WEALTH INEQUALITY: THE HOBGOBLIN OF THE LIBERAL MIND

Wealth Inequality: The Hobgoblin Of The Liberal Mind

by Jim Greenfield

 “A foolish consistency is the hobgoblin of little minds.”  Ralph Waldo Emerson

 President Obama has sought to distract attention from the Obamacare train wreck, and the consequent election disaster looming for Democrats, by harking back to the favorite perennial shibboleth of governmentalists everywhere: wealth inequality.  (The term “governmentalist”  includes all statist ideologies: liberal, progressive, social democrat, socialist, or communist because frankly I can’t tell much difference between ‘em.)  The specter of “wealth inequality” is ever lurking in the background whenever governmentalists of every ilk discuss domestic policy.  Wealth inequality is what all liberal/progressive policies are about.  They always want to raise taxes on the rich, i.e. anybody who makes more money than whoever happens to be speaking, and always want to give more government handouts to the “needy.”  The wealth levelers’ solution to the inequality problem is always the same: expand the power of politicians and government bureaucrats by redistributing wealth. 

 The irony is that the most prominent governmentalist in the world, Barrack Obama, has done more to increase wealth inequality than anyone in history.  Under the policies of the Obama administration, median household income, i.e. the wages of middle and working class families, have significantly declined.  Median wages are down 4.4% or $2400 per year per family since Obama took office.  (see Robert Pear, New York Times online 8/21/13). 

 As working class wages have gone down, the stock market has soared.  The Dow closed on 2/28/14 at 16,321, two and a half times higher than its bottom of 6,547 in March of 2009, shortly after Obama took office.  During the same period, the S &P 500 has risen 2.75 fold.  In other words, the investor class has seen their portfolios go up by more than 250% during the same period that middle class working folks have seen a substantial decline in their wages.  Paradoxically, this huge increase in wealth inequality has taken place under a President who loudly proclaims that wealth inequality is the most important problem of our time.

Why has wealth become so unequal under Obama?  Because  the Obama Administration has an array of  anti-business policies including higher taxes, an exploding national debt, expanding government regulation, higher welfare state spending, and, of course Obamacare.  These anti-business policies have not hurt crony capitalists and the super-rich, but they’ve hit the middle class hard, damaged small main street businesses, discouraged hiring, and depressed wages.  At the same time the Federal Reserve has pumped literally trillions of dollars of digitally created currency (not to be confused with bitcoin) into large banks and wall street firms, driving up stock and bond prices.  The Fed stimulus of these asset classes have made the rich richer, insulating them from Obama’s depressive policies that have so afflicted middle class working folks.   

But my purpose isn’t to criticize Obama policies that exacerbate wealth inequality, or to highlight the ironic hypocrisy of Obama’s de facto war on the middle class.  Because the truth is that “frankly, my dear, I don’t give a damn” about wealth inequality.  See I don’t share the governmentalist view that wealth inequality is a huge problem.  For governmentalists wealth inequality is just another excuse to expand government power even further, in the name of leveling the playing field, fairness, equality, or some other lovely sounding egalitarian principle. 

 But the inconvenient truth is that egalitarian governmentalist policies don’t actually reduce inequality.  All they do, in the name of equality, is change the rules about who gets to decide who gets rich and who stays poor.  Those at the top of the most egalitarian systems, communist paradises like North Korea, Cuba, or the former Soviet Union, are fabulously wealthy compared to the rest of the population, just like the titans of industry in capitalist countries.  The difference is that in socialist and communist countries the super rich acquire their wealth through the exercise of political power, whereas in America guys like, say, George Soros, Warren Buffett, Al Gore, the Clintons, the Bushes, or the guys who started Solyndra, acquire great wealth without political influence.  Just kidding.

