The Rich Get Richer and the Poor Get Richer

Here’s a comment I posted in response to an article in The Economist, “The 99 Percent”:

It’s surprising, and encouraging, to see that the income of even the lowest quintile rose over the past 30 years. You’d think with the millions of low-skilled, non-English-speaking immigrants pouring in, the income of the lowest quintile would have declined, since income inequality is mainly a function of differences in education/skill level. The question is, will rising incomes of even the lowest quintile be a thing of the future, as it was of the past?

If it doesn’t last, it certainly wouldn’t be the fault of the top 1 percent. If wages of the lowest-income groups decline, the culprit would be an oversupply of low-skilled (many of whom are non-English-speaking) labor.

Meantime, if everyone’s incomes go up – as has happened over the past 30 years – then that’s a good thing. Only the envious are troubled by the fact that the incomes of the rich have risen faster than everyone else.

If you earn $20,000 a year, and your real income goes up to $25,000 a year, that’s good, right? But what if you hear that someone else’s income goes from $100K to $150K? If you’re the envious and resentful type, you’d be troubled. If you’re emotionally mature, you wouldn’t be troubled.

Moreover, rising incomes of the rich isn’t happening at the expense of everyone else (except perhaps in the case of those who get their wealth through wealth coercion as opposed to wealth creation, such as certain members of the legal profession). It isn’t a zero-sum economy. It’s a positive-sum economy where many wealth creators get rich themselves, and in the process make everyone else’s life better through life-enhancing products (software, electronics, appliances, foods, etc.) and services. So the top 1 percent not only provide the jobs to the 99 percent, but also the life-enhancing products.

Factors causing the 1 percent to get richer faster include globalization, where markets are now much bigger than they were in the past and where one can therefore sell many more products than before. Another factor is population growth – now there are 7 billion of us. If you make an inexpensive product costing $1 and sell it to just one-seventh of the population, you’re a multi-millionaire, perhaps a billionaire if your costs are low.

Is it the top 1 percent’s fault that powerful forces such as globalization and population growth are changing the income dynamics?

The enviers want to raise taxes on the rich in order to try reverse the income inequality statistics. But the rich provide the jobs. They provide the products that enhance our lives. They provide the money so that we can get loans to by cars, homes, and education.

Punish the rich, and you punish us all.

For more on this topic, click here.

 

LiveScience Should Examine the Science of Envy, Using Itself as a Research Subject

Here’s a comment I wrote in response to a LiveScience article titled “5 Facts about the Wealthiest 1 Percent”:

“Hey LiveScience, have you ever thought about writing an article about the science of envy?

For manifestations of envy, you could point to this very article. It plays on people’s envy. It clearly implies and assumes that rich people getting richer is an inherently bad thing. But what if the rich get richer while the lower-income groups get richer as well (which by and large was happening until the Obama years)? That’s a good thing. Only the envious would think it’s a bad thing. And envy is an immature and destructive emotion; one should not base public policy on it.

And by the way, it is probably true that wealth inequality is rising. But wealth inequality is mainly a function of inequality of education. Our educational system is breaking down and our dropout rate is high, resulting in millions of uneducated, unemployable, and low-income people. And our lax immigration policies are resulting in millions upon millions of uneducated people arriving here from the third world who can’t even speak English. Do you expect them to be instantly rich or middle-class as soon as they cross the border? Of course not.

So you should have discussed the main factor that is causing rising income inequality, namely inequality of skill levels.

The ironic thing is that people on the left wail the loudest about inequality, yet it is they, through their support of near-open borders, of education-stifling teachers’ unions, and of job-destroying anti-business policies that give rise to worsening inequality in the first place.

Meantime, hey Natalie Wolchover (author of the article). I’m curious. Are you an envier? From the tone of this article, it appears so.”

And here’s a comment I posted in response to another LiveScience article titled, “Who Has the Money and Power?”

“Hey LiveScience, you should run an article on the science of envy. For manifestations thereof, you could point to your own articles such as this one, which really play on people’s sense of envy. The material here conveys the false impression that the rich are sinister and conspiring to hold the rest of us down. The graphs are really biased, too. Did you know that the top 1 percent’s income has actually substantially declined during the last few years, during the anemic economy? Nah – that wouldn’t jibe with the agenda you want to promote.

It’s also telling that in your race chart, you left out Asians, who have the highest income and net worth. I guess that would have been politically incorrect, eh? After all, you want to make it look like the evil white folks have all the money and power. Not that there’s anything wrong with Asians being the wealthiest race — they should be admired for that.”

