Tag Archives: Thomas Sowell

Equal *Mattering* Under Ethics, Law and Community

04 Saturday Jul 2020

Posted by in Identity Politics, racism, Uncategorized

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How many white lives is a single black life worth? It seems so easy to pin that down, but if you think it’s okay to say “black lives matter”, but not to say “all lives matter”, the implication is that one black life is worth more than one white life. Anyone who insists on that should take the following litmus test. 

A classic dilemma discussed by ethicists involves situations of mortal danger in which a life or lives might be sacrificed in order to save other lives. Variants of it come up again and again in the effort to tune software for autonomous vehicles. It’s also a simple tool for challenging assertions about the values of different lives, or whether different lives “matter”.

Suppose that two pedestrians step into the path of your vehicle. You can save them only by swerving, killing a single pedestrian standing at the curb. Most would agree the car should swerve, but the answer might change under certain circumstances. Forget about the argument that the two in your path weren’t careful, so they “deserve” die. We just don’t know what caused them to proceed, or what might have distracted them.

What if the two in your path are elderly, using walkers and dragging oxygen tanks, while the pedestrian at the curb is a healthy child. Does that matter? Do we weigh the sacrifice of many potential life-years as well as a higher quality of life? People might feel less certain about that choice.

Now let’s suppose that all three pedestrians are healthy, young adults. Does it matter that any of the pedestrians are black? The one on the the curb, or the two in your path? Of course not! The truly “colorblind” answer is to swerve regardless of race. You are an obvious racist if you think otherwise. The sacrifice of one white life is certainly worth saving two black lives; the sacrifice of one black life is certainly worth saving two white lives. Black lives and white lives matter equally. 

Our Constitution and ethical standards dictate that lives are equal, that we are equal before the law, that we that we have equal rights to speak, worship, and enjoy the fruits of our labors, including the unchallenged right to property we might acquire. Under the law, and in all of our social interactions, we must be accorded equal consideration regardless of extraneous characteristics such as race. All of us have the same promise of life and opportunities to pursue happiness, and to make of our lives what we can or will. However, none of this entitles us to equal happiness, romance, and material well being.

Now, detractors will say all that misses the point. The value of black lives has been discounted for centuries, they say, as evidenced in disparate treatment by police, prosecutors, juries, employers, neighbors, social clubs, and places of business. Of course it’s true that racism has a long history throughout the world, and at one time or other it has been turned against virtually every race or religion in existence. If you think in this day and age that racism doesn’t exist elsewhere, think again.

Slavery was a tragic reality in the U.S. until 155 years ago, but it was certainly not unique to the U.S. Jim Crow laws that prevented blacks from participating equally in many aspects of life were finally ended more than 50 years ago through a series of legislative actions and Supreme Court decisions. Slavery and Jim Crowism were the acts of long-dead ancestors of almost anyone living today. The presumption that all whites should assume guilt for some kind original sin against blacks is sheer nonsense, and one many of us will simply never accept.

Nevertheless, the legacy of degraded personhood under those long-defunct laws created a heavy burden for blacks in terms of upward mobility, and certainly vestiges of racism survive even today. However, we have adopted many standards and programs intended to rectify this unfortunate legacy, including the civil rights legislation of the 1960s and beyond, the Great Society programs of Lyndon Johnson, and many other enlargements of the social safety net since then. These programs have represented a massive redistribution of resources to the impoverished via education, housing, and direct transfers. One estimate put cumulative federal spending on anti-poverty programs alone at $13 trillion between 1963 and 2010. In addition, a variety of programs have been a source of preferential treatment for various minorities in an effort to ensure equal opportunities across many aspects of life.

The success of these programs is subject to great doubt (more on that below), and in fact the motives of Johnson and other proponents of this expansion in the role of government were perhaps less than pure. Nevertheless, the entirety of the package of civil rights and welfare state programs over the years was supported by most of the black community. In fact, one could say that these measures were hardly the actions of a racist society, at least in ostensible intent.

And yet we are told today that we do not sufficiently appreciate that black lives matter! There is no question that racism lives in the hearts and minds of certain individuals, but those individuals aren’t all white. More importantly, the blanket condemnation of whites as racist lacks any basis in reality.

When Black Lives Matter activists talk of “systemic racism”, you can translate as follows: blacks have not met with the ex post economic and social success to which these activists believe blacks are entitled. As it pertains to law enforcement, they mean that blacks are met with more violent police actions than blacks should suffer.

As to law enforcement, it is an awful thing that crime perpetrated by blacks, and particularly crime by blacks against blacks, is disproportionally heavy. As I argued recently, it is difficult to accept the hypothesis of systemic racism in law enforcement in the presence of rampant “systemic crime” in the black community. But crime, in turn, is tied closely to economic success, or the lack thereof.

Median black income has grown relative to median white income since 1970 (also see here). Unfortunately, many blacks have not shared in that growth and remain mired in poverty and on public aid. Sadly, many aid programs have pernicious effects because they impose extremely high marginal tax rates on earned income. The solution lays the groundwork for continued dependency. That qualifies as systemic racism, or at least classism.

Two well-known black economists, Thomas Sowell and Walter Williams, have both decried the welfare state’s destructive impact on the black family unit. That’s one reason why Williams calls white liberals the “worst enemy of black people“. (Also see what Williams has to say about expectations for black students, and about black crime.)