 Actually, the unfortunate truth that political influence is a path to great wealth even in a capitalist country like America is an outgrowth of two factors.  First, America isn’t really a capitalist country.  Not any more.  Forty percent of our gdp is now appropriated by the public sector and is therefore essentially socialistic.  And the other sixty percent is heavily regulated and otherwise intertwined with government.   What we have isn’t capitalism; it’s a mixture of socialism and crony capitalism, with a few vestiges of real capitalism.  Crony capitalism is easily confused with true capitalism, thereby giving capitalism a bad name.  Second, the truism that political influence begets wealth is just the way it is, and always has been.  This kind of corruption can’t be entirely eliminated but the best way to keep it in check is to limit the power of government and the politicians who control it.  Unfortunately the concept of limited Constitutional government is now regarded by the ruling classes as an antiquated and out of vogue notion, which also happens to be an assault on their power.  Those of us who advocate Constitutional limits on government power are called extremists and told we lack “compassion.” 

 The argument against wealth inequality, and by implication in favor of using government power to redistribute wealth, exploits intrinsic human sensibilities about fairness.  Most of us intuitively feel that it’s unfair for Bill Gates to have $69 billion, while children starve in the streets.   Liberal radio talk host Mark Levine recently confronted me with a stark example.  Is it fair, he asked, that the old miser Scrooge from Dickens’ “Christmas Carol,” should have millions, while the poor crippled boy, Tiny Tim, can’t afford surgery to correct his congenital condition?  As the “right wing” guest on Mark’s show, it was my unpleasant job to take Scrooge’s side of the argument.   

 It’s hard to make Scrooge’s unsympathetic case in a 30 second soundbyte.   I concede that it isn’t “fair” that Scrooge hoards his fortune while poor Tiny Tim is left to die.  But here’s the problem.  Who decides what is fair?  Is it fair to have the government take Scrooge’s money and use it to create Medicaid, or, for that matter Obamacare?  Before you answer keep in mind that if the government takes Scrooge’s money, it won’t be long before they’re taking your money also.  And they won’t just give it to Tiny Tim; they’ll give it to all kinds of unsavory people for all kinds of unsavory reasons.   

 If you compare the fairness of laissez faire capitalism, where the Scrooges, Rockefellers, and Gates’s accumulate vast fortunes, while the Tiny Tims die from lack of care, with some Platonically ideal and idyllic world where everyone cares for his brother, and all men are really equal, capitalism comes up morally short.  But in the real world those aren’t the real choices.  In a free market system wealth is allocated according to a combination of the vicissitudes of market place skills and good luck.  You may well feel that such an economic system is unfair, but what do you replace it with?   In the real world the only alternative to free markets is a political economic system where government bureaucracy re-distributes wealth in accord with the dictates of self-interested politicians.  Do you think the results are any fairer? 

 In the real world government is the worst possible institution to place in charge of administering charity to Tiny Tim and other misfortunates.  I’d rather work on old Scrooge and persuade him to part with some of his money voluntarily, which, by the way, is exactly how the “Christmas Carol” story turns out.  And in the real world, the fabulously wealthy from Andrew Carnegie, Henry Ford, and Rockefeller to Bill Gates and Warren Bufftett have been generous philanthropists.  So my question for redistributionists and wealth levelers is this: Do you think the government does a better job of administering charity than philanthropists, private churches, and charities?

 The welfare state began in America in the 1930’s and has been steadily expanding ever since.  We have 80 years of data, and the results are in.  Massive government hand-outs of benefits and cash has been an unmitigated disaster.  What governmentalist ideologues and welfare state advocates fail to take into account is that the politicians who take upon themselves the unbounded field of power to decide who gets what and who has to pay what, have motives that aren’t entirely altruistic.  Doesn’t this minor detail occur to those who advocate the massive government hand-outs of the welfare state?  Do you think the men to whom you grant this awesome power are angels with pure motives?  Is it not more likely that they will use this expansive power over the allocation of money to reward their friends, punish their enemies, hand out cash to those who give some of it back to them, and buy the votes of the masses with benefits and promises of benefits?  If power corrupts why are we surprised that a government that has accumulated so much power has also become so corrupt?  After decades of observing the failures of the welfare state, how can anyone still believe that such a corrosive system can produce positive social benefits?

