Economics, Politics, recent

Economic Inequality—Populism’s Rallying Cry

A nation will not survive morally or economically when so few have so much, while so many have so little. We need a tax system… which reduces the obscene degree of wealth inequality in America.
~Bernie Sanders

[A]ffluent married people, the ones making virtually all the decisions in our society, are doing pretty much nothing to help the people below them… Rich people are happy to fight malaria in Congo. But working to raise men’s wages in Dayton or Detroit? That’s crazy. This is negligence on a massive scale.
~Tucker Carlson

Populists on both the Left and Right have a narrative to push. According to this narrative, when economic inequality rises, the middle class suffers and the American dream dissipates. When the government combats inequality, conversely, the middle class rises and the American dream prospers. Let us call this the inequality fable. It is a tale the Left has been telling for over a century, though patriotic Americans on both sides of the aisle have been rallying around it with passionate intensity since the Great Recession of 2007, facts be damned. The full story, a Rousseauian mythos complete with historical revisionism and a dose of nostalgia, is summed-up well by former labor secretary Robert Reich in his book Beyond Outrage:

The old view was that anyone could make it in America with enough guts and gumption. We believed in the self-made man (or, more recently woman) who rose from rags to riches: inventors and entrepreneurs born into poverty, stories that proved the American dream was open to anyone who worked hard. A profound change has come over America. Guts, gumption, and hard work don’t seem to pay off as they once did—or at least as they did in our national morality play. Instead, the game seems rigged in favor of people who are already rich and powerful…. Instead of lionizing the rich, we’re beginning to suspect they gained their wealth by ripping us off.

Notice that Reich calls his narrative a “morality play” in which hard work doesn’t “seem to pay off” and in which “the game seems rigged.” Reich and other inequality critics, including those on the Right, all tend to have one thing in common: Despite their divergence on a myriad of social issues, they give us a romantic vision of the past and urge us to “Make America Great Again.”

Reich, Sanders, and Warren do not put it in those terms because to do so would be political suicide, but their message is fundamentally the same. After World War II, so the fable goes, America created a “Golden Age” in which stable, well-paid employment, high levels of mobility, and “shared prosperity” were the norm, thanks to a proactive government that took steps to promote economic equality. But over the years, thanks to greed, corruption, Ronald Reagan, and the failures of the unfettered free-market, those days are gone. Since then, “the rich” have rigged the system in their favor, leading to catastrophic levels of inequality. Starting in the early 1980s, the wealthy have captured the bulk of the nation’s economic growth, transferred the tax burden onto the middle class, dismantled the welfare state, and left “the people” out in the cold.

Is it true, as Pope Francis tweeted, that economic inequality is “the root of social evil”?

As it turns out, the inequality narrative has hardly any basis in fact, but is nevertheless the populist’s barbaric yawp. This emotional conviction that inequality or “the system” or “the one percent” is to blame for our problems is belied by nearly all available data. What’s more, argues author Jonah Goldberg in Suicide of the West, it is emblematic of a destructive counter-Enlightenment attitude that is currently back in fashion—romanticism:

The core of romanticism is the primacy of feelings. Specifically, the feeling that the world we live in is not right, that it is unsatisfying and devoid of authenticity and meaning (or simply requires too much of us and there must be an easier way). Because our feelings tell us that the world is out of balance, rigged, artificial, unfair, or—most often—oppressive and exploitative, our natural wiring drives us to the belief that someone must be responsible.

The flaw in “victimhood populism,” a term coined by writer David French, is that it fails to address the agency and responsibility of the individual, railing instead against a vague, indefinable antagonist. Populism, writes French, “tells a fundamentally false story about Americans as victims of a heartless elite and their ‘worship’ of market economics, rather than the true story of America as a flawed society that still grants its citizens access to tremendous opportunity.”

The inequality fable is an emotionally satisfying tale filled with pathos and poignance. Yet it is untrue. While it is true that our nation faces a bevy of serious problems—including climate change, opioid and obesity epidemics, a decreasing life expectancy rate, gun violence, the decline of the family (a third of US children are now raised by single parents), and a looming national debt crisis—inequality, it turns out, is not one of them.

Debunking the Inequality Fable

Let us start with an inarguable fact. The embrace of market capitalism by developing nations around the world is directly responsible for lifting the world out of extreme poverty over the past century. In the year 1800, more than 90 percent of the world lived in extreme poverty; today, thanks to classical liberal economic principles and the industrial revolution, that number is down to less than 10 percent. This is all the more remarkable when we consider that, over this same period of time, the world population has increased more than seven-fold. Sadly, few are acquainted with this fact, and even fewer understand that much of this progress happened in the last 30 years.