Ultimately, the uproar over racism alleged to be so widespread and “systemic” is divisive. It is an application of Marxist “conflict theory” lying at the very heart of identity politics. Such tribal philosophies creat huge obstacles to peaceful and productive coexistence among diverse peoples. Meanwhile, there’s a simple truth: a widespread consensus exists that all lives are of equal value, that all lives deserve respect and equal treatment under the law, that the goodwill of one’s fellows is a birthright, and that racism is fundamentally evil. If society is to provide fertile ground for the equal cultivation of all lives, it must reject the strictures and resentment bred by identity politics in favor of individual liberty, personal responsibility, and compassion for those unable to care for themselves.

Diversity of Thought Matters

14 Sunday Jun 2020

Posted by in Censorship, Identity Politics, Tyranny

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Here’s an extraordinary letter written last week by a UC-Berkeley history professor to his colleagues. I link to a reprint on ZeroHedge because it was easier to read on my phone than the original source. The letter is anonymous, but it’s authenticity has been verified by well-known colleagues of the author outside the UC system, including Thomas Sowell of Stanford. In the first instance, it is a reaction to recent departmental and university communications, but the issues are much broader. The author, a self-described person of color, is embittered by the tyranny of groupthink that has characterized the reaction to George Floyd’s murder, the “soft bigotry of low expectations’ for blacks, and the virtual beatification of a man with a long and brutal rap sheet. The letter is an ominous warning that basic freedoms are at risk, not to mention intellectual integrity. Here are some salient points from the letter:

  • “I could not find a single instance of substantial counter-argument or alternative narrative to explain the under-representation of black individuals in academia or their over-representation in the criminal justice system. The explanation provided in your documentation, to the near exclusion of all others, is univariate: the problems of the black community are caused by whites, or, when whites are not physically present, by the infiltration of white supremacy and white systemic racism into American brains, souls, and institutions.“
  • “The claim that the difficulties that the black community faces are entirely causally explained by exogenous factors in the form of white systemic racism, white supremacy, and other forms of white discrimination remains a problematic hypothesis that should be vigorously challenged by historians. Instead, it is being treated as an axiomatic and actionable truth without serious consideration of its profound flaws, or its worrying implication of total black impotence.“
  • “… consider the proportion of black incarcerated Americans. This proportion is often used to characterize the criminal justice system as anti-black. However, if we use the precise same methodology, we would have to conclude that the criminal justice system is even more anti-male than it is anti-black. … Would we characterize criminal justice as a systemically misandrist conspiracy against innocent American men? I hope you see that this type of reasoning is flawed, and requires a significant suspension of our rational faculties. Black people are not incarcerated at higher rates than their involvement in violent crime would predict. This fact has been demonstrated multiple times across multiple jurisdictions in multiple countries.
  • “I personally don’t dare speak out against the BLM narrative, and with this barrage of alleged unity being mass-produced by the administration, tenured professoriat, the UC administration, corporate America, and the media, the punishment for dissent is a clear danger at a time of widespread economic vulnerability. I am certain that if my name were attached to this email, I would lose my job and all future jobs, even though I believe in and can justify every word I type.“
  • “The vast majority of violence visited on the black community is committed by black people. There are virtually no marches for these invisible victims, no public silences, no heartfelt letters from the UC regents, deans, and departmental heads. The message is clear: Black lives only matter when whites take them. Black violence is expected and insoluble, while white violence requires explanation and demands solution. Please look into your hearts and see how monstrously bigoted this formulation truly is. … No discussion is permitted for nonblack victims of black violence, who proportionally outnumber black victims of nonblack violence.“
  • “… our department appears to have been entirely captured by the interests of the Democratic National Convention, and the Democratic Party more broadly. To explain what I mean, consider what happens if you choose to donate to Black Lives Matter, an organization UCB History has explicitly promoted in its recent mailers. All donations to the official BLM website are immediately redirected to ActBlue Charities, an organization primarily concerned with bankrolling election campaigns for Democrat candidates. Donating to BLM today is to indirectly donate to Joe Biden’s 2020 campaign.“
  • … our university and department has made multiple statements celebrating and eulogizing George Floyd. Floyd was a multiple felon who once held a pregnant black woman at gunpoint. He broke into her home with a gang of men and pointed a gun at her pregnant stomach. He terrorized the women in his community. He sired and abandoned multiple children, playing no part in their support or upbringing, failing one of the most basic tests of decency for a human being. He was a drug-addict and sometime drug-dealer, a swindler who preyed upon his honest and hard-working neighbors. … And yet, the regents of UC and the historians of the UCB History department are celebrating this violent criminal, elevating his name to virtual sainthood. A man who hurt women. A man who hurt black women. With the full collaboration of the UCB history department, corporate America, most mainstream media outlets, and some of the wealthiest and most privileged opinion-shaping elites of the USA, he has become a culture hero, buried in a golden casket, his (recognized) family showered with gifts and praise. Americans are being socially pressured into kneeling for this violent, abusive misogynist. A generation of black men are being coerced into identifying with George Floyd, the absolute worst specimen of our race and species.”
  • “My family have been personally victimized by men like Floyd. We are aware of the condescending depredations of the Democrat party against our race. The humiliating assumption that we are too stupid to do STEM, that we need special help and lower requirements to get ahead in life, is richly familiar to us. … The ever-present soft bigotry of low expectations and the permanent claim that the solutions to the plight of my people rest exclusively on the goodwill of whites rather than on our own hard work is psychologically devastating. No other group in America is systematically demoralized in this way by its alleged allies. A whole generation of black children are being taught that only by begging and weeping and screaming will they get handouts from guilt-ridden whites.“

There is much more in the letter. Some will dismiss the letter based on the author’s decision to remain anonymous, but one can hardly find fault with that in today’s suffocating intellectual environment. There are many others who remain silent because they either fear the consequences, distain the questions, or wish to be polite. My only other reservation about the letter is the author’s failure to acknowledge George Floyd’s efforts to reform, which were obviously in vain. Those efforts and his murder should not elevate Floyd to an heroic status. Nevertheless, his victimhood qualifies him as a legitimate symbol of police brutality, if not racism.