 To illustrate the problem consider an example.  Imagine you’re part of a group of 100 people who move to a desert island.  Your group decides to democratically elect a government of three people to be in charge of everything, including the power to decide taxes and who will pay them, and to whom wealth will be allocated.  How do you think those three officials will fare?  Everyone will treat them with great deference, and ply them with gifts and favors.  Their decisions about who pays what and who gets what will be largely determined by what is in the self-interest of the three politicians who have been granted all this power.  The public good will be subordinated to naked self interest.  And the level of corruption will grow steadily worse over time.  The model I am describing is exactly what’s gone wrong with the political system in the United States today. 

 Wealth inequality is a bogus issue, a red herring that takes the public policy discourse out of focus.    If you think inequality is a problem let me ask a question that brings the issue into focus.  Suppose we adopted a pro-growth pro-business public policy that over a period of time, say ten years, grew the economic pie including a doubling of the income of people in the bottom 10 percent.  At the same time, however, the income of people in the top 10 percent quadrupled.   In other words, the policy makes everyone wealthier, but overall inequality  increases because the poorest 10 percent have only doubled their income, while the richest 10 percent have quadrupled theirs.  Would you support such a policy? 

 If you answer yes, you are recognizing that wealth inequality in and of itself is not really the problem.  You would like to see the poor become better off, even if the rich become better off at a faster rate.  If you answer no, it means you are truly obsessed with inequality and would favor a society where everyone is equally poor because you believe that inequality is a worse problem than poverty.  If that’s what you believe, you are a communist.  (Not that there’s anything wrong with that.)

 If  you’re now persuaded that wealth inequality is not a problem that government should try to correct, but you are still concerned about poverty, I have a solution.  It’s called free enterprise.  Over the past two hundred years the free enterprise system has liberated billions of people around the world from the grinding poverty bare subsistence struggle for survival that characterized the lives of most people since men first emerged from the trees.  Free enterprise doesn’t create equality; far from it.  But it does create vast amounts of wealth.  And that wealth is distributed  unevenly.  But even those in the bottom tier, and even more so the vast majority of people in the middle class in capitalist societies, have a material standard of living today higher than the kings and emperors of the ancient world.  The vast amount of wealth and material comfort, from indoor plumbing to electric appliances that we all take for granted today, were created by free market capitalism.  Let’s not kill the capitalist goose that laid the golden egg in the futile pursuit of an unattainable goal like equality.

FEAR AND LOATHING IN AMERICA

FEAR AND LOATHING IN AMERICA

The Bogus Shutdown/Debt Crisis

by Jim Greenfield 10/24/13

The crisis isn’t failing to raise the debt ceiling; the crisis is the debt.”   Peter Schiff

The majority is almost always wrong.”    Henrik Ibsen

I’ve been studying public policy and politics for 50 years. Never have I seen such an onslaught of misinformation, disinformation, confusion, and sheer ignorance as the coverage of the recent government shutdown/debt ceiling debacle. If the public is confused, which, according to opinion polls, the public surely is, it is because a cabal of journalists, pundits, and politicians have done everything possible to make them confused. I’m not shocked by demagoguery by politicians, nor by bias in the media. What was unusual was the extraordinary amplification by the media of manipulative messages of particular politicians to create public hysteria, that was so beneficial to one political faction while so damaging to the other.

It’s human nature to panic over imaginary threats, while remaining oblivious to real threats. Remember the existential danger believed to be posed to civilization in 1999 by Y2K? Remember Y2K? Imaginary threat. Or, on the other hand, the real threat posed by Hitler in the 1930’s as he was building the greatest war machine in history and, other than Winston Churchill, nobody noticed.

Myth #1. Who was to “blame” for the government “shutdown?”

Throughout the shutdown fiasco, the media obsessed on the question who was to “blame,” and conveniently provided a simple answer: the Republicans. But the question contains two false premises. First, the assumption that shutting the government is a negative for which someone ought to be blamed. Second, the factually incorrect premise that the government was shut down. The government was not shut down; it continued to function throughout this manufactured crisis. Soldiers continued fighting. The IRS continued collecting taxes. The NSA continued spying and gathering data on us all. The government continued giving out money with abandon to everyone to whom the government routinely gives out money with abandon.

