Inequality

It is worthwhile to take a closer look at the oft-expressed desire to reduce inequality.

If by inequality one means the existence of poverty among riches, would it not be more prudent to work toward a reduction of poverty rather than of inequality? Reducing inequality won’t necessarily reduce poverty. In fact it could exacerbate poverty.

As reported in the Washington Post, the poor actually enjoy higher life expectancies (and thus higher standards of living) in cities where inequality is highest. San Francisco has gross inequalities due to the tremendous number of tech millionaires and billionaires, yet relatively low poverty rates. One reason is that wealthy people put their money towards starting businesses (and thereby employ poor and middle class people); towards charitable causes; towards savings where the money in turn is used to provide car loans, student loans and home loans for poor and middle class people; and/or towards consumption which in turn keeps businesses afloat and employees employed.

Perhaps one could justify wanting to curtail inequality because of the danger of envy and resentment among the less fortunate toward the more fortunate (this even includes millionaires toward billionaires). But in that case, why not just work toward a curtailment of envy and resentment? Envy and resentment are actual moral failures. Inequality is not, provided one earns one’s money honestly and justly, and gives substantially to charitiable causes. Moreover almost all agree that a brain surgeon should be paid significantly more than a janitor. Were they paid the same, there would be a shortage of brain surgeons; few would devote the time and expense necessary to become one. So pay differentiation is not a moral failure.

In fact, excessive focus on inequality actually could have the perverse effect of stirring up envy and resentment. To combat this, when one talks about inequality, one should always admonish one’s audience not to harbor ill will toward the more fortunate.

So in this humble observer’s opinion it is much more effective to work toward an end to poverty and envy.

Immigration Breeds Inequality

President Obama and the left rail against income inequality. Yet they invariably champion one of the biggest causes of that phenomenon: mass immigration.

It doesn’t take a rocket scientist to grasp that when rich countries accept massive inflows of poor and uneducated migrants who can’t speak the host country’s language, the gap between the rich and poor widens in those countries. The newcomers’ earnings potential is far below that of the native population, and often remains that way for generations to come.

Not that there’s anything wrong with income inequality as long as the poor and middle class get richer even as the rich get richer. It’s mainly the envious among us who have a hard time with that.

Northern Europeans pride themselves on their relative income equality – and often find fault with America for not accomplishing the same. But the massive influx of immigrants into Europe from the Middle East and Africa is upending that state of affairs.

Sweden is a case in point. Beginning in the 1970s it started taking in immigrants mainly from poor countries, and nowadays accepts more immigrants than other European countries many times its population size. Sweden’s foreign-born population is now about 15 percent of the population; including those born to two-immigrant parents it’s 20 percent.

While Sweden has been and still is among the most income-equal of all European countries, its rise in inequality between 1985 and the early 2010s was the sharpest in the developed world, according to a report by the Organization for Economic Co-operation and Development. Immigration fueled that. In the 1990s the average income in Sweden of the top 10 percent was about four times greater than that of the bottom 10 percent. By 2007 that gap had risen to 5.75 times greater, and in 2012 the multiple was 6.3. According to The Economist, 40 percent of non-Europeans in Sweden are classified as poor, compared with 10 percent of native Swedes.

A 2014 study by researchers at the University of Gothenburg found that poverty in Sweden among ethnic Turkish children is three times higher than among native Swedish children. Ethnic Turks are less educated and frequently can’t learn fluent Swedish. What education they do have is often not transferable to the Swedish labor market, which requires increasingly higher skills.

One may posit that the income inequality is a short-term phenomenon – that over the long term second-generation immigrants and their offspring will become more integrated and better educated.

That’s not what has happened in Germany. Turkish immigrants started settling in that country in the early 1960s as part of a guest worker program. Now ethnic Turks comprise 3.7 percent of Germany’s population. A half-century after their arrival, as a whole they earn less, are less educated, suffer higher unemployment, and have much higher welfare dependency compared with native-born Germans. Even more significantly, according to a 2010 study, not first but second-generation Turkish immigrants have a higher propensity to be welfare dependent than native Germans.

The Turks’ experience in Germany suggests that Europe’s current large influx of Middle Eastern and North African immigrants will expand the low-income and welfare-dependent population of Germany and other European nations, thus worsening income inequality both in the short and long term.

Of course, not all of the immigrants are or will remain low-income. A portion of them and/or second-generation immigrants eventually will join the ranks of the professional and high-income groups.