While much of academia has been swallowed whole by vapid identitarianism and scientism over science and rational thought, the history professor has managed to survive in what might be the hottest bed of leftist extremism in the country at UC-Berkeley. I hope the professor has a long and influential career.

A Trump Tax Reform Tally

03 Wednesday May 2017

Posted by in Big Government, Taxes, Trump Administration

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IMG_4199

The Trump tax plan has some very good elements and several that I dislike strongly. For reference, this link includes the contents of an “interpretation” of the proposal from Goldman Sachs, based on the one-page summary presented by the Administration last week as well as insights that the investment bank might have gleaned from its connections within the administration. At the link, click on the chart for an excellent summary of the plan relative to current law and other proposals.

At the outset, I should state that most members of the media do not understand economics, tax burdens, or the dynamic effects of taxes on economic activity. First, they seem to forget that in the first instance, taxpayers do not serve at the pleasure of the government. It is their money! Second, Don Boudreaux’s recent note on the media’s “taxing” ignorance is instructive:

“In recent days I have … heard and read several media reports on Trump’s tax plan…. Nearly all of these reports are juvenile: changes in tax rates are evaluated by the media according to changes in the legal tax liabilities of various groups of people. For example, Trump’s proposal to cut the top federal personal income-tax rate from 39.6% to 35% is assessed only by its effect on high-income earners. Specifically, of course, it’s portrayed as a ‘gift’ to high-income earners.

… taxation is not simply a slicing up of an economic pie the size of which is independent of the details of the system of taxation. The core economic case for tax cuts is that they reduce the obstacles to creative and productive activities.“

Boudreaux ridicules those who reject this “supply-side” rationale, despite its fundamental and well-established nature. Thomas Sowell makes the distinction between tax rates and tax revenues, and provides some history on tax rate reductions and particularly “tax cuts for the rich“:

“… higher-income taxpayers paid more — repeat, MORE tax revenues into the federal treasury under the lower tax rates than they had under the previous higher tax rates. … That happened not only during the Reagan administration, but also during the Coolidge administration and the Kennedy administration before Reagan, and under the G.W. Bush administration after Reagan. All these administrations cut tax rates and received higher tax revenues than before.

More than that, ‘the rich’ not only paid higher total tax revenues after the so-called ‘tax cuts for the rich,’ they also paid a higher percentage of all tax revenues afterwards. Data on this can be found in a number of places …“

In some cases, a proportion of the increased revenue may have been due to short-term incentives for asset sales in the wake of tax rate reductions. In general, however, Sowell’s point stands.

Kevin Williamson offers thoughts that could be construed as exactly the sort of thing about which Boudreaux is critical:

“It is nearly impossible to cut federal income taxes in a way that primarily benefits low-income Americans, because high-income Americans pay most of the federal income taxes. … The 2.4 percent of households with incomes in excess of $250,000 a year pay about half of all federal income taxes; the bottom half pays about 3 percent.”

The first sentence of that quote highlights the obvious storyline pounced upon by simple-minded journalists, and it also emphasizes the failing political appeal of tax cuts when a decreasing share of the population actually pays taxes. After all, there is some participatory value in spreading the tax burden in a democracy. I believe Williamson is well aware of the second-order, dynamic consequences of tax cuts that spread benefits more broadly, but he is also troubled by the fact that significant spending cuts are not on the immediate agenda: the real resource cost of government will continue unabated. We cannot count on that from Trump, and that should not be a big surprise. Greater accumulation of debt is a certainty without meaningful future reductions in the growth rate of spending.

Here are my thoughts on the specific elements contained in the proposal, as non-specific as they might be:

What I like about the proposal:

  • Lower tax rate on corporate income (less double-taxation): The U.S. has the highest corporate tax rates in the developed world, and the corporate income tax represents double-taxation of income: it is taxed at the corporate level and again at the individual level, perhaps not all at once, but when it is actually received by owners.
  • Adoption of a territorial tax system on corporate income: The U.S. has a punishing system of taxing corporate income wherever it is earned, unlike most of our trading parters. It’s high time we shifted to taxing only the corporate income that is earned in the U.S., which should discourage the practice of tax inversion, whereby firms transfer their legal domicile overseas.
  • No Border Adjustment Tax (BAT): What a relief! This was essentially the application of taxes on imports but tax-free exports. Whatever populist/nationalist appeal this might have had would have quickly evaporated with higher import prices and the crushing blow to import-dependent businesses. Let’s hope it doesn’t come back in congressional negotiations.
  • Lower individual tax rates: I like it.
  • Fewer tax brackets: Simplification, and somewhat lower compliance costs.
  • Fewer deductions from personal income, a broader tax base, and lower compliance costs. Scrapping deductions for state and local taxes in exchange for lower rates will end federal tax subsidies from low-tax to high-tax states.
  • Elimination of the Alternative Minimum Tax: This tax can be rather punitive and it is a nasty compliance cost-causer.