As recently as 1980, the World Bank estimated that half of the global population lived in “absolute” poverty ($1.25 per day in 1980 US dollars). In 1990, the World Bank created its Millennium Development Goal: to cut the world poverty rate in half by the year 2015. Although this was an ambitious goal, economists reasoned this could be accomplished by working with developing nations to bring about basic economic freedoms which would foster international trade and freer markets. The economists were right. The World Bank announced in 2010 that it had reached its goal five years early. World poverty had been cut in half. By adopting free market principles and increasing trade partnerships, countries like China, India, and Indonesia—which housed over a third of the world’s extreme poor—were able to industrialize and transform their economies. As countries develop, innovation increases, workers begin to gain more rights, access to medicine increases, and overall living conditions improve. One notable statistic bears this trend out: According to the World Health Organization, “the mortality rate for children under the age of five declined by 49 percent from 1990 to 2013.”

The data on humanity’s great escape from poverty remind us of the fact that poverty, not wealth, is the default condition of life. “In a world governed by entropy and evolution,” writes Steven Pinker in Enlightenment Now, “the streets are not paved with pastry and cooked fish do not land at our feet. But it’s easy to forget this truism and think wealth has always been with us.” For an economist, the right question is not Why is there poverty? or Why is there inequality?, but rather, Why is there wealth? And how do we lift the poor out of poverty? Pinker, a progressive liberal, points out, “The need to explain the creation of wealth is obscured… by political debates within modern societies on how wealth ought to be distributed, which presupposes that wealth worth distributing exists in the first place.” In other words, placing the focus on economic inequality tells us nothing about how to create more wealth, and has been wholly irrelevant to the project of lifting the poor out of poverty.

It is undeniable that economic inequality has increased in the majority of Western countries since its low-point around 1980, especially when we compare the very richest to the rest. As Pinker points out, in the U.S., the share of total income going to the richest one percent went from 8 percent in 1980 to 18 percent in 2015, while the share going to the richest one tenth of one percent went from 2 percent to 8 percent. And yet, because the total amount of wealth has also greatly increased over that time, the poor, despite increased inequality, have become richer and better off by most dimensions since 1980.

This distinction is crucial, although it is one famous French economist Thomas Piketty, whether by accident or design, has failed to acknowledge. While Piketty’s book Capital in the Twenty-First Century has given the chattering classes a bevy of inequality talking points that sound convincing at cocktail parties, most of them have the unfortunate quality of being wrong, including his claim that “the poorer half of the population are as poor today as they were in the past, with barely 5 percent of total wealth in 2010, just as in 1910.” Here Piketty neglects to mention that total wealth—the “pie”—has greatly increased since 1910, leaving the poor with a much larger slice of pie, even though their percentage of the total pie has not increased. As a result, the poor are much richer today than they were in 1910, which is not to mention that technology has improved and most goods are cheaper, so their standard of living is higher as well.

The Fixed Pie Fallacy

Speaking of pie, conversations about solving “the problem” of economic inequality—i.e. income and/or wealth inequality—are typically products of what economists call the fixed-pie fallacy, the belief that wealth is, in Pinker’s words, “a finite resource like an antelope carcass which has to be divided up in zero-sum fashion so that if some people end up with more, others must have less.” The fixed pie fallacy is the assumption that there is only so much wealth to go around, so that when someone becomes wealthy, it must have come at the expense of someone else. Dan Riffle, an adviser to Rep. Alexandria Ocasio-Cortez (D-NY), commits this fallacy when he complains that “the bigger Jeff Bezos’s and Bill Gates’s slices of the pie are, the smaller everybody else’s slices of the pie are going to be.” This claim couldn’t be further from the truth. Bezos and Gates have created an enormous amount of wealth, expanding the pie for nearly everyone. Their products and services have streamlined businesses and made them more efficient; not to mention, they have created millions of jobs, both directly and indirectly. The wealth Bezos and Gates created has resulted in billions of dollars of charity as well as the redistribution of billions of tax dollars annually. Gates alone has given nearly $5 billion to charity since the year 2000 through the Bill and Melinda Gates Foundation.

The fixed pie fallacy ignores the fact of production, the fact that people are always creating new wealth, which is partly why the “one percent” is not a monolithic entity but a constantly shifting one, as “some 11 percent of Americans will join the Top one percent for at least one year during their prime working lives.” A market economy is not a zero-sum game (a fixed pie); it is a positive-sum game (a growing pie). Economic inequality, writes economist Yaron Brook in Equal Is Unfair: America’s Misguided Fight Against Income Inequality, “is perfectly compatible with widespread affluence, and rising inequality is perfectly compatible with a society in which the vast majority of citizens are getting richer. If the incomes of the poorest Americans doubled while the incomes of the richest Americans tripled, that would dramatically increase inequality, even though every single person would be better off.” The term inequality does not mean deprivation; it means difference. It doesn’t refer to the condition or status of anyone’s wealth or welfare; it refers merely to the gap in between. If Suzy and Bill are on an island together and Suzy grows 70 potatoes while Bill grows 30, Suzy hasn’t seized a bigger piece of the pie; she has merely created more wealth than Bill. It would be false to say that Suzy has taken any wealth from Bill or left him worse off, just as it would be false to claim that Suzy has captured 70 percent of the island’s wealth.