A few functions of government were shut down, functions handpicked by the Obama administration to inflict the maximum pain on the maximum number of people, a slight perversion of the old utilitarian maxim about pursuing the greatest good for the greatest number. Obama’s shut-down targets were optically selected to get the most bang for the shut-down buck – the Washington Monument, Yellowstone National Park, and the Grand Canyon, to name a few. Shutting down the Grand Canyon required a really big canopy.

“Essential” government personnel continued to work. “Non-essential” personnel were given paid holidays. Astonishingly, some furloughed government workers managed to “double-dip” by wangling unemployment benefits on top of the pay they received retroactively for not working. Not a bad deal.

The Obama administration coldly decided that the people in charge of keeping parks and monuments open were non-essential, but the people in charge of closing them were essential. Threatening the citizenry with arrest to keep the parks closed is rotten work, but somebody has to do it. This strategy was manifestly chosen in order, with the complicity of the mainstream media, to convey the compelling message that Republicans are dirty, rotten, scoundrels. Never mind that the House Republicans had passed several bills to fund not only the parks and monuments, but all other government functions except Obamacare. It was the Senate Democrats, led by Majority Leader Harry Reid, who blocked this legislation. These inconvenient facts were not permitted to interfere with the Democratic party/media narrative that it was right wing Republican extremists (i.e those who, like the majority of Americans, oppose Obamacare) who had shut down the government.

This false reporting exacerbated ambivalence and confusion in public attitudes toward government. According to a recent Gallup Poll, 64% of Americans say big government is the biggest threat to the country. If the public is worried about big government, why were they also worried by a reduction in peripheral government functions? These conflicting attitudes are self-contradictory. If the public doesn’t like big government, why wasn’t the debate about who gets the credit for shutting down the government instead of who gets the blame? Why did the public see the modest shutdown in non-essential functions as a crisis? Answer: because the media told them it was a crisis. And if it was the Democrats who refused to vote on measures to keep the government open, why did the public think it was Republicans? Answer: because the media told them it was Republicans.

Myth #2. The government shutdown harmed Americans and caused severe damage to the economy.

President Obama said that the shutdown and threat of national default had inflicted “completely unnecessary damage on our economy.” It’s an article of faith among liberal governmentalists that reducing government spending damages the economy. In one sense, they are correct, but only because of the peculiar way gross domestic product (gdp) is measured. In accord with the dictates of Keynesian ideology, the official definition is: GDP = private consumption + gross investment + government spending + (exports −imports). In other words, the definition of gdp includes government spending. Hence, any reduction in government spending, by definition, reduces gdp. This is putting the rabbit in the hat. Any government can create the illusion of economic growth by simply printing money and spending it, and many, including Barack Obama, have done just that. In the short run, such “stimulative” policies appear to increase gdp. In the long run they are disastrous because they conflate growing government bureaucracy with real economic expansion. Real wealth is created by the private sector making stuff, not by government bureaucrats handing out cash to favored constituents. The historical record shows that reduced government activity is a long term economic boon.

Remember also that just last year the Obamanistas made the same scare-tactic argument that the sequester budget cuts would cause untold damage to the economy. But the horrors Obama and his supporters gloomily prophesied would result from the sequester never materialized. The same arguments and scare-tactic forecasts were also made when the government was shut down in 1995, during a similar confrontation between the Republican-controlled House, and the Clinton Administration. In fact, the 1995 shutdown, and budget trimming measures that followed, produced four straight years of balanced budgets and an economic boom that lasted five years.

Myth #3. By refusing to raise the debt ceiling the Republicans would cause the U.S. government to default on its debt and create a world-wide financial crisis.

Let me break this down. The word “default” has been even more misused and abused than the word “literally,” which, in recent years, “educated” people in the media have been using to mean the exact opposite of what the word actually means. Recent example from Fox Business channel: “These policies will cause the economy to literally flush down the toilet!” For those who don’t know what the word “literally” means, let me put your mind at ease. It’s not possible for the economy to literally flush down the toilet because the toilet isn’t big enough for that to happen.