What I dislike about the proposal:

  • The corporate tax rate should be zero (with no double taxation).
  • Taxation of cash held abroad, an effort to encourage repatriation of the cash for reinvestment in the U.S. Taxes on capital of any kind are an act of repeated taxation, as the income used to accumulate capital is taxed to begin with. And such taxes are destructive of capital, which represents a fundamental engine for productivity and economic growth.
  • Retains the mortgage interest and charitable deductions: Both are based on special interest politics. The former leads to an overallocation of resources to owner-occupied housing. Certainly the latter has redeeming virtues, but it subsidizes activities conferring unique benefits to large donors.
  • Increase in the standard deduction: This means fewer “interested” taxpayers. See the  discussion of the Kevin Williamson article above.
  • We should have just one personal income tax bracket, not three: A flat tax would be simpler and would reduce distortions to productive incentives.
  • Tax relief for child-care costs: More special interest politics. Subsidizing market income relative to home activity, hired child care relative to parental care, and fertility is not an appropriate role for government. To the extent that public aid payments are made, they should not be contingent on how the money is spent.
  • Many details are missing: Almost anything could happen with this tax “plan” when the real negotiations begin, but that’s politics, I suppose.

Mixed Feelings:

  • Descriptions of the changes to treatment of pass-through” income seem confused. There is only one kind of tax applied to the income of pass-through entities like S-corporations, and it is the owner’s individual tax rate. Income from C-corporations, on the other hand, is taxed twice: once at a 15% corporate tax rate under the Trump plan, and a second time when it is paid to investors at an individual tax rate, which now range from 15% to almost 24% for “qualified dividends” (most dividend payments), but are likely to range up to 35% for “ordinary” dividends under the plan. So effectively, double-taxed C-corporate income would be taxed at total rates ranging from 30% to 50% after tallying both the C-corp tax and the individual tax. (This is a simplification: C-corp income paid as dividends would be taxed to the corporation and then immediately to the shareholder at their individual rate, while retained corporate income would be taxed later).

Presumably, the Trump tax plan is to reduce the rate on “pass-through” income to just 15% at the individual level, regardless of other income. (It is not clear how that would effect brackets or the rate of taxation on other components of individual income.) Is that good? Yes, to the extent that lower tax rates allow individuals to keep more of their hard-earned income, and to the extent that such a change would help small businesses. S-corps have always had an advantage in avoiding double taxation, however, and this would not end the differential taxation of S and C income, which is distortionary. It might incent business owners to shift income away from salary payments to profit, however, which would increase the negative impact on tax revenue.

  • Interest deductibility and expensing of capital expenditures are in question. Interest deductibility puts debt funding on an equal footing with equity funding only if the double tax on C-corp income is fully repealed. Immediate expensing of “capex” would certainly provide an investment incentive (as long as “excess” expenses can be carried forward), and for C-corporations, it would certainly bring us closer to elimination of the double-tax on income (the accounting matching principle be damned!).
  • There is no commitment to shrink government, but that’s partly (only partly) a function of having abandoned revenue neutrality. It’s also something that has been promised for the next budget year.
  • The tax reform proposal represents a departure from insistence on revenue neutrality: On the whole, I find this appealing, not because I like deficits better than taxes, but because there may be margins along which tax policy can be improved if unconstrained by neutrality, assuming that the incremental deficits are less damaging to the economy than the gains. The political landscape may dictate that desirable changes in tax policy can be made more easily in this way.

Shikha Dalmia wonders whether a real antidote for “Trumpism” might be embedded within the tax reform proposal. If the reforms are successful in stimulating non-inflationary economic growth, a “big if” on the first count, the popular preoccupations inspired by Trump with immigration policy, the “wall” and protectionism might just fade away. But don’t count on it. On the whole, I think the tax reform proposal has promise, though some of the good parts could vanish before a bill hits Trump’s desk, and some of the bad parts could get worse!

The Fascist Roader

04 Thursday Aug 2016

Posted by in Central Planning, fascism

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Obamas - fascist world government

 

 

 

 

 

 

 

 

President Obama is a believer in centralized social and economic management, despite the repeated disasters that have befallen societies whose leaders have applied that philosophy in the real world. Those efforts have often taken the form of socialism, with varying degrees of government ownership of resources and productive capital. However, it is not necessary for government to own the means of production in order to attempt central planning. You can keep your capital as long as you take direction from the central authority and pay your “fair share” of the public sector burden.

A large government bureaucracy can coexist with heavily regulated, privately-owned businesses, who are rewarded by their administrative overlords for expending resources on compliance and participating in favored activities. The rewards can take the form of rich subsidies, status-enhancing revolving doors between industry and powerful government appointments, and steady profits afforded by monopoly power, as less monied and politically-adept competitors drop out of the competition for customers. We often call this “corporatism”, or “crony capitalism”, but it is classic fascism, as pioneered by Benito Mussolini’s government in Italy in the 1920s. Here is Sheldon Richman on the term’s derivation:

“As an economic system, fascism is socialism with a capitalist veneer. The word derives from fasces, the Roman symbol of collectivism and power: a tied bundle of rods with a protruding ax.“

With that in mind, here’s an extra image:

Mussolini Quote

The meaning of fascism was perverted in the 1930s, as noted by Thomas Sowell:

“Back in the 1920s, however, when fascism was a new political development, it was widely — and correctly — regarded as being on the political left. Jonah Goldberg’s great book ‘Liberal Fascism’ cites overwhelming evidence of the fascists’ consistent pursuit of the goals of the left, and of the left’s embrace of the fascists as one of their own during the 1920s. … 

It was in the 1930s, when ugly internal and international actions by Hitler and Mussolini repelled the world, that the left distanced themselves from fascism and its Nazi offshoot — and verbally transferred these totalitarian dictatorships to the right, saddling their opponents with these pariahs.“

The Obama Administration has essentially followed the fascist playbook by implementing policies that both regulate and reward large corporations, who are only too happy to submit. Those powerful players participate in crafting those policies, which usually end up strengthening their market position at the expense of smaller competitors. So we have transformational legislation under Obama such as Obamacare and Dodd-Frank that undermine competition and encourage concentration in the insurance, health care, pharmaceutical  and banking industries. We see novel regulatory interpretations of environmental laws that destroy out-of-favor industries, while subsidies are lavished on favored players pushing economically questionable initiatives. Again, the business assets are owned by private cronies, but market forces are subjugated to a sketchy and politically-driven central plan designed jointly by cronies inside and outside of government. That is fascism, and that’s the Obama approach. He might be a socialist, and that might even be the end-game he hopes for, but he’s a fascist in practice.