Inequality and Wealth

But if wealth is created and can be expanded, if it is not simply a fixed sum divided up equally among a nation’s citizens, then how is wealth created? Wealth is not a finite lode of gold people have been fighting over since the beginning of time. It is created through knowledge, innovation, and cooperative association. “[Wealth] is created by networks of people [who] arrange matter into improbable but useful configurations and combine the fruits of their ingenuity and labor,” explains Pinker. “And we can figure out how to make more of it.” In fact, in a free society that enforces contracts and protects property rights—a free market society—the only way to create wealth is to produce value for others. As political commentator Ben Shapiro has put it in his book And We All Fall Down, “Socialism states that you owe me something simply because I exist. Capitalism, by contrast, results in a sort of reality-forced altruism: I may not want to help you, I may dislike you, but if I don’t give you a product or service you want, I will starve. Voluntary exchange is more moral than forced redistribution.”

In order to get rich in America, you have to produce something of value that other people want. Updating the famous example from philosopher Robert Nozick, Steven Pinker considers the example of J.K. Rowling, author and former billionaire, whose Harry Potter novels have sold over 400 million copies and have since become a film empire:

Suppose that a billion people have handed over $10 each for the pleasure of a Harry Potter paperback or movie ticket, with a tenth of the proceeds going to Rowling. She has become a billionaire, increasing inequality. But she has made people better off, not worse off…. No committee ever judged that she deserved to be that rich. Her wealth arose as a byproduct of the voluntary decisions of billions of book buyers and movie-goers.

As someone who owns all of the Harry Potter books, I can attest that nobody ever forced me to give J.K. Rowling my money. When I purchase one of her books, I gladly fork over $10 because I value the experience of reading and owning the book more than my $10. Likewise, because Rowling’s publishers value my $10 more than the book—given they can produce it cheaply and easily, whereas I cannot—they happily accept my money. Billionaires are created by the voluntary transactions of free individuals.

More Economic Inequality Does Not Mean More Poverty

The level of inequality in a society does not tell us anything about the levels of poverty in that society. In fact, poverty often falls as wealth inequality rises, such as when innovators and entrepreneurs amass wealth by creating value for consumers, which in turn stimulates the economy, generates economic growth, and lowers prices for consumers. When the economy becomes corrupt, or when governments engage in cronyism distorting the economy and reducing growth, poverty can also rise as wealth inequality rises.

The irrelevance of economic inequality to ascertaining the overall welfare—the well-being, prosperity, freedom, or fairness—of a nation can be demonstrated by glancing at a list of the world’s most economically equal countries, as determined by the Gini Index, the measure economists use to track income inequality. The list, you will notice, includes some of the most and least oppressive countries in the world with respect to human rights, and some of the wealthiest and poorest with respect to GDP per capita. While countries many see as egalitarian paradises like Iceland (2), Finland (9), Norway (10), Sweden (11), Belgium (14), and Denmark (15) make the list, so do countries like Czech Republic (4), Kazakhstan (6), Belarus (7), Kosovo (8), Serbia (19), Iraq (20), and Pakistan (23). In fact, taking the number one slot on the list is Ukraine, a former territory of the Soviet Union. Despite the fact that it is “among the poorest nations in Europe” and “suffers from poor infrastructure, bureaucracy, and corruption,” with a Gini Index of 25.5, Ukraine is the most wealth-equal country in the world.

The inequality narrative’s major flaw is that it fails to assess the only dimension of prosperity that really matters, absolute prosperity, choosing instead to focus on relative prosperity. But relative prosperity is irrelevant to human welfare. “What’s relevant to human well-being,” writes Pinker, “is how much people earn, not how high they rank.” Poverty and inequality are two very different things, yet the two terms often get mixed up in political discourse. Poverty is a dire problem any just society should work hard to alleviate. Wealth inequality is different; by itself, it is neither good nor bad, as “it may reflect either a growing economy that is lifting all boats or a shrinking economy” caused by corruption, unequal treatment, or lack of open markets. “Inequality itself,” Princeton philosopher Harry Frankfurt argues in On Inequality, “is not morally objectionable. What is objectionable is poverty. From the point of view of morality, it is not important everyone should have the same. What is morally important is that each should have enough.”

Do all people have enough in the US today? As long as one person doesn’t have enough, we still have work to do as a nation. But the work we do should focus on the alleviation of poverty, which is the real problem, not on eliminating the gaps between what some and others have.

Inequality in America

According to the inequality fable, the rich are not paying their fair share and economic inequality is tearing our society apart, depriving Americans of opportunity and leaving them worse off. So just how bad is inequality in the United States?