In fact, mass immigration often results in more people on the higher end in addition to more people on the lower end of the income spectrum. Certain immigrant groups are sometimes considerably more economically successful than other such groups – and more so than the established population. In the United States, the highest income group is now Asian-Americans, and Indian-Americans in particular with a median household income of $86,135 as of 2010. Mexican-Americans’ median household income is less than half that. (The difference may not be so much a function of culture, but of proximity to the U.S. – it’s a lot easier for poor Mexicans to make the trek to America than it is for poor Indians.)

While mass immigration into a wealthy country often exacerbates inequality within that country, it reduces inequality from a world perspective. Immigrants may be classified as low-income in their new countries, but their incomes typically are a lot higher than what they were in their country of origin. The United Nations Development Programme estimated that migrants moving from developing to developed countries enjoy a 15-fold increase in income on average.

But leftists are almost always referring to income inequality within a specific country, such as President Obama when he bemoans U.S. inequality.

He can rail against inequality, and he can rail against efforts to curb legal and/or illegal immigration, but he can’t rail against both and still be taken seriously.

 

(Originally published in Newsmax.com)

Envy and Resentment Often Lurk Just Below the Surface

Envy is one of the most pervasive human emotions, yet it’s rare that you find someone who admits to it. But someone just did. In a WSJ article the author, Lee Siegel, compares the rise of Asian-Americans with that of Jewish-Americans. He writes,

Some of the more vehement attacks on Amy Chua’s deliberately provocative 2011 memoir of child rearing, “Battle Hymn of the Tiger Mother,” were perhaps fueled by resentment of Asian-American ascendancy, especially in the context of raising “perfect” children. Confession: I was one of the book’s more vocal detractors. Was I, a Jewish-American writer, driven to pique, in part, by a member of a group that threatens Jewish-American cultural domination, just as American Jews once threatened the WASP mandarinate? Well, maybe.

Wow. Thank you Mr. Siegel for your honesty in admitting that your earlier criticism of Amy Chua’s style of child-rearing was partly fueled by a resentment (i.e. envy) of Asian-American ascendancy. (And it’s a bit ironic that this is coming from someone who’s part of a group that often itself is a target of envy and resentment.)

This is so revealing – and not just in Siegel’s case. One extrapolates that many opinions and observations that one comes across in the media and elsewhere actually derive from selfish and petty human foibles, rather than from substance. It shows that everything should be taken with a grain of salt. The next time one comes across a scathing criticism of Mitt Romney or whoever, one should ask whether the person doing the criticizing has too much envy running through his or her veins.

* * * *

On another but related subject, the article points out that Asian-Americans, to their credit, enjoy the highest incomes of any racial group in the United States. And as well they should, thanks to their admirable focus on education and hard work. (One example is that, in my local area and I’m sure elsewhere, Asian-Americans far more than Americans of other extractions send their children to academics-focused summer school. And that makes perfect  sense. Three months of summer vacation is an anachronism – based on the desire to let children work on the farms back when we primarily were an agricultural society. America never fixed that, and now it’s practically impossible because the teachers unions would be so resistant. Even though they mostly enjoy good salaries for working only nine months of the year — like Chicago where they earn $75K — were we to propose a 10 or 11 month school year, the unions would of course demand a big salary increase to compensate for it. And that would be too expensive so it’s unlikely that it ever would fly.)

The statistic in the article that Asian-Americans enjoy the highest incomes reminded me of a class-warfare-laden “infographic” about a year ago in LiveScience focusing on the top 1 percent (yes, it was class warfare in what should be a science-focused publication), which I wrote about previously. It included a bar graph of average incomes of racial groups in America: white, black, and Hispanic. It showed that whites had the highest incomes – and the tone of the graphs did not put people with high incomes in a favorable light. But it conspicuously left out average incomes of Asian-Americans.

That no doubt was because the writers and editors of the publication wanted to convey the impression that the inequality and other ills of America stem from the actions of upper-income white Americans. In the context of that infographic, it would have been very politically incorrect to show that a minority group actually has higher average incomes than those of European extraction. So they simply left out that inconvenient fact. It was one of the most blatant examples of journalist malpractice I had ever seen.

Romney/Ryan the “True Progressives”?

The Economist magazine has an article on how to reduce inequality while maintaining economic growth. They call it “True Progressivism”. Among their prescriptions are:

* Eliminating tax subsidies for the wealthy like the mortgage interest deduction
* Means testing of entitlements, which Republicans always propose but Democrats always shoot down
* Cracking down on teachers unions
* Ending government bailouts of big companies

Wow – who would have thought Romney/Ryan are the “True Progressives”?

Not unexpectedly, in the article The Economist doesn’t t admit that the above prescriptions are much closer to the Romney agenda than the Obama agenda – in fact they’re anathema to the Obama agenda.

What’s wrong Economist? Can’t you bring yourself to say that in order for these things to have a shot at happening, Romney/Ryan are the way to go?