As Sowell points out, Obama gains some crucial advantages from this approach. For starters, he gets a free pass on any claim that he’s a socialist. And however one might judge his success as a policymaker, the approach has allowed him to pursue many of his objectives with the benefit of handy fall-guys for failures along the way:

“… politicians get to call the shots but, when their bright ideas lead to disaster, they can always blame those who own businesses in the private sector.  Politically, it is heads-I-win when things go right, and tails-you-lose when things go wrong. This is far preferable, from Obama’s point of view, since it gives him a variety of scapegoats for all his failed policies, without having to use President Bush as a scapegoat all the time.

Thus the Obama administration can arbitrarily force insurance companies to cover the children of their customers until the children are 26 years old. Obviously, this creates favorable publicity for President Obama. But if this and other government edicts cause insurance premiums to rise, then that is something that can be blamed on the “greed” of the insurance companies.The same principle, or lack of principle, applies to many other privately owned businesses. It is a very successful political ploy that can be adapted to all sorts of situations.“

Obama’s most ardent sycophants are always cooing that he’s the best president EVAH, or the coolest, or something. But the economy has limped along for much of his presidency; labor force participation is now at its lowest point since the late 1970s; and median income has fallen on his watch. He has Federal Reserve policy to thank for stock market gains that are precarious, at least for those companies not on the fascist gravy train. Obama’s budgetary accomplishments are due to a combination of Republican sequestration (though he has taken credit) and backloading program shortfalls for his successors to deal with later. Obamacare is a disaster on a number fronts, as is Dodd-Frank, as is the damage inflicted by questionable environmental and industrial policy, often invoked via executive order.  (His failures in race relations and foreign policy are another subject altogether.)

Fascism is not a prescription for rapid economic growth. It is a policy of regression, and it is fundamentally anti-innovation to the extent that government policymakers create compliance burdens and are poor judges of technological evolution. Fascism is a policy of privilege and is regressive, with rewards concentrated within the political class. That’s what Obama has wrought.

 

Pawning Growth For Redistribution

15 Monday Feb 2016

Posted by in Equality, Redistribution

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govt here to help

The following is no mystery: if you want prosperity, steer clear of policies that inhibit production and physical investment. This too: if you want to lift people out of poverty and dependency, don’t promote policies that discourage hiring and work incentives. Yet those are exactly the implications of policies repeatedly advocated by so-called redistributionists. The ignorance flows, in large part, from a distraction, a mere byproduct of economic life that has no direct relation to economic welfare, but upon which followers of Bernie Sanders are absolutely transfixed: income and wealth inequality. Attempts to manipulate the degree of inequality via steeply progressive taxes, transfers and market intervention is a suckers game of short-termism. It ultimately reduces the value of the economy’s capital stock, chases away productive activity, destroys jobs, and leaves us all poorer.

Absolute income growth is a better goal, and encouraging production is the best way to raise incomes in the long-run. Unless envy is your thing, income inequality is largely irrelevant as a policy goal. In “Why and How We Care About Inequality“, John Cochrane emphasizes that inequality may be a symptom of other problems, or perhaps no problem at all. His point is that treating a symptom won’t fix the underlying problem:

“A segment of America is stuck in widespread single motherhood … terrible early-child experiences, awful education, substance abuse, and criminality. 70% of male black high school dropouts will end up in prison, hence essentially unemployable and poor marriage prospects. Less than half are even looking for legal work.

This is a social and economic disaster. And it has nothing to do with whether hedge fund managers fly private or commercial. It is immune to floods of Government cash, and, as Casey Mulligan reminded us, Government programs are arguably as much of the problem as the solution. So are drug laws….“

The writers of the center-left Third Way blog give some details on income growth that might disappoint some progressives. They agree that the emphasis on redistribution is misplaced. Solving economic problems requires a different approach:

“From 1980 to 2010, income gains (after taxes and government transfers are included) favored the wealthy but were still spread across all income brackets: a 53% increase for the bottom quintile; a 41% increase for the next two; a 49% increase for the 4th; and a 90% increase for the richest fifth. Thus, while income inequality may offend our sense of justice, its actual impact on the middle class may be small.

With a singular focus on income inequality, the left’s main solutions are greater re-distribution and a re-writing of the rules to ‘un-rig’ the system. But, however well motivated, some of the biggest ideas into which they are directing their energy do not remotely address the underlying ‘Kodak’ conundrum—how do Americans find their place in a rapidly changing world? In fact, some would actually make the task of increasing shared prosperity significantly harder.“

The hubbub over inequality and redistribution is fueled by misconceptions. One is that the rich face low tax burdens, often lower than the middle class, a mistaken notion that Alan D. Viard debunks using 2013 data from a report from the Congressional Budget Office. The CBO report accounts for double taxation of dividends and capital gains at the corporate level and at the personal level (though capital gains are taxed to individuals now, while the anticipated corporate income is taxed later). The CBO study also accounts for employers’ share of payroll taxes (because it reduces labor income) so as to avoid exaggerating the tax system’s progressivity. Before accounting for federal benefits, which offset the tax burden, the middle 20% of income earners paid an average tax rate of less than 15%, while “the 1%” paid more than 29%. However, after correcting for federal benefits, the middle quintile paid a negative average tax rate, while the top 1% still paid almost 29%. That is a steeply graduated impact.