Contrary to popular belief, the rich, beyond expanding the overall pie, also pay more than their “fair share” in taxes. In 2018, the top 20 percent of income earners, although their income makes up only 52 percent of total income in the U.S., paid fully 87 percent of the total income tax, which demonstrates how truly progressive the U.S. income tax rate is. Moreover, while it is true that wealth inequality has risen in recent years, nevertheless, in that same span, the poverty rate has declined. “Meanwhile,” write Chris Edwards and Ryan Bourne at the Cato Institute, “wages are up and unemployment is low.” According to Federal Reserve Board data, “the top one percent wealth share increased slightly between 2013 and 2016, but the wealth of the median household jumped 16 percent over that period, with particularly strong gains by less-educated households.” The following chart illustrates this unsung accomplishment, showing that median and average household incomes have gone substantially up, even as the number of family members living in each household has declined:

As the chart indicates, last year’s median household income of $61,372 was an increase of 1.8 percent from 2016, raising median income for US households to “the highest level ever, above the previous record level last year of $60,309,” according to Mark J. Perry at FEE. Overall, this income gain represents “the fifth consecutive annual increase in real median household income starting in 2013, following five consecutive declines” which were a result of the Great Recession. Even for individuals, or household members, the median income per person in the US reached an all-time high in 2017, increasing from $16,600 in 1975 (adjusted for inflation) to $24,160, an increase of 45 percent.

But, but, the populists interject, the middle-class is disappearing! How can these numbers be right? Here the populists are correct. The middle-class is disappearing. But it is disappearing into the higher income brackets, not down into the lower ones. The second chart (below) shows that in 1967, only 9 percent of US households earned $100,000 or more (in 2017 dollars); by 2017, 29.2 percent of U.S. households—that is more than one in four—earned $100,000 or more. This means that in a half century, the share of high-income households in the US has more than tripled. Meanwhile, the percentage of low-income households (those earning $35,000 or less) has decreased from 37.2 percent in 1967 to 29.5 percent in 2017. In other words, the middle-class is disappearing into the upper-class; and the lower-class is disappearing into the middle-class.

What about the poor in the US? While one person living in poverty is too many, the data show there is room for optimism. The data also prove that the romantic nostalgia demonstrated by the likes of Trump and Warren is misguided and undercuts the progress we have made. The 1950s, that oft-cited decade of unity and shared prosperity, was no party for low-income Americans, not to mention racial and religious minorities. The historian Stephanie Coontz makes this point in her book The Way We Never Were: American Families and the Nostalgia Trap: “A full 25 percent of Americans, 40–50 million people, were poor in the mid-1950s,” Coontz
writes. “Even at the end of the 1950s, a third of American children were poor, 60 percent of Americans over 65 had incomes below $1,000 in 1958, considerably below the $3,000–$10,000 level considered to represent middle class status. A majority of elders also lacked medical insurance. Only half the population had savings in 1959.” Thankfully, those days are behind us, and we are living in a time of material wealth and prosperity that the Greatest Generation could scarcely have imagined.

The sociologist Christopher Jencks has shown that when you count the benefits US citizens receive in welfare and factor the improving quality and falling prices of consumer goods into the cost of living, the poverty rate has declined in the past 50 years by more than three quarters, an outcome that has been replicated by other scholars. Moreover, Pinker reminds us that when poverty is not defined by what people earn, but what they consume, we find that the poverty rate has declined by 90 percent since just 1960, from 30 percent of the population to just 3 percent.

But still, are we lagging behind the rest of the world? A recent Pew study “How Americans Compare with the Global Middle Class” found that 95 percent of Americans are at the middle income level or better by global standards; 88 percent are upper-middle income or better; and 56 percent are rich. Whereas only 5 percent span from “low-income” to “poor.” The Heritage Foundation corroborated this finding in their own study, adding that the typical “poor” household in America is comparatively wealthy by world historical standards and rarely if ever goes hungry, a status the poorest in most other countries cannot claim.

Using Census Bureau data, the researchers found that “the typical poor household, as defined by the government, has a car and air conditioning, two color televisions, cable or satellite TV, a DVD player, and a VCR,” goods even the wealthiest were lacking a century ago. By the Bureau’s own report, the typical poor family “was not hungry, was able to obtain medical care when needed,” and “has more living space in his home than the average (non-poor) European.” Even when we turn to the poorest among us, the unsheltered homeless (many of whom suffer from mental illness and/or addiction) “fell in number between 2007 and 2015 by almost a third, despite the Great Recession.”

Inequality Does Not Corrupt the Political Process

Since the Occupy Wall Street movement, many on the Left have come to believe, without much evidence, that economic inequality is eroding our democracy. However, the best research indicates that people do not simply vote on their own economic self-interest, but based on many factors, including “ideological beliefs, personalities of politicians, and the stances of their favored parties, which stand on a bundle of electoral promises.” There is scant evidence to suggest that economic inequality results in political outcomes that are somehow less representative of ordinary people’s interests, goals, and ideological concerns. That special interests influence politics is unremarkable and unlikely ever to change, especially because such lobbying typically comes from organized groups representing large blocks of voters, such as unions and industries.

While Democrats are quick to condemn the Koch brothers for spending money on libertarian causes, they seem to have no problem with the immense sums that labor unions spend to influence American politics. “[From] 2002 through 2014,” writes David French at National Review, “unions accounted for seven of the top ten ‘organization contributors’… with roughly 99 percent of contributions going to Democrats.” A major study by Stephen Ansolabehere, John de Figueiredo, and James Snyder Jr. analyzed 40 statistical studies on the effects of campaign contributions on voting in Congress. “Contributions,” they write, “show relatively few effects on voting behavior. In three out of four instances, campaign contributions had no statistically significant effects on legislation.”

