Tag: inequality

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folly free trade & free markets general freedom meme national politics & policies

Robert Reich, Mythed Up

Consumer sovereignty is the idea that in markets consumers call the shots. In capitalism, most mass production is indeed for the masses, and the masses have a big say in what gets done. All profits and wages of successful businesses come from consumers.

But don’t take this too far.

Consumers don’t “create jobs,” for example.

Recently, Clinton-​era Labor Secretary Robert Reich has been floating this bizarre notion. To his Facebook audience, last month, he wrote that it is a myth that “the ‘job creators’ are CEOs, corporations, and the rich, whose taxes must be low in order to induce them to create more jobs.

Rubbish. The real job creators are the vast middle class and the poor, whose spending induces businesses to create jobs. That is why raising the minimum wage, extending overtime protection, enlarging the Earned Income Tax Credit, and reducing middle-​class taxes are all necessary.”

So, we have people in roles of “producers” and “consumers,” and it is the consumers who “create jobs”? And they do this by “inducing” businesses to, wait, uh, “create jobs”?

Face it: businesses create jobs — out of capital from somebody’s invested savings. Entrepreneurs brace themselves to take big risks, fronting workers’ wages as well as hiring and purchasing capital goods and material.

Before a penny is spent by consumers.

Only when entrepreneurs guess right does the flow of money come full circle.

Reich repeated his quasi-​Keynesian rap yesterday: it’s spending consumers who “get businesses to expand and hire.”

Truth is, Reich doesn’t “get” basic economics. But he does understand political equations, which is why folks on the Democratic left think he’s a genius.

This is Common Sense. I’m Paul Jacob.

For a high resolution version of today’s picture (perfect for use as a screensaver), click on the image below to open in new window. Also, please do feel free to share with your friends.

Robert Reich Doublespeak

 

Categories
general freedom individual achievement responsibility tax policy

Plotting Progress

Angus Deaton, Nobel Prize, Economics, The Great Escape, Inequality, collage, photomontage, JGill, Paul Jacob, Common Sense

The prestige of the Nobel Peace Prize has been tarnished by some more-​than-​dubious awards, in our time … Henry Kissinger and Barack Obama, most obviously.

Same goes for the Bank of Sweden’s knock-​off “Memorial” prize for economics.

But, according to David R. Henderson, this week’s Nobel nod to Scottish-​born Angus Deaton, for his “analysis of consumption, poverty and welfare,” is “a fine pick.”

Deaton is, writes Henderson, “an important chronicler of the market’s abilities to create wealth and improve society.”

While it is all the rage, these days, to complain about increasing inequality, Deaton has been instrumental in showing that wealth, health and welfare have increased as poverty, worldwide, has decreased.

And this has been largely the result of markets. Not big government programs.

Deaton, Henderson tells us, “believes that the approximately $5 trillion given by governments of rich countries to poor countries over the past 50 years has undercut good governance by making poor countries’ leaders less accountable to their own citizens.”

ABC News seconds Henderson’s account:

In his 2013 book, The Great Escape, Deaton expressed skepticism about the effectiveness of international aid programs in addressing poverty.… China and India have lifted tens of millions of people out of poverty despite receiving relatively little aid money. Yet at the same time, poverty has remained entrenched in many African countries that have received substantial sums.

Peter G. Klein, at mises​.org, identifies a deeper insight by the latest Nobel economist: “aggregate measures of consumption and inequality conceal important differences among individuals.” This explains why Deaton came to his other (controversial) conclusions: he never took his eye off the real player in market life, the individual.

This is Common Sense. I’m Paul Jacob.

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Angus Deaton, Nobel