Rising income inequality in the U.S. is more a matter of changes in household structure than in the distribution of rewards. This conclusion is based on the fact that income inequality has risen steadily over the past 50 years for households, but there has been no change in inequality across individuals. An increasing number of single-person households, primarily women over the age of 65, accounts for rising inequality at the household level. The greedy corporate CEOs of the “occupier” imagination are really not to blame for this trend, though I won’t defend corporate rent-seeking activities intended to insulate themselves from competition.

Measures of income inequality hide another important fact: one’s position in the income distribution is not static. Chelsea German notes that Americans have a high degree of economic mobility. According to a Cornell study, only 6% of individuals in the top 1% in a given year remain there in the following year. German adds that over half of income earners in the U.S. find themselves in the top 10% for at least one year of their working lives.

There are several reasons why redistributionist policies fail to meet objectives and instead reduce opportunities for the presumed beneficiaries to prosper. Dan Mitchell covers several of these issues, citing work on: the rational response of upper-income taxpayers to  punitive taxes; the insufficiency of funding an expanded welfare state by merely taxing “the rich”; the diversion of most anti-poverty funds to service providers (rather than directly to the poor); the meager valuation of benefits from recipients of Medicaid, and the fact that the program lacks any favorable impact on mortality and health measures. Mitchell features the “First Theorem of Government” in a sidebar:

“Above all else, the public sector is a racket for the enrichment of insiders, cronies, bureaucrats and interest groups.“

A few years back, the great Thomas Sowell explained “The Fallacy of Redistribution” thusly:

“You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth — and that future wealth is less likely to be produced when people see that it is going to be confiscated.“

That future wealth can and should be enjoyed across the income spectrum, but punitive taxes destroy productive capital and jobs.

A great truth about poverty comes from Angela Ranchidi of the American Enterprise Institute: low wages are not at the root of poverty; it’s a lack of jobs. She quotes a Gallup report on this point, relative to the working-age poor in 2014:

“Census data show that, 61.7% did not work at all and another 26.6% worked less than full-time for the entire year. Only 11.7% of poor working-age adults worked full-time for the entire year in 2014. Low wages are not the primary cause of poverty; low work rates are. And if Gallup is correct, the full-time work rate may already be peaking.“

More than 88.3% of the working-age poor were either unemployed or underemployed! And here’s the kicker: redistributionists clamor for policies that would place an even higher floor on wage rates, yet the floor already in place has succeeded in compromising the ability of low-skilled workers to find full-time work.

Cochrane sums up the inequality debate by noting the obvious political motives of progressive redistributionists:

“Finally, why is “inequality” so strongly on the political agenda right now? Here I am not referring to academics. … All of economics has been studying various poverty traps for a generation…. 

[The] answer seems pretty clear. Because [the politicians and pundits] don’t want to talk about Obamacare, Dodd-Frank, bailouts, debt, the stimulus, the rotten cronyism of energy policy, denial of education to poor and minorities, the abject failure of their policies to help poor and middle class people, and especially sclerotic growth. Restarting a centuries-old fight about “inequality” and “tax the rich,” class envy resurrected from a Huey Long speech in the 1930s, is like throwing a puppy into a third grade math class that isn’t going well. You know you will make it to the bell.

That observation, together with the obvious incoherence of ideas the political inequality writers bring us leads me to a happy thought that this too will pass, and once a new set of talking points emerges we can go on to something else.“

Lucky Barack: Let Me “Invest” Your Winnings

22 Friday May 2015

Posted by in Big Government, Taxes, Welfare State

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Ask a group of teenagers how to get rich and a significant share will say to win the lottery. The truth is that NOT buying lottery tickets and instead saving the ticket money is a far better approach. That, and hard work, are much more likely to get you there. Of course, that’s how many of the rich got that way, but President Obama now refers to them as “society’s lottery winners”. No doubt this description serves his redistributionist policy agenda by appealing to the ignorance of his base. I am tempted to say that his use of the phrase is a testament to his own ignorance, as his only real experience is in the political realm, as opposed to the world of actual production and wealth creation.

Thomas Sowell offers remarks on Obama’s smug characterization of the wealthy, highlighting the President’s disingenuous assertion that redistributionists merely “‘ask from society’s lottery winners’ that they make a ‘modest investment’ in government programs to help the poor.” Sowell notes that “asking” is not what the U.S. government will do:

“Despite pious rhetoric on the left about ‘asking’ the more fortunate for more money, the government does not ‘ask’ anything. It seizes what it wants by force. If you don’t pay up, it can take not only your paycheck, it can seize your bank account, put a lien on your home and/or put you in federal prison.“

Sowell also decries Obama’s continued abuse of the term “investment”. Everything is now an “investment”, whether it pays for consumption or new physical capital. You can feel Sowell’s frustration:

“... please don’t call the government’s pouring trillions of tax dollars down a bottomless pit ‘investment.’ Remember the soaring words from Barack Obama, in his early days in the White House, about “investing in the industries of the future”? After Solyndra and other companies in which he ‘invested’ the taxpayers’ money went bankrupt, we haven’t heard those soaring words so much.“

In The World According to Barack, wealth is created by luck, the government merely requests the cooperation of those paying the vast bulk of federal taxes, and redistribution itself and the consumption it pays for is “investment”.