Waiting with baited breath to find out who The Economist endorses this time.
Update: Wouldn’t ya have guessed it: they endorsed Obama.

Why the Status-Conscious Would Want to Tax the Rich

Three common reasons for wanting to raise taxes on the rich include: 1) that’s where the money is, 2) envy, and 3) envy-avoidance.

A fourth reason for wanting to raise taxes on the rich: to boost one’s social status. Or more accurately, to mitigate one’s (perceived) inferior social status.

Lots of people are status-conscious. They strive for more and better material goods (and services) and/or higher pay in an effort to gain more respect and feel good about where they stand in relation to others. “Money often translates into the respect of others and high social status, and so even those who don’t want many worldly goods may want a high income for the respect it brings,” write Ed Diener and Robert Biswas-Diener in their book Happiness: Unlocking the Mysteries of Psychological Wealth.

In a study, Harvard economists David Hemenway and Sara Solnick asked respondents if they would rather earn $50,000 a year in a society where others are making $25,000, or earn $100,000 a year when others are making $200,000. Fifty-six percent chose the former – i.e. being relatively poorer at $50,000 a year, only because of the higher social status that would entail.

This implies that lots of people no doubt hate it when other people earn more than them, not necessarily because of envy, but because it means they feel less respected than the person earning more. It’s a type of inferiority complex. In order to gain more respect – or more accurately, in order to feel less disrespected – they’d really like to bring those wealthier persons down a notch or two.

What better way to do that than to – you guessed it – raise taxes on the rich?

My hypothesis is that this is another reason why you find a lot of wealthy Democrats: because even though they’re wealthy or upper-middle class, there are still a lot of folks wealthier than them. And they may desire higher taxes on the rich particularly if their taxes would stay the same or wouldn’t rise as much. Of course, this doesn’t apply to all wealthy Democrats, but it likely applies to some of them. They’re just like the people in they study who wouldn’t like to be earning $100k while others are earning $200k.

Another implication: while the left would have you believe that left-leaning people don’t care as much about wealth or materialism or staying ahead of the Joneses, a lot of them surely do. The more you care about such things, the more likely you are to be status-conscious, and therefore the more likely you are to want to reduce the higher status of others in order to gain more (perceived) respect for yourself.

Of course, in addition to wanting to raise taxes on the rich because of envy, this “status inferiority complex” as I call it would be a selfish, shallow, and immature reason for wanting to do so. That’s why I suspect that testing this hypothesis would be difficult: few people would admit to it. But it still could be possible, perhaps by surveying psychologists based on what they’ve gleaned in therapy sessions, or by surveying people themselves with the hope that some of them would be brutally honest in their answers. This is a long shot but hey reader, if you’ve ever felt that way, please share your thoughts in the comment section below.

On the flip side, if the above is true, then it’s plausible that some wealthy folks resist higher taxes on them due to a status superiority complex, a.k.a. snobbery. And they likely would harbor both a status superiority complex and a status inferiority complex simultaneously, assuming there are still people richer than them. But if raising taxes on the rich is bad policy anyway – which it usually is because it disincentivizes production thereby harming economic growth and thus harming everyone – then the societal consequences of a status superiority complex aren’t near as harmful as a status inferiority complex.

Meanwhile, in the first paragraph of this article you’ll note that I didn’t include “reducing inequality” in the list as to why people want to raise taxes on the rich. This is because it’s implied in the other items in the list.

Surely inequality would be bad if we lived in a zero-sum society where the rich get richer through wealth coercion – i.e. stealing from the poor and middle class and thereby making the poor poorer. But we live in a positive-sum society where the vast majority of those who are rich got that way through wealth creation, not wealth coercion. The history of America is the story of the rich getting richer and the poor and middle class getting richer. (Of course there have been some years where the poor have gotten poorer, like now during the Obama years, but it’s certainly not because of wealth coercion by the rich, but because of a relative lack of wealth creation.)

So regarding inequality, who cares if the rich get richer as long as everyone else gets richer as well?

I’ll tell you who cares: the envious, the envy-avoiders, and the status-conscious.

OWS Hits Freddie Mac. Only 10 Show Up.

Good news and bad news for Occupy Wall Streeters.

The good news is that they’re still hangin’ on. Today they protested in front of Freddie Mac. The bad news is that, according to my source, only about ten of them showed up.

But there were a couple of police cars there and that made it seem like it was a bigger thing than it really was, says my source.

Apart from that, I’m kinda surprised it was OWS that made noises outside of Freddie Mac, and not their counterparts on the other side of the political spectrum, the Tea Partiers. Freddie Mac seems a much more appropriate target for Tea Partiers than OWSers. I guess the latter’s beef is the envy factor, over bonuses. The Tea Partiers should have been there protesting more legitimate issues, like these.