Progressives also worry that inequality will result in cuts to social programs, as the wealthy will use their influence and political power to slash welfare. Yet, as wealth inequality has grown, federal social spending has increased, with “total federal and state social spending as a share of GDP” rising “from 9.6 percent in 1980 to 14.3 percent by 2018.”

Conclusion

One common characteristic of populists is the repeated insistence that if we just give them enough power, if we only put the state apparatus in their hands, they can solve all of our problems. “Nobody knows the system better than me,” said Trump in his presidential nomination acceptance speech, “which is why I alone can fix it.” In a similar vein, Elizabeth Warren announced: “You’ve got things that are broken in your life; I’ll tell you exactly why. It’s because giant corporations, billionaires have seized our government.” The problem with these demagogic appeals is that they are typically issued without evidence.

As with Marxism, populism starts by dividing citizens into two classes: oppressor and oppressed. For Trump, the oppressors are the elites, “the swamp,” the deep state, globalists, immigrants, and free traders. For Warren and Sanders, the oppressors are the one percent, “big tech,” Wall Street, the “billionaire class,” corporations, and free traders. In both cases, the oppressed is made up of a base of supporters—“the people”—who have been victimized by the supposed oppressors. For the populist demagogue to gain power, he or she must convince the people that they are, in fact, oppressed. This is not an easy task in the freest, most prosperous nation in the history of the world. The most effective solution, then, is the inequality fable.

When demagogues cite economic disparities as a reason for revolution, the intention is to pit  citizens against one another, which doesn’t help the average American but only whips up feelings of anger and resentment, giving demagogues more power. There is no doubt that some people in America experience injustice, and to the extent that injustice is occurring we should tackle it using our legal system. Yet disparities alone do not imply that injustice has occurred. “Disparate outcomes,” as all economists know, “do not imply disparate treatment.” In a free society, the reasons for inequality are varied, but they are also largely natural and immutable. So much so that economists have discovered a law, the Pareto principle (the 80/20 principle or “law of the vital few”), that demonstrates just how deep inequality runs.

Inequality, in other words, cannot simply be laid at the feet of capitalism; it is a “statistical power law,” a neutral fact of life. But the danger of attacking income inequality, rather than poverty, is that it can cause us to place our focus on tearing down the rich—the investors, innovators, builders, movers, and wealth creators—in turn making it all the harder to lift up the poor.

 

Jordan Alexander Hill lives in Massachusetts where he works as a high school English and philosophy teacher. He is the host of the Western Canon Podcast and has written about campus politics for Heterodox Academy and Minding the Campus. You can follow him on Twitter @WesternCanonPod

Comments

  1. A robust article in every sense.

    "The embrace of market capitalism by developing nations around the world is directly responsible for lifting the world out of extreme poverty over the past century."

    Perhaps, but there are some prerequisites for this development, like faith in scientific progress, social structures which avail anybody to move from a class to another (up or down) and give the primacy of the individual over the collective, and religious structures that don’t bar a great part of the population, like women or untouchables for instance, to participate and create wealth. Another likely prerequisite is democracy, even though I concede that this last assertion is disputable. In this regard, We’ll see soon whether China is a real dragon or a paper tiger

  2. How is the Tucker Carlson quote appropriate? Carlson is not decrying economic inequality, but social irresponsibility.

  3. “Gates alone has given nearly $5 billion to charity since the year 2000 through the Bill and Melinda Gates Foundation.”

    Well, besides the fact that I’m tired of Melinda Gates deciding that she’s now Mother Teresa just for jumping on the right dick all those decades ago, Tucker Carlson is right to say to suggest this is money simply spent on virtue signalling. First off, it’s money going out of America, and second even if the foundation wiped out malaria in the Congo, I can assure one that Africa is a continent that strives for fresh horrors. At best, they save kids for famine, civil war, poor education, a desperate bid for emigration, or, worst of all, adoption by Charlize Theron.

  4. “But relative prosperity is irrelevant to human welfare.”

    That might be true depending on how you define welfare, but it’s definitely not true when it comes to human happiness. “Esteem” even made it into Maslow’s pyramid of needs.

    It’s because we have so little absolute poverty, that so many people care about inequality now.

  5. The fixed pie fallacy is the assumption that there is only so much wealth to go around, so that when someone becomes wealthy, it must have come at the expense of someone else."
    “Bezos and Gates have created an enormous amount of wealth, expanding the pie for nearly everyone.”