Top 1 Percent Demonization, and Nobel Prize Devaluation

For an account of one of the most clear-cut cases of demagoguery in recent times, click here.  The demagogue scapegoats and demonizes a group of people without providing any evidence whatsoever. He doesn’t just say that what they’re doing is resulting in bad things (which isn’t happening). He indicates that they fully intend to do the bad things. Tragically, the demagogue is a Nobel Prize recipient – named Joseph Stiglitz.

That tells you something about the caliber of certain Nobel Prize recipients these days. In other words, when you hear that someone is a Nobel Prize recipient, don’t ooh and ahh. Instead, say, “yea, so?”

Punishing the Wealthy Punishes Us All

(A previous version of this article appeared in The Christian Science Monitor.)

Lest there be any confusion about the overarching philosophy of Barack Obama, his presidential campaign and his policy proposals thus far have cleared that up: income redistribution and penalization of the rich. Though emotionally appealing to many, this philosophy hurts all Americans in the long run.

Pre-presidency, from his remarks on using the Supreme Court to redistribute wealth, to his “spread the wealth” comment to Joe the Plumber, to his plans to cut taxes on all but the top 5 percent of workers, Obama’s strongest and most consistent campaign message was that the rich aren’t taxed enough. His actions – and inactions – as president have borne this out. They include attempts to reduce a tax deduction for charitable contributions by high-income taxpayers, increase various taxes on various industries and on large estates, allow the top two income tax rates rise to 36 and 39.6 percent respectively in 2011 when the Bush tax cuts expire, and lower the already-modest amount of taxes the bottom 50 percent of income earners pay, and increase subsidies to them.

The most alarming proposal is in the latest health care bill, which phases out health benefits as one’s income goes up. When combined with other tax policies, it would amount to an estimated 70 percent marginal tax rate – i.e. for each additional dollar you earn, 70 cents of it is taxed away.

This is a true class warfare-style strategy: punishing the rich and rewarding the non-rich. It would be terrible for our economy and hurt the rich, poor, and middle class alike.

The reason America’s standard of living is high – and why our poor would be considered middle class in the majority of other countries – is because we produce so many goods and services per person. Monetary rewards, and/or a desire to break out of one’s current economic class, are largely what motivate us to produce those goods and services.

Raising taxes on the rich reduces those monetary rewards, which in turn lowers the incentive to work harder or smarter. That’s bad enough. To raise taxes on the rich while reducing them on the middle class – and increasing subsidies to the middle class – reduces that incentive even more.

It’s akin to your boss cutting your pay if you put in longer hours, and raising your pay if you work shorter hours.

Actually, lowering taxes on the middle class and raising them on the rich harms economic growth even more than leaving middle-class tax rates in tact while raising them on the wealthy. It results in a higher marginal tax rate – the tax rate on what you earn above a certain dollar amount. It is marginal tax rates – not overall tax rates – that so affect our incentive to produce. Why put in extra work if the extra income that comes with it is going to be taxed higher?

As the Wall Street Journal noted, “small-business people – and the number of small businesses – live or die by marginal rate changes.”

A study by Martin Feldstein and Daniel Feenberg of the National Bureau of Economic Research found that following the 1993 tax increases, high-income taxpayers reported 8.5 percent less taxable income that year than they would have if their tax rates had not increased. This is largely because, along with shifting compensation from taxable cash to untaxed fringe benefits, people such as the self-employed and senior executives can reduce their taxable earnings by a combination of working fewer hours and taking more vacations – i.e., fewer goods and services produced.

The ill effects of slower economic growth particularly play out over the long term. Europe, with its high marginal tax rates, serves as a good example. In 1973, per-capita income for the United States was about 26 percent higher than that of Germany. After three and a half decades of slower growth in Germany, the gap had widened to 32 percent. The numbers for France are similar.

Per-capita income of Germany and France is about the same as that of our least-wealthy state, Mississippi. A study by Edward Prescott of the Federal Reserve Bank of Minneapolis concludes that Europe’s higher taxes account for almost all the difference in labor force participation rates between Europe and the United States. As taxes have risen over the past three decades, European workers have responded by working less.

There are plenty of other good reasons not to penalize rich people. They are by far the biggest savers. Were it not for their savings, there would be little money available for the rest of us for housing loans, education loans, or car loans. Funds for productive investment by businesses also would be scarce. And most people owe their jobs to a rich person – the owner of the business they work for. (Though many business owners certainly are not rich.)

It’s not as if the rich are undertaxed. According to 2007 figures – the latest year of available data – the top 1 percent of taxpayers pay 40 percent of all individual income taxes. The left lambasted the Bush tax cuts because the top 1 percent’s taxes were reduced along with those of everyone else who pay taxes. Well of course – if you cut taxes on everyone, people paying most of the taxes will be affected.