Further Insight on Why the Rich Get Richer

You’ll never believe who presented a good explanation of why the top 1 percent’s income has risen faster than that of other groups: Bill Moyers.

Moyers cited one Dieter Braeuninger, who points out that rapid technological change is resulting in a shift to more technology-intensive production methods, i.e. automation, and thus higher demand – and higher pay – for for highly-skilled workers who are able to operate such technology. Those smart enough to invest in such technology enjoy a higher payoff as well. Braeuninger adds, “The supply of basic labor has increased enormously… As long as less-skilled workers cannot shift to more productive tasks, increasing income inequality remains a threat.”

In other words, it’s differences in education levels, and an oversupply of low-skilled labor, that explain inequality, not sinister plots by the rich.

And even then, in the U.S. the lower-income groups’ incomes have risen over the past few decades – just not as fast as the higher-income groups. If people are all bent out of shape over the poor getting richer while the rich get richer faster, then your problem is an oversupply of envy. The solution isn’t taxation, but education – not only educating people to acquire the skills of the modern technological world, but also educating the enviers on why they should let go of such a destructive and useless emotion.

Moreover, the rich have been getting richer at least since the dawn of agriculture, some 10,000 years ago. Since then, and especially in the past few hundred years, humans have been continuously adopting more technology-intensive methods requiring higher skill levels. We’ve gone from hunter-gatherer societies where people’s incomes were more equal than today – and equally poverty-stricken – to a highly complex economy requiring an immense differentiation of tasks and skill levels (and thus pay levels).

That said, Moyers also turned to a usual suspect, Robert Reich, who preposterously implied that the rich get richer at the expense of everyone else – by taking away the money of the nonrich. Reich writes, “Now, when they’re taking home that much, the middle class doesn’t have enough purchasing power to keep the economy growing.” Of course he doesn’t explain how such a process would work. The absence of such explanations is a common occurrence among the left. It’s one of the things the prompted me to abandon them long ago.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acumen Courtesy of Thomas Sowell

From “Democracy Vs. Mob Rule”

“Greed” says how much you want. But you can become the greediest person on earth and that will not increase your pay in the slightest. It is what other people pay you that increases your income.

…Maybe some of the bankers or financiers should have turned down the millions and billions that politicians were offering them. But sainthood is no more common in Wall Street than on Pennsylvania Avenue — or in the media or academia, for that matter.

Actually, some banks did try to refuse the government bailout money, to avoid the interference with their business that they knew would come with it. But the feds insisted — and federal regulators’ power to create big financial problems for banks made it hard to say no. The feds made them an offer they couldn’t refuse…

…As for the “top one percent” in income that attract so much attention, angst and denunciation, there is always going to be a top one percent, unless everybody has the same income. That top one percent has no more monopoly on sainthood or villainy than people in any other bracket…

Moreover, this is not an enduring class of people. Nor are people in other income brackets. Most of the people in the top one percent at any given time are there for only one year. Anyone who sells an average home in San Francisco can get into the top one percent in income — for that year. Other one-time spikes in income account for most of the people in that top one percent.

You May Be In the Top 1 Percent of the World

I have a confession to make.

If you’re a fan of Occupy Wall Street, I hope you’ll cut me some slack, once you learn of my status.

Here goes (takes a deep breath):

I’m in the top 1 percent of income earners – of the world.

Yes, we’re talking about the big leagues, here. When I set my sights on something, I aim for the world. None of this USA-only stuff.

I bet you’re thinking, “Tax the heck out of him.”

But actually, you may be a 1 percenter, too.

You definitely are, if you take into account all the people who’ve ever lived.

For the scoop, click here.

 

The New Demagogues

Have you ever come across people who trumpet statistics saying that Jews have a disproportionate share of the wealth? Those statistics may be right, but usually the person spouting them is prejudiced against Jews.

What they do is tout certain statistics without providing the right context or explanation, such as the fact that Jewish parents really emphasize education more so than people of other religions, resulting in their children having higher incomes when they become adults. They should be admired, not vilified. It’s a similar situation with Asian-Americans.

Now, media outlets, as well as President Obama and many others, are trumpeting statistics showing that in recent decades, the top 1 percent’s income has risen much faster than that of the other 99 percent.

To tout statistics like this without providing the right context is like anti-Semitic people touting statistics showing that Jews have a disproportionate share of the wealth. The people in the media and the President are prejudiced against the rich.

Just as the demagogues of old whipped up envy, prejudice, and hate against the Jews, President Obama and his enablers are doing the same against the rich.

(For context regarding the top 1 percent statistics, click here.)