Government and Perpetual Poverty

07 Thursday May 2015

Posted by in Welfare State

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The welfare state has 1) reduced measured poverty, but it has 2) failed to provide sufficient opportunity and economic mobility. In “Two Premises on Poverty and Culture“, Ross Douthat writes that it should be easy for Left and Right to agree on these points. #1 is a fairly well-established empirical fact, while #2 leaves plenty of room to debate what went wrong and how to fix it. The Left might well call for more resources to be plowed into the effort; the right believes that the welfare state has fostered dependency and subverted social institutions. The best that can be said is that the modern welfare state leaves the poor “running in place”, but that concedes far too much to programs rife with disincentives for legal, market work effort. I wrote about this topic just over a month ago, in “Poverty Maintenance Is Not a Win“. While Douthat’s short essay sought common ground upon which Right and Left can debate reforms, he notes that anti-poverty programs:

“... raise incomes but also increase dependency, encourage idleness, crowd out the basic institutions of civil society, and so on through the libertarian critique.“

This is not to diminish the waste inherent in other areas of government largess, such as corporate subsidies, defense spending, and over-regulation. Virtually any government program can be called out on waste and unintended consequences. Tonight, however, we’re featuring the dismal results of the welfare state. Thomas Sowell, a well-known African American economist, is uncompromising in his condemnation of the welfare state in connection with recent protests by blacks against perceived injustices in “The Inconvenient Truth about Ghetto Communities“:

“Anyone who is serious about evidence need only compare black communities as they evolved in the first 100 years after slavery with black communities as they evolved in the first 50 years after the explosive growth of the welfare state, beginning in the 1960s. …

We are told that such riots are a result of black poverty and white racism. But in fact — for those who still have some respect for facts — black poverty was far worse, and white racism was far worse, prior to 1960. But violent crime within black ghettos was far less.

There is no doubt that the behavioral dysfunctions induced by welfare state incentives have been compounded by the war on drugs. Like all prohibitions, it offers black market “opportunities” to the poor and unskilled while promoting violence and a high risk of arrest and imprisonment, contributing to the destruction of families and communities. But the welfare state itself effectively subsidizes the drug-war pathway to perdition:

You cannot take any people, of any color, and exempt them from the requirements of civilization — including work, behavioral standards, personal responsibility, and all the other basic things that the clever intelligentsia disdain — without ruinous consequences to them and to society at large.

Non-judgmental subsidies of counterproductive lifestyles are treating people as if they were livestock, to be fed and tended by others in a welfare state — and yet expecting them to develop as human beings have developed when facing the challenges of life themselves.“

The usual trope promoted by the Left is that more resources are required to end the cycle of dependency. That is dubious in light of the dramatic increases in U.S. welfare spending over the past 50 years. Those increases have been fairly steady, yet significant decreases in the incidence of poverty came to an end before 1970:

“Today, government spends 16 times more, adjusting for inflation, on means-tested welfare or anti-poverty programs than it did when the War on Poverty started. But as welfare spending soared, the decline in poverty came to a grinding halt.“

Finally, here is a little object lesson in the way Leftists typically misperceive facts surrounding the actual allocation of budgetary resources and the concomitant results. On April 28th, Jon Stewart said:

“If we are spending a trillion dollars to rebuild Afghanistan’s schools, we can’t, you know, put a little taste Baltimore’s way. It’s crazy.“

Alex Tabarrok castigates Stewart for this gross misrepresentation of the foreign aid budget and the complete distortion of the facts surrounding school funding in Baltimore. Actually, per-student funding for the Baltimore city public schools is over 26% greater (a difference of more than $3,500 per year) than for the schools in Fairfax County, VA. The latter is considered one of the best school districts in the country. The funding of Baltimore schools is dominated by state contributions, but federal funding there exceeds local funding.

Racism And Minimum Wage Fairy Tales

02 Saturday May 2015

Posted by in Markets, Price Mechanism, Regulation

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The real history of the minimum wage is an unsavory tale unknown to most current observers. The myth that it had honorable origins is widespread, with special currency among the progressive Left. Their uncritical support for a higher wage floor reflects a failure to grasp its pernicious economic effects on low-skilled labor and an ignorance of its historical context as a mechanism enabling racial discrimination. In fact, minimum wage legislation was often motivated by racist economic concerns, as Carrie Sheffield explained a year ago in this commentary in Forbes. She quotes, among others, the great Thomas Sowell, an African-American economist, from this opinion piece:

“In an earlier era, when racial discrimination was both legally and socially accepted, minimum-wage laws were often used openly to price minorities out of the job market.“

Sowell cites historical examples of minimum wage legislation intended to harm the employment prospects of Japanese, Chinese and blacks, including the following:

“Some supporters of the first federal minimum-wage law in the United States — the Davis-Bacon Act of 1931 — used exactly the same rationale, citing the fact that Southern construction companies, using non-union black workers, were able to come north and underbid construction companies using unionized white labor.

These supporters of minimum-wage laws understood long ago something that today’s supporters of such laws seem not to have bothered to think through. People whose wages are raised by law do not necessarily benefit, because they are often less likely to be hired at the imposed minimum-wage rate.“

Walter Williams, another well-known African-American economist, provides more evidence of these origins of the wage floor in “Mandated Wages and Discrimination“:

“During the legislative debate over the Davis-Bacon Act, which sets minimum wages on federally financed or assisted construction projects, racist intents were obvious. Rep. John Cochran, D-Mo., supported the bill, saying he had ‘received numerous complaints in recent months about Southern contractors employing low-paid colored mechanics getting work and bringing the employees from the South.’ Rep. Miles Allgood, D-Ala., complained: ‘That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country.’ Rep. William Upshaw, D-Ga., spoke of the ‘superabundance or large aggregation of Negro labor.’ American Federation of Labor President William Green said, ‘Colored labor is being sought to demoralize wage rates.’ The Davis-Bacon Act, still on the books today, virtually eliminated blacks from federally financed construction projects when it was passed.“

An article by Thomas C. Leonard in the Journal of Economic Perspectives, “Eugenics and Economics in the Progressive Era“, reinforces the point:

“The progressive economists believed that the job loss induced by minimum wages was a social benefit as it performed the eugenic service ridding the labour force of the unemployable.”

