even been able to avail myself of the mortgage interest deduction as I've never had a mortgage. I saw no point in taking on the burden of a mortgage when I've had a family home to live in, albeit an older home with lots of "issues."

Of course, such a system would put a lot of IRS employees and private accountants out of work as the tax code would be simplified. Not that my point should preclude implementing the idea of a flat tax.

Always On Watch said...

Social mobility is declining in America. Rapidly.


And one of the roads to social mobility, especially since the FDR administration, has been government employment.

In my own family, if not for FDR's bureaucracy, my mother and her family would still be living in the poverty of East Tennessee Appalachia.

Ducky's here said...

Silver, an explanation

Silverfiddle said...

Ducky: Quantify your statement on social mobility, and not with a Nation article, but with real data.

I am familiar with the authoritative studies, are you? Or are you just parroting what the red propagandists tell you?

And this is a nonsensical statement, typical of the left:

Which means that when the disparity becomes so large that it works to the detriment of society we just do it the von Mise way and let the invisible hand fist us up the butt?

If we only had a strong man, right Ducky? Whose iron hand could set it all right?

Your propaganda is stale and you've become boring and predictable.

Shaw Kenawe said...

Americans should be concerned with the growing income inequality. It is a subject of concern to many economists, political scientists, and other wonks.

Even Alan Greenspan, a one-time Ayn Rand follower, believes we should worry about the growing disparity between the wealthiest and the middle class and the poor.

Greenspan speaking at a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August, 1998:

“That this supply-demand gap has been an important source of widening earnings inequality is now widely accepted within the economics profession. However, the considerable diversity of experiences across countries as well as the finding that earnings inequality has also increased within groups of workers with similar measured skills and experience suggest that we may need to look deeper than skill-biased technological change if we are to fully understand widening wage dispersion. In particular, how have private and public institutions influenced inequality over the past two decades? What roles have been played by growing international trade and the evolving ways in which production is organized? Again, the participants in this symposium are well-equipped to speak to these issues, and we should learn much more about the causes of widening inequality during the next two days.”

“..from 1980 to 2005, more than 80 percentof total increase in Americans' income went to the top 1 percent. Economic growth was more sluggish in the aughts, but the decade saw productivity increase by about 20 percent. Yet virtually none of the increase translated into wage growth at middle and lower incomes, an outcome that left many economists scratching their heads.” --Timothy Noah, writing in Slate

Silverfiddle said...

There's room to quibble over scope and magnitude, but no one is denying income inequality exists.

The question is, what do we do about it?

Anonymous said...

Liberals should look at wage inequality in coutries like China, North Korea and, Cuba. That is not to say that the growing wage inequality in the US is not a serious problem. It is. However, it is not due to fre market capitalism but to a lack of free market capitalism. Innovation and entreprenuership are what is needed and they flurish best in free markets. Cronyism and stangulating regulatory systems are killing innovation in this country.

Liberalmann said...

GE benefits from a loophole which BUSH put in place. Nice try!

Silverfiddle said...

So that makes it ok? Spoken like a true hopium-stoned Obamabot goose-stepper.

Z said...

"Are the rich making their gains at the expense of the poor? Studies have not shown that."
Common sense does, too.

I wish I could see more people getting rich and richer...I don't. Does anybody here on this commentary? And the poor, those suffering badly right now, are losing jobs largely because businesses are afraid of Obamacare and uncertain of the and otherwise.
Very few people are hiring. Jobs go overseas and, the worst part is we're hearing jobs must go overseas because our kids aren't trained to do the jobs. THAT is scary and another aspect of why there are fewer jobs...who wants to hire untrained people?

I like your plan, SF....would you delete the mortgage deduction?

Finntann said...

So we have too large an income gap and your reasoned answer is to make goverment larger and give it more money.


You progressives sure are a funny bunch.

Here's a thought, cut government 10% across the board and let the people keep their money.

Aye, but there's the rub... when a significant portion of us pay no taxes at all reducing their tax burden does nothing for them.

I don't wish to argue numbers, but the Joint Committee on Taxation says that only slightly more than half of us have a positive tax liabiltiy and roughly 30% of us make money off the system designed to make the government money.

Fair warning, the link will open a pdf file not a website, with a memorandum from the Joint Committee on Taxation from 29 April 2011.

How can you expect representative democracy to work when a statistically significant portion of the voter base has no vested interest in the cost of government.

We are close to the tipping point at which the majority of voters will have no interest at all in the process, unless of course you are talking about cutting benefits.

What does the average voter care what the government spends, especially if it benefits them?

