Posted on 11/15/2003 12:10:31 PM PST by Sonny M
I'm starting my economics class now, and my left wing nut of a teacher is making a huge deal about income gap and why its such a terrible thing. I don't see the big deal, can anyone here give me reasons why this is so important and is there anything that can refute this clinton obsessed nut in his obsession to shrink income gaps?
However, of greater danger today are intellectual movements that feed on the exploitation of exploitation. Obviously, these theories thrive in the fever swamp of academia. Critical theory, though somewhat discredited, is founded on the very precept that everything in human life is founded upon exploitation. It is part of a wider movement, so far from being discredited that Supreme Court justices cite works steeped in these theories.
All that said, just because these poisonous theories are threatening our very way of life does not mean that it is mythical to say there have been civilizations structured around an enormously wealthy few surrounded by starving rabble with practically zero hope of improvement.
However, let us assume we are talking about a modern industrialized country with public education. Economists are going to be measuring all sorts of things and some will have access to the reins of power to foist their designs on policy. Those who harp on the income gap will surely call for interventions when the gap gets wider. One must beware of interventions that do more harm than good, especially ones that tend to stifle the self-sufficiency of folks.
It could be useful to study a particular economy identified as a role model because of its steady production of wealth. A significant quantity of poor- to middle-income families will be observed bettering their lives. But at the same time, the income gap may be going through the roof. When interventions are attempted to reduce the income gap, the performance of the economy can then suffer. The poor may not seem to be getting poorer if income is being frenetically redistributed. But the economy will become more susceptible to long recessions.
Without having a specific point to refute, it's difficult to make an argument.
However, here's an example showing how leftists think. Note that for this example I will use ficitious currencies and places, simply because using dollars and America would detract from the point of the example.
In a place called Q-land, the currency is called Q-bucks. In Q-land, the following are true:
1. It costs 5 Q-bucks/year to lead a lower middle class lifestyle.
2. It costs 10 Q-bucks/year to lead an average middle class lifestyle.
3. It costs 20 Q-bucks/year or more to lead an upper-class lifestyle.
A citizen of Q-land, called Susie Q, makes 11 Q-bucks per year, all of which go to her overall lifestyle expenditures. From the above 3 points, we can conclude that Susie Q lives slightly better than an average middle class lifestyle. Now, here's a key point: Susie Q is happy living her middle class lifestyle.
A short distance away from Susie Q lives Reggie Rich. He makes 23 Q-bucks per year. Wow! Clearly he can afford an upper-class lifestyle in Q-land, and Reggie in fact lives an upper-class lifestyle. Reggie is also happy living his upper class lifestyle.
So, both Susie and Reggie are happy, until one day a new person moves into the neighborhood: Larry Leftist. Larry Leftist is a hypereducated intellectual, who has never held a real job, instead spending his entire adult life in the sheltered halls of academia.
One day, Larry and Susie meet, and they have the following conversation:
Larry: "Boy, you sure must be angry at Reggie. He's rich."
Susie: "I'm actually pretty happy with my life the way it is, so I'm not angry."
Larry: "Well, you should be! Reggie makes 21 Q-bucks per year. Imagine how much more you could have if you had 5 of Reggie's Q-bucks!"
Susie: "But those Q-bucks belong to Reggie. He earned them!"
Reggie: "By exploiting average Q-landers just like you!"
Susie: "But I don't feel exploited. In fact I get along with Reggie really well and..."
Reggie: "Shut up! When I say you're exploited, you're exploited!"
Susie: "No, I'm not!"
Larry: "Yes, you are! Reggie bought a brand new Q-mobile just last week, and you're stuck with a 1999 Q-dodge! That enrages you!"
Susie: "No, it doesn't. My Q-dodge runs just fine, and it lets me get to work, go shopping, and visit friends. I'm happy with my Q-dodge."
Larry: "Aaargh! I hate happiness! Look, I'm organizing a group of fellow academics and union leaders. We're going to overthrow this corrupt system, and confiscate all the wealth of rich people like Reggie, who exploit working people like you..."
Susie: "But he doesn't exploit..."
Larry: "Yes he does! Shut up!"
Susie: "I won't shut up! In fact, I think you, your fellow academics and union leaders are only seeking political power, and agitating about the distribution of wealth in society is merely a means for you to attract supporters from amongst society's malcontents!"
Larry: "Oh-oh..."
Susie: "I think you go around stirring up resentment to destabilize social systems like ours in Q-land, so that you and your power-lusting cohorts can step in during a moment of crisis and take control of the government!"
Larry: "Err, can we talk about Reggie's Q-mobile some more..."