Innumerable Democratic party politicians, reporters, and media commentators repeated over and over and over again that if the Republicans didn’t vote to increase the debt ceiling, the United States government, for the first time in history, would “default” on its debt. This assertion is a prevarication and a lie! It’s the biggest and most frequently repeated lie since many of the same people were telling us in the last decade that George Bush’s tax cuts were only for the rich. Like the lie about the Bush tax cuts, the “default” lie was repeated so often that most Americans came to believe it.

This “crisis” was manufactured to create fear and dread in the populace for the purpose of driving a particular agenda. Even the President of the United States himself did his best to talk down the economy and spook financial markets. I’ve never before seen a President engage in such tactics, laying the foundation to blame Republicans for the ongoing failure of his economic policies.

So what are the facts that refute the “default” lie? The Democrats and the media conflated not raising the debt ceiling with defaulting on the debt. These are two completely different things. If Republicans had followed through on the threat to not raise the debt ceiling, would that have meant that the government would default, i.e. not pay interest on its debt? No. All it would have meant is that the government could not go even deeper into debt.

By way of analogy, suppose you are $200,000 in debt, and you want to get a loan to go even deeper into debt. The bank says your wife has to co-sign, but your wife, wisely, refuses to “raise your debt limit.” Does that mean you default on your existing debt? No. You can continue to make payments on your existing debt out of your income. In fact, by refusing to co-sign, your wife actually reduces the risk that you’ll default by restraining you from going deeper into debt.

Similarly, if the Republicans in Congress had stuck to their guns and refused to raise the debt ceiling, it would not have caused a default on U.S. government debt. To the contrary, it would have produced an instant balanced budget that would have prevented the President from leading the United States even deeper into debt.

But Democratic politicians, including the President, and many in the media, either through ignorance or malfeasance, told the public that if the Republicans didn’t vote to raise the debt ceiling the U.S. government would default on its debt. As shown by opinion polls, the public believed this patent nonsense. Those who made this argument are ignorant of the simple arithmetic. Here are the numbers. The United States government takes in approximately $3 trillion a year in tax revenues. It spends approximately $235 billion a year on interest on the national debt. In other words, only 1/12th of government revenue is spent paying interest on the debt. So even without raising the debt ceiling, there is virtually zero chance that the government would default on its debt.

Now it’s true that the government would have had to cut spending if the Republicans had refused to raise the debt ceiling. They would have had to cut about $700 billion from the $3.7 trillion budget, i.e. a reduction of about 19 percent.

Who would have decided which spending to cut? President Obama. Would President Obama have chosen to cut spending by defaulting on the debt of the United States? Unlikely. If he had made such a choice, it truly would have created a world-wide economic crisis. But not even Barack Obama would have done anything so reckless and destructive. And if he had, Alexander Hamilton would surely have risen from his grave, and demanded that the President pay the debts of the United States.

To extend the above analogy, suppose, after your wife refuses to increase your debt limit, you have to choose how to spend your limited income. If you choose going to fancy restaurants over paying your mortgage, you’ll default. If you choose to pay the mortgage, you have less money for restaurants, but this isn’t a default. Similarly, if Congress refuses to raise the debt ceiling, the president has to choose what expenditures to cut. Only if he’s a total douche bag would he choose to default on the nation’s debt.

The real risk that the government might have defaulted can be handicapped by looking at prices on short term government bonds during the crisis. According to a report on NPR, the price of $1,000 treasury bonds that came due just after October 17, the deadline for raising the debt ceiling was discounted by only a few cents. This tiny discount demonstrates that bond investors, the most savvy financial experts, were not spooked by the political turmoil; they knew the government would never default on its debt.

Despite the best efforts of Obama and his loyal followers in the press, bond and stock investors never panicked during this fabricated crisis. Now on to the next crisis. Let’s see how the Democrats and media figure out a way to blame the looming Obamacare catastrophe on the Republicans. As long as it’s called “Obamacare” this could prove difficult. Maybe they should rename it “Cruzcare.”