    Not quite. It might be accurate to say the pie is constantly changing size, shape, texture and contents. But it is not entirely unfixed. For example, a country’s treasury and the International Monetary Fund agree on how much money will be printed and what it’s value will be. So there is a finite money supply. And, yes, one person’s success can lead to another’s failure. A quick example: the advances in streaming did a pretty good job of wiping out the DVD store. Now, of course, it’s not as if the majority of us want to go back to DVD stores, but obviously it was a kick in the pants for Blockbuster. Another example: advancement of internet certainly hit print media for a loop. I’m just saying the idea that pie is just getting magically bigger and bigger is a fallacy in itself.

  6. lots of bait and switch here.

    on paying a fair share of taxes:

    • inequality has increased based on wealth held by 1% and 0.1%
    • but taxes are still progressive based on taxes paid by 20%

    duh, it is the 20% - 1% that get soaked for taxes. It was a clever trick for a while because if you look directly above you, you can see tax rates increasing. You have no idea that way above you, they fall away for people who derive most of their income from investments rather than work. Tucker is pointing this out. The article engages the old canard and then spends a paragraph celebrating.

    on the fixed pie fallacy:

    • increasing inequality since 1950, the stagnation of middle class income, and cost disease in the staples of life and upward mobility like housing, education, and healthcare is not a problem
    • because poverty in the third and fourth world is reduced

    Of course it has, because of Tucker’s quote. The elite managerial class has chosen policies that deliver compassion straight to Congo and China, at the expense of our own middle class, such as free trade that exports their manufacturing jobs to China. China becomes less poor by engaging with trade. The managerial elites accumulate wealth because they organise it all and take their cut. The loser is the American factory worker, the neighbour of the managerial elite and the one who consented to their political power, neighbor in the successful American society that made that elite a player able to decide the global fate of humanity. The worker has lost from being equalized toward the third world mean because of specific decisions his elite neighbour made from the standard neoliberal or neoconservative globalist playbook, as well as generally lost because nobody is paying attention to him.

    This article follows the pattern. It looks at one group that’s better off and away from another group that isn’t. It’s so obvious at this point I find it a little ridiculous. It seems like part of yesterday’s conversation.

    The standard “evils of populism” story is that representative government is best because decisions are complex. Voters should have some input, but there will be classes of people segregated by competence, and elites will make better decisions for everyone. I buy that story in an abstract sense, but now that it’s played out, everyone has been squeezed in these evolved systems, and partisanship has increased, we’re facing a different either-or.

    Either you believe in democracy, where all people contribute to the decisions that affect their lives, or you believe in a class of globalist kings and dukes running a border-free world for their own amusement, supporting their legitimacy with moral gestures like a goal of reducing global poverty. Those who talk about the evils of populism favour the latter.

  7. I agree with the author on many points, but on at least one point he was misleading to the point of a strawman argument.

    First, yes the world has improved a lot over the last 30 years. However, wages (at least in America) have stagnated for the three to four lower deciles and have actually declined for working men in those groups. I could care less about the Gini coefficient and most of the inequality measures. But stagnant and/or declining wages are certainly a sign of serious flaws with the “American dream”.

    Reference: Figure F

    Yes, this is clearly a Left leaning source and much of it is exaggerated wealth envy. But the underlying data for Figure F is accurate.

    This is a real issue and it must be addressed.

  8. One could get into all the specifics of the numbers, but it always comes back to one chart.

    So let’s break it down.

    It has become a lot easier to afford “stuff”. Way more people have TVs, air conditioners, and just about anything else that can be mass produced on an assembly line by machines. This includes most agriculture as well. In terms of these goods, people are a lot wealthier, and the poor have been freed from “material want” in a dramatic way.

    The stuff that got more expensive is a mixture of things you need (healthcare, real estate) and aspirational but still pretty necessary (education). These things hit the middle class especially hard because:

    1. While the poor are sheltered from healthcare costs (medicaid, Obamacare subsidies) the middle class has taken on the burden.
    2. Real estate “near good jobs and in good school districts” is what really exploded in cost. You can still live in a slum cheap.
    3. While the bottom half doesn’t really care what college costs, it matters quite a bit to the top half.

    So yeah, you could make a “life” of living in cheap real estate (with no jobs around or with crime/failing schools) and consuming lots of cheap mass produced goods and food. The thing is while this is an option, it’s not an option anyone seems to like. The people doing it are literally poisoning themselves to death with intoxicants at record rates.

    It’s also the case that the people benefitting from this have also lost a lot of their wealth in the form of destabilized families and communities. That reduction in household size…divorce and lower fertility. It’s expensive to run two households when a marriage breaks down. And people in this class rely a lot on public goods and public order, which have all seen declines in the last several decades.

    If you want to stay on the middle class treadmill, you find yourself paying ever more for housing, healthcare, and education. This shows up as GDP and per capita income, but it doesn’t feel like you’re better off. If you use all your extra income to pay more for an apartment, it doesn’t make you better off. If you pay more for a BA degree then your parents because its the only path to a middle class career, that extra money doesn’t mean you got extra education. It means gatekeepers are charging more for the golden ticket.

    Morever, it feels very trapping. Back when TVs or the like were more expensive, you could save money by not getting another TV. You can’t really forego housing, healthcare, or education.