Yeah, but an affluent academic leftist like Larry doesn't want to do the dirty work of recruiting those so far beneath his station. It's up to the naive young undergraduates to go into those neighborhoods. ;-)
Very similar conceptions of income and wealth apply within countries, as well as between countries. It is difficult to discuss either tax issues or issues involving social programs without becoming bogged down in controversies about "the rich" and "the poor." Few issues arouse such passions as claims that the rich have been getting richer while the poor have been getting poorer. While there are surely rich and poor people, much of the controversy is not really about those people but about statistical categories and about the social vision evoked by these numbers.How well do the statistical categories correspond with flesh-and-blood human beings, for either "the rich" or "the poor"? Often those in the bottom 20 percent of the income distribution are referred to as "the poor" and those in the top 20 percent as "the rich." But most of the actual flesh-and-blood human beings in both these categories as of a given moment move out of these categories within a decade. Ironically, a study done by left-wing academics at the University of Michigan was one of the first to show this, much to the apparent disconcerting of its authors. They discovered that less than half of the families they followed from 1971 to 1978 remained in the same quintile of the income distribution throughout these years.8 Those people who remained in the bottom 20 percent for eight years constituted just 3 percent of the American population.
This radically different picture produced by following actual flesh-and-blood human beings over time, as distinguished from looking at statistics for a given moment in time, applies not only to "the poor" but also to "the rich." The typical Hollywood movie version of the rich-- someone born in a mansion, heir to a fortune, educated in snooty private schools and Ivy League colleges-- bears little resemblance to actual millionaires studied in the 1990s-- or in the 1890s. A 1996 study found that four-fifths of all the American millionaires studied earned their fortunes within their own lifetimes.9 So did an 1894 study.10 The social origins of a group of individuals with net worths of $10 million dollars each or more was accidentally revealed at a gathering where exquisite food and drink had been prepared for a group more like the Hollywood millionaire or "the rich" of political rhetoric:
To make sure our decamillionairere respondents felt comfortable during the interview, we rented a posh penthouse on Manhattan's fashionable East Side. We also hired two gourmet food designers. They put together a menu of four pâtés and three kinds of caviar. To accompany this, the designers suggested a case of high-quality 1970 Bordeaux plus a case of a "wonderful" 1973 cabernet sauvignon. . . .During the subsequent two-hour interview, the nine decamillionaire respondents shifted constantly in their chairs. Occasionally they glanced at the buffet. But not one touched the pâté or drank our vintage wines. We knew they were hungry, but all they ate were the gourmet crackers.
These multimillionaires were clearly in an unfamiliar setting, based on a lifestyle very different from the way they lived. Unlike Hollywood movie millionaires, most American millionaires do have a lavish lifestyle. The average cost of their automobiles-- $24,800-- is only a few thousand dollars more than that of the average American's automobile and is well below the cost of such luxury cars as the Cadillac or Lexus. Twice as many American millionaires have a Sears credit card as have a credit card from Nieman-Marcus. Most have never paid as much as $400 for a suit. For every millionaire who buys a $1,000 suit, six or more non-millionaires buy one.
In short, neither the rich nor the poor match the classic picture of a class into which people are born, live, and die-- and in which they maintain a lifestyle born of that permanence. The persistently rich and persistently poor, put together, are not a major segment of the American population, though political issues are often framed as if they were. We have noted that only 3 percent of Americans remain in the bottom 20 percent for as long as eight years. Only 3.5 percent of the American population have a net worth of one million dollars or more,15 even though net worth literally includes the kitchen sink, as well as other household assets, clothing, pension fund equity, and other assets that could not be turned into ready cash.
Nevertheless, even with this generous definition, both the rich and the poor--put together-- add up to only 6.5 percent of the American population. Nevertheless, great political and ideological battles are often framed as if these were the central groups in the society, rather than the other 93.5 percent who are in no meaningful sense either rich or poor.
A major factor in both income and wealth is age. The results of the eight-year study at the University of Michigan should not have been surprising. People are eight years older at the end of eight years. Employees have eight years more experience on the job, professionals have had eight more years in which to establish a clientele and a reputation, businessmen have had eight more years to have their businesses become known and to develop networks with other businesses and with their customers. It would be amazing if everyone simply wasted those eight years without advancing. Over longer spans of time, increases in income and wealth become even greater. It has not been uncommon for people in the age bracket from 45 to 54 years old to have at least double the national average income. With wealth, the age differences are even greater. One study showed that households headed by someone aged 55 to 64 average ten times the wealth of households headed by someone under age 35. None of this should be surprising either. Those who have worked for many years tend to have advanced in their careers to higher-paying positions and to have accumulated more assets, whether in the form of money in the bank or a pension fund, or equity in their homes. People in their sixties have persistently had higher incomes than people in their twenties and much higher net worths.