The system is broke.


Silverfiddle said...

Z: Yes. I would get rid of it all.

Z said...

I sure wouldn't. I think the home mortgage write-off is what keeps people buying homes, frankly.
I know that in Canada that's not a write off and people buy houses, but I think getting rid of that would be a disaster.

Silverfiddle said...

Z: Why is home ownership more worthy than renting?

This is the slippery slope. Everybody wants their piece of the pie and we all have our own ideas of what is noble and should be rewarded.

imho, government should be rewarding nothing, and instead tending to the enumerated powers.

viburnum said...

Sounds like a plan SF.

I'm all for a flat tax as our current muddleheaded system prima facie violates equal protection.

Dump the loopholes, stop the bailouts, and trim the deadwood from the Feds is all good.

Most importantly though, we need to have a balanced budget amendment prohibiting borrowing except in times of declared war, and pay off what we owe. Do that and we can pare down that 17% even further.

Anonymous said...

Paying rent is like paying taxes -- the moral equivalent of flushing money down the toilet.

Owning property is not a "right," of course, but it's a highly desirable goal for most people, and -- at least until the recent depression in the housing market -- it has always been a bulwark against inflation. It builds equity for the future -- a nucleus of the "nest egg" one needs if one hopes to enjoy a comfortable retirement.

There is also a joy in owning and developing a piece of real property largely unknown to inhabitants of rental property. Home ownership promotes stability and gives focus to those who take pleasure in their surroundings.

If this were truly a "land of the free," it would be possible truly to OWN property without the threat of ever-rising tax liability. Homeowners who've spent a couple of decades paying off a mortgage while raising children ought by all that's kind and decent to be EXEMPT from paying property taxes in their declining years.

Everyone is hunted by predatory forces at the federal, state and local level threatening to tear them to pieces and cast their remains on the scrap heap if the fail to PAY and PAY and PAY and PAY and PAY till the day they die. And after that the federal and most state governments want to take even MORE from the little that may remain.

Why should we be slaves to the ravening wolves of TAXING AUTHORITIES who, if truth be told, are the only TRUE "OWNERS" of ANYTHING?

Our entire lives are spent in a desperate struggle to defend ourselves against the aggressive, corrosive, oppressive policies of KLEPTOCRATS.

Even so with property ownership on a least has a place to live and enjoy hobbies and leisure time and STILL build some equity for the future over the long haul.

Take away the incentives to own property and you have smashed The American Dream, stomped it to death and kicked its remains into Oblivion.

There is an unsettling ASSUMPTION at the root of these discussion that somehow government , as we have come to know it, DESERVES our support -- that it is worthy and serves us well.

Nothing could be farther from the truth.

Except for the military, building and maintaining roads, bridges and tunnels, overseeing the water supply, funding police forces and building, maintaining and staffing prisons, EVERYTHING should be run by the PRIVATE SECTOR.

The country was far better off under the rule of Plutocrats than it has been under the gun of crypto-Marxism.

~ FreeThinke

American Jihad said...

The media has trotted out Newt Gingrich’s ex. They trotted out an alleged mistress of Herman Cain. Why are they so silent about Barack Husein Obama’s ex? Humm??

Thersites said...

and let the invisible hand fist us up the butt?

...better an invisible hand then Barack Obama's!

Always On Watch said...

I think the home mortgage write-off is what keeps people buying homes, frankly.

To a certain extent, yes.

And that mortgage interest deduction does create expendable income.

But what of those who own homes without mortages? And what of the government-budget impact of the mortgage interest deduction?

I also think that, to a certain extent, the deduction has motivated people to buy homes that they really could not afford, particularly when recession or tragedy strikes.

Local governments are likely aware that the mortgage interest deduction and raise local real estate taxes accordingly.

Always On Watch said...

If this were truly a "land of the free," it would be possible truly to OWN property without the threat of ever-rising tax liability.

Since 2001, I've seen the taxes on my little place rise from $200/month to over $400/month -- at the same time that health insurance premiums took off for the moon as did energy costs. I feel as if I don't even own this property anymore, particularly if I factor in all the zoning regulations. Leave something out for over 48 hours and in will swoop the zoning enforcers with their $100/day fine. So far, they will allow me to leave out the garden hose and the barbecue. So far.

I'd like to put up another shed, but the county squawks about "exceeding my carbon footprint."

As a Boomer, I should have been an economic driver. Well, since about 2005, I've spent NEARLY NOTHING (except for essentials such as food and meds).

MathewK said...

I like your plan, especially the bits about burning stuff and selling off the buildings of bureaucracy.