    Meanwhile, all the wealth and income flow up to the exceedingly wealthy (top 0.1%). Most of whom seems to despise you and when they do charity they give it to people other then you or even poor people like you. At least Carnegie and the like built things for the betterment of their countrymen.

    Lastly, “pay what they deserve” is a very tired term. If you are in the top 0.1%, you got there because the USG enforced a patent on your intellectual property. The value of that enforcement is vast, and it seems fair to me that it might decide to tax you more to recoup some of the value of that guarantee.

    Edits:

    Kapeth: Yes, we’ve seen a lot more two income households. That increases GDP/income measures but doesn’t necessarily increase quality of life. A lot of the reduction in household size is less children, which is indicative of the fact that those items that have gotten a lot more expensive center around children.

    All: Another way to think about it is that the reductions in mass produced goods were probably baked into the cake no matter how we organized society. These are engineering solutions that tend to get solved at a fairly predictable rate.

    However, the stuff that has gotten more expensive seems to have gotten more expensive due to failures in our society (this is hotly debated). If you think healthcare is more expensive because its an opaque and inefficient racket favoring the powerful…then you can understand the skepticism about the wealth of the top 0.1%.

  9. Honestly can someone please explain to me how Americans are able to decry income inequality as a social evil(when absolute poverty is essentially non-existent in the USA) but at the same time actively engage in celebrity worship and romanticize the upper class of the past?

    I don’t understand how the lifestyles of the rich and famous can be so entertaining if this Marxist critique is a legitimate concern of the masses and not just a fashion trend for the bourgeoisie or a talking point for the political elite.

  10. You’re a kind of radical, Ray. I agree that the free market (your TFM?) has some flaws as you point it above : monopolies, frauds and so on, but it’s difficult to dismiss the fact that capitalism has greatly increased the wealth of the world, even in its poorest parts, especially in the last four decades. Easy to find numbers to prove it.

  11. My take on this particular quandary that neither the traditional Right, or the traditional Left, get the problem correct when apportioning blame for economic failure and claiming credit for economic success- the problem is never Government or Big Business solely, but rather the two working in concert to create regulatory systems which inherently favour the Bigger Fish. Think about the selection of restaurants in whichever country you happen to live in, and compare it the other countries you have tried living in around the world. If the Market is dominated by chains and franchises, then Government and Corporation have effectively won, in deceiving the public with the Conjuror’s Art of distraction, into blaming one or the other, for a systemic lack of opportunity and endemically low wages. But, if over 80% of the restaurants in your area are owned and operated by small leaseholders, then both Government and Big Business are confined to their proper places of mildly antagonistic opposition.

    Because if it is competition that powers capitalism over the long run, driving down prices and increasing economic freedom, then over the short run, it is regulatory imperative of ensuring a level playing field that acts as a guarantor to fairness, liberty and a flourishing labour market, driven by the inherently more process-intensive realities that running a small business entails. Larger businesses necessarily involve steeper hierarchies with all of the gains going to the top, and it shows with the way you can use the Pareto Principle to demonstrate that the square root of the number of your employees to find the increasingly smaller proportion of employees that generate 80% of the value of your enterprise, as your business scales.

    Small is inherently better. It increases human liberty, welfare and dignity, through the simple human metric that we are likely to be kinder and fairer to those we know personally. Don’t get me wrong- we need the economic titans, the giants of commerce- who else will ruthlessly insure that we receive the best possible products and services at the lowest possible prices, feeding the poor with 99 cent burgers, when Government inevitably fails. But in every area where fortunate circumstance and personal choice can combine, we should exercise our economic liberty by patronising providers that we value, and are willing and able to pay the price.

    The number of ways that internalised costs, regulatory burdens and structural costs can be worked to keep the small player from participating, by effectively pricing them out of the market are legion. It is an insult to human dignity, and ultimately work to keep us isolated from human interaction, outside of normal working hours. We buys our goods online, drink at home because the supermarkets outcompete the pubs and order takeout, because the restaurants have to pass on their costs to the customer. Little wonder that our sense of human isolation has never been greater…

    In every instance commerce should favour the little guy, the small operator, pursuing a dream they have been working towards, for much of their adult life. Costs should externalised to the general tax system, regulatory burdens reduced and structural costs such as legal or accountancy fees, mitigated wherever possible. And where do we start? Well, quite perversely, with the EU- that titan of regulatory burdens and bureaucratic process:

    Regulations have binding legal force throughout every Member State and enter into force on a set date in all the Member States. Directives lay down certain results that must be achieved but each Member State is free to decide how to transpose directives into national laws.”

    The only difference, is that we should work this system in reverse. For the Larger Enterprise Regulation should be just that- a Regulation. But for the new entreprenuer, just entering the market, most regulations should be directives, or aspirations to be aimed towards. Only in instances where a lack of regulation might lead to substantial risk to life or limb, should they be enforced. In every other instances, the civil court system should provide ample recourse for market-based enforcement… It’s just an idea, but one that I hope might provide a measure of human dignity, welfare and opportunity to a system that seems rigged from the top.