Barack Obama’s message is loud and clear: penalize the wealthy, and reduce the incentive to become wealthy. That would harm the long-term well-being of Americans of all stripes.

Patrick Chisholm is editor of PolicyDynamics.

Envy Management

(A previous version of this article appeared in The Christian Science Monitor.)

The top 1 percent. Tax cuts for the rich. Wealth and privilege. Those are powerful phrases. Powerful because they appeal to one of the most prevalent and universal of all human emotions: envy.

The politics of class warfare will always be with us because envy will always be with us. Though no one ever admits it, this emotion is undoubtedly a factor behind some people’s support for higher taxes on the rich. Taken to extremes, it in large part gave rise to degenerative ideologies such as communism and even anti-Semitism. It is also the basis of many wrongs, small and large, that people commit in their everyday lives.

Where did envy come from in the evolutionary scheme of things? My initial conjecture was that it is so prevalent today because humans are not biologically “programmed” for industrialized societies, in which specialization and the division of labor necessitate differences in incomes. Millions of years of evolution designed us to live in hunter-gather societies, where everyone generally was in the same boat economically.

But that conjecture was wrong. Helmut Schoeck’s classic Envy: A Theory of Social Behavior makes clear that unchecked envy was actually far more common in pre-affluent societies. There are plenty of things other than economic status to get envious about, such as someone’s leadership position, hunting skills, social skills, or access to members of the opposite sex.

And in fact, envy based on economic differences was very pronounced in such societies. Small differences in incomes rather than large ones actually are more often a cause of envy. Within a given group, whenever someone accumulated a disproportionate amount of assets based on skill or hard work (or luck), that person often would be ostracized and/or his possessions confiscated. It is one reason why primitive societies stayed primitive; no one was permitted to get ahead economically. “No one dares to show anything that might lead people to think he was better off,” writes Schoeck. “Innovations are unlikely. Agricultural methods remain traditional and primitive, to the detriment of the whole village, because every deviation from previous practice comes up against the limitations set by envy.”

Among the Mambwe, an African tribe, achieving success brought accusations of sorcery. Villagers were convinced that that if someone regularly produced a better crop than his neighbors, it was not the result of better cultivation methods, but of sorcery. Successful people were looked upon as sinister, supernatural, and dangerous.

Sound familiar? In our society, those who become rich through working hard and producing things of value are often suspected of getting where they are through devious means.

A comment by the actor Ethan Hawke, brought up by a “socially conscious” mother, is telling: “I was raised to have a general mistrust of anybody who was wealthy,” he told an interviewer.

Only in societies where enough people hold their envy in check can economic advancement take place. Ours is one such society. In fact, I would venture to guess that envy is less prevalent in the United States than in any other society, which is one reason why we’ve been so economically successful.

Of course, Americans are still subject to the same laws of human emotion as everyone else, so one does not have to look hard to find manifestations of envy. Politicians exploit that emotion all the time. Notable was Al Gore’s “top 1 percent” mantra during his presidential campaign, presidential candidate John Edwards and his “two Americas” rhetoric – “one privileged, the other burdened,” and President Barrack Obama’s plans to raise taxes on the top five percent.

One may ask, how could Gore, Edwards, and Obama, who are wealthy themselves, be envious?

First, they may not be, but exploit the fact that plenty of other people are. Second, maybe it’s guilt. Many wealthy people engage in class-warfare-style thinking because they feel ashamed about their possessions, or don’t want to be the object of envy, according to Schoeck. Third, the rich can be envious of those who are even richer. A Fortune magazine cover a few years ago playfully betrayed this sentiment. It featured business magnate Richard Branson with the sub-headline: “The Money. The Family. The Island. (Damn him.)”

The great conundrum is how the emotion of envy ever got programmed into our brains during the course of evolution. “What adaptive value could envy have had in the prehistoric past?” asks author and psychiatrist Willard Gaylin. “None that I can imagine, for it never brings gratification.” Envy represents a vicious and hateful resentment of people, he writes, that is independent of their actual encroachment on one’s pleasures.

Thoughtfulness and reason can do much to counter the emotion of envy. It is useful to realize, for example, that rich people are the ones responsible for providing most of the rest of us with jobs, products, and (through their savings) loan money to buy a house or go to college.

Those feeling the pangs of envy coming on should ignore it. Laugh it off. Lie down until the feeling goes away. Recognize it as a useless emotion that never produces any benefits, and that causes untold woes.

Patrick Chisholm is editor of PolicyDynamics.