In short, membership in various income brackets tends to be transient, in the American economy at least, due both to age and to the ordinary ups and downs of individuals' careers and of the surrounding economy.
There is a story about someone who was told that a person is hit by a car every 20 minutes in New York City. The response was: "He must get awfully tired of that!" Yet exactly the same reasoning-- or lack of reasoning-- is used when dealing with income and wealth statistics, as if we were talking about a permanent class rather than a changing assortment of individuals. Nevertheless, the concept of "class" is deeply imbedded in the vision of the anointed and has become part of the new secular trinity of race, class, and gender that dominate much of contemporary academic life.
The heavy emotional investment in the vision of the anointed is often demonstrated by the intellectually desperate methods used to try to support it. For example, a great furor was set off a few years ago by statistical data which seemed to indicate that the rich were getting richer, while the poor were getting poorer during the Reagan administration. Putting aside for the moment the question whether these were the same people for the entire 8 years that Ronald Reagan was in the White House, what were these statistics based on? First of all, these data excluded about $180 billion worth of transfer payments going to low-income people. This amounted to more than $11,000 per poor household that was not counted in these statistics. On the other end of the income scale, capital gains were counted in a way virtually guaranteed to exaggerate what gains might occur. . . . .When statistics are handled in this way, then of course the rich will be getting rich and the poor getting poorer, at leasat on paper, regardless of what is happening to actual flesh-and-blood human beings. I would like to propose, as an iron law of statistics, that A will always exceed B if A is exaggerated enough and B is understated enough.
Another great source of statistical disparities about income and wealth are household data. As in so many other areas, it is so easy to think that we are talking about the same thing just because we are using the same word. But, in fact, households have differed in size from one era to another, from one group to another, and from one income bracket to another. For example, there are more than 50 percent more people in households earaning $75,000 and up as in households earning under $15,000. That is one of the reasons for their differences in income: People earn money and more people tend to earn more money. There are more than twice as many income-earners in households earning $75,000 and up as in households earning under $15,000. The top 20 percent of income-earning families supply 29 percent of all workers who work 50 weeks or more per year, while the bottom 20 percent supply just 7 percent of such workers. There are very mundane explanations for many of the statistical differences that the anointed seek to explain in more melodramatic terms.
The rest of the speech has some other interesting points, but I only excerpted the income inequality parts.
Besides envy one has to understand the existential position of most, but not all, academics. All of their formative years they were told how smart they are, they never really left school and they have developed a massive sense of entitlement. Because they teach or know and because they have always seen this as the principal goal in life, they just cannot understand how a mundane business person can make more and have more influence on matters than they.
Don't forget envy. It is also an emotion that usually goes unrecognized by the holder and is vehemently denied by a person who holds it.
PS: There is a famous deceased economist named Pareto who showed that throughout history 20% of the people usually control 80% of the wealth and make 80% of the income. This finding also occurs in all political systems including socialistic albeit you have to recognize the nomencultura of communism didn't own 80% but they did run it for their own benefit. Why this is so is a good thesis topic for a PhD economist candidate.
"I cannot redistribute wealth, but I can distribute misery equally."
So what does your teacher know that Deng Xiaoping did not?
Deng Xiaoping actually tried (and failed) to create economic growth by redistributing income. This was not theory to Deng Xiaoping (unlike your teacher). This was something that was practiced in the "real world" on a very large scale (China). That is to say that there is empirically tested data that disproves your teacher's theory. Where is your teachers data that wealth can successfully redistrubuted while maintaining economic growth and a stable economy?
Well, clearly most people feel that it is a "big deal" (including myself). It would be cool if I made as much money as Bill Gates. But this is only part of the issue. Pointing out a problem is usually the easy part. The harder part is coming up with a solution.
So income gaps now exist in our society, have always existed in other societies and most likely will always existy all societies.
Attempts to to use the forceful and coercive actions of the state to make everyone "equal" have been huge failures (China, U.S.S.R., Cuba, et.) most often resulting is even less equality, loss of basic civil rights and economic failure.
Less radical attempts to redistribute wealth (socialism) have also been failures. Only the scale and the time of the failure are different in socialist economies than the more virulent forms of collectivism (Communism). For examples of this just witness current events in places such as France, Germany and Sweden.
So pointing to the income gap as a problem is something that I agree with. However, after having pointed out this problem your teacher must the give a viable solution. The important question is: what sort of system will be most successful at creating wealth while minimizing the income gap? Given the evidence, the answer to this question is clearly "The Free Market"...
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