And if that isn’t enough for you, David Henderson has this to say:

“Unions don’t support minimum wage increases because their own members are working at the minimum wage. Virtually all union employees–I’ve never heard of an exception–work at wages above the minimum. Northern unions and unionized firms, for example, have traditionally supported higher minimum wages to hobble their low-wage competition in the South… 

… In a 1957 Senate hearing, minimum-wage advocate Senator John F. Kennedy of Massachusetts, who just four years later would be President of the United States, stated,

‘Of course, having on the market a rather large source of cheap labor depresses wages outside of that group, too – the wages of the white worker who has to compete. And when an employer can substitute a colored worker at a lower wage – and there are, as you pointed out, these hundreds of thousands looking for decent work – it affects the whole wage structure of an area, doesn’t it?’“

One can claim that JFK was advocating for a higher wage floor to benefit all workers, but it’s hard to avoid the conclusion that “protecting” white workers was his priority. And it strains credulity to deny that JFK was aware of the other side of the coin: there would be negative repercussions for low-skilled black workers. What is painfully obvious about minimum wage legislation is that the real beneficiaries are generally not those competing for minimum wage jobs, but more entrenched labor interests.

It is an unfortunate reality that blacks make up a disproportionately large share of the unskilled labor force. According to another commentary by Walter Williams, unemployment among blacks was not a chronic problem in the first half of the 20th century, even among teens, and male labor force participation among blacks was higher than for whites. Over the past 50 years, however, black unemployment has averaged twice the rate for whites. Minimum wage legislation has encouraged this disparity.

Today’s advocates of a higher minimum wage are inadvertently rooting for a policy that compounds the disadvantages faced by the least skilled workers. The minimum wage contributes to a negative disparate impact on black labor market outcomes and prevents blacks from gaining valuable job experience. It is impossible to regulate wages without impinging on hiring decisions, and it is impossible to regulate both wages and hiring without impinging on the survival of employers. To help the unskilled, the best thing policymakers can do is allow them to trade their labor freely.

Francis’ Statist Vision Not Shared By Venezuelan Clergy

16 Friday Jan 2015

Posted by in The Road To Serfdom

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Some people lament our tolerance in the U.S. for “religious crazies.” Of course, these misgivings might reflect a certain view that religious people are crazy to begin with, as well as an outright hostility to constitutional protections of religious freedom. Do they mean that religious speech should not be protected? That one’s religious beliefs should not inform their political views? That religious freedom should not exempt anyone from rules imposed by government (the dispute in King vs. Burwell)? These possibilities cover a lot of ground, but none of them stands up to scrutiny in a free and liberal society. In fact, the apparent resentment of the Left toward “religious crazies” largely misses the point: the very expansion of government activity, in kind, degree and complexity, often brings the state into conflict with religious imperatives. And regardless of one’s stance on the taxation of religious activity, exemptions necessarily become more controversial in the sort of high-tax environment needed to fund big government.

But it is not just the secular Left that fails to recognize the inherent conflict between big government and religious liberty. Pope Francis himself seems oblivious to the dangerous implications of big government for religious freedom. His apostolic exhortation for greater reliance on the state to care for the poor simultaneously embraces socialism and condemns capitalism. I take no issue in principle with the provision of a social safety net, but the Pope should be more results-oriented in assessing different forms of social organization and their impacts on poverty. Big government typically fails to achieve the kinds of humane objectives usually espoused by the Left. The sad “road to serfdom” has played out many times in the past. In fact, in an apparent rebuff, Pope Francis’ Venezuelan Archbishops just issued a strong condemnation of socialist solutions to poverty. From Investors.com:

“The Venezuelan archbishops make the useful observation that if capitalist economies have problems, socialist alternatives are far worse for the poor and needy. Could it be the pope’s Latin American colleagues on the ground in the cesspool of communism are the ones who can get through to the holy father on economics?”

The Pope would do well to listen to his Venezuelan flock or to this great economic thinker, Thomas Sowell, who emphasizes the inability of government to craft solutions that “do no harm.”

Apart from lousy economic results, basic freedoms are seldom immune to compromise under the grip of big government. These reports from China should give the pontiff pause. The Chinese Communist Party is said to feel “threatened” by the growth of Chinese Christianity, and the government is cracking down, dismantling religious symbols and even destroying some churches. Similar outcomes have followed authoritarian governments many times in the past, and of course this isn’t the first crackdown on “religious crazies” under Chinese communism. No one should be surprised. Capitalism, with its miracle of market self-regulation, is the only economic system that is truly consistent with freedom and diversity of religion.

If You Can’t Beat ‘Em, Defame ‘Em

02 Friday May 2014

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Can public and charter schools peacefully coexist? “Demonizing the Helpers” wouldn’t be a theme of so many posts if it wasn’t such a common defensive strategy adopted by entrenched interests. In this case, Thomas Sowell notes that “charter schools provoke the ire of those who have failed students up to now.” It’s good to reflect on the actual goals of our educational system and to weigh every option that could help to achieve those goals. Real outcomes show that changes in public education are sorely needed, and charter schools have proven that they can be part of the solution. Instead, stakeholders in the failing public education monopoly have sought only to protect their turf, engaging in a systematic campaign to vilify charter schools and their supporters.