  12. Did you get your “Greta Elf on a Shelf” for this holiday season?

  13. It is amusing to listen and read those who rail against freedom. “We can’t have Free markets”, so the refrain goes. However it is also very logical. Freedom is unpredictable and hence scary. Free markets lack structure and resemble chaos. Chaos is frightening to most. Being in charge, having an ally in charge or having someone to butter and suck up to in charge is much more comfortable and familiar. One can generally predict how an ally or another from within their milieu might act or one can find comfort in how another promises to act in exchange for power. Free markets entail competition which means the prospect of not succeeding. The betas fear the alphas. Only the betas know they are greater in number than the alphas. The betas desire to use their numbers to rig markets in their favor and avoid competing with the alphas.

    Yet where has the real danger to mankind and freedom come from in the last 100 years; communism, fascism and socialism. Hundreds of millions have died from regimes that have sought to control markets. Free markets recycle, no one stays on top. Americans did not become slaves to J. Paul Getty, J.P. Morgan, John D. Rockefeller, Commodore Vanderbilt, or Andrew Carnegie and they will not become slaves to Jeff Bezos, Bill Gates or Mark Zuckerberg. However populations have been enslaved by those who would eschew free markets.

  14. I never heard of the guy until you put up those articles, but I’ve been reading about him (and Cabela’s) ever since; and as a result of that I would say that Paul Singer might actually be a great force for good.

    Start with Cabela’s - the first thing that crossed my mind was how does 1 guy with only an 11.1% stake do as much damage as Carlson claims? Where’s the other 88.9% ? Was Cabela’s really that solid to start with? The Wikipedia article on it hints all may not have been well underneath the surface. (Something that caught my eye in one of your articles was that shortly before Singer’s buy-in, the company had completed it’s new headquarters. That’s often a significant signal to sell the stock, rather like a late middle age guy buying a Miata.). But what was the role, for example, of their mail order, which was a substantial part of their business? Oddly enough, no one seems to mention that, despite the fact that lots of companies once dependent on mail order are closing or restructuring.

    And what’s the role of Bass Pro in all this? They’re the company that bought Cabela’s - and aren’t they the ones that really closed the offices in Sidney, Nebraska? And, on the whole. Bass Pro seems to be doing OK.

    As for the other hits on Singer, what the heck could possibly be wrong with using courts to force corrupt governments to pay their debts? As he’s pointed out, a sloppy attitude by a country’s leadership towards sovereign debt actually harms the people of that country because it discourages investment in that country.

    And let’s remember that Singer was (apparently) one of the few people to stand up against the investments into CDO’s that nearly collapsed the US economy, and he was doing that in 2006.

    Anyway, thanks for the intro to him. There’s more info on him on Wikipedia. It’s definitely worth a browse. Maybe he’s not the horror you would like him to be.

  15. “While it is true that our nation faces a bevy of serious problems—including climate change, opioid and obesity epidemics, a decreasing life expectancy rate, gun violence, the decline of the family (a third of US children are now raised by single parents), and a looming national debt crisis—inequality, it turns out, is not one of them.”

    When a libertarian-ish journalist attempts to concede that climate change “is a serious problem” I have several conflicting reactions. The first is to want to vomit. This conflicts with my strong desire not to vomit. When I ask him what he means by ‘climate change’ I am confronted by the chilling reality that I’m talking to myself and my children can hear me and haven’t even looked up. You see where I’m going with this. I recently - and by recently I mean just before I started writing this sentence - Duckduckgoed “Holocene” and learned some interesting stuff that may blow the lid off the whole anthropogenic global warming debate. My research tells me that the Holocene is a geological epoch of exceptionally good weather for sun bathing and growing corn that began about 11,000 years ago. Before that there was nothing but long long periods of Teradactyls, continents of icy volcanoes, and primate-filled rainforests in large swaths of South Dakota. While the Holocene is 11,000 years in length, the earth, if you can grasp this, is about 4.5 BILLION years old. To put that into perspective, if each year were a hubcap, they would stretch from Oakland to Los Angeles. In other words, for almost all of the earth’s history there have been no Gaylord Hotels and Resorts. What we know for certain, however, (and I know this for certain because my Philosophy 121 professor told me that she knew this for certain) is that we can know exactly nothing for certain. We don’t know anything about anything, less about love, and negative nothing about the degree to which human activity and emissions make tornadoes. We still, after a century of weather.com and stunning advances in the color of doppler radar, don’t even know where hurricanes come from. How are we supposed to know what the next 11,000 years of weather is going to look like? We don’t, and anyone who tells you otherwise has a dulcimer in her closet. I’d like to apologize for this diatribe. I’m usually concise but the cat is asleep on my lap and my wife is still in the shower. I could have just said “don’t feel the need to say stuff like ‘climate change is one of a bevy of serious problems’ when we all know you’re just trying to trick secular misanthropes into not closing the tab." You know what I mean? Thank Gaia, the cat is following my wife into the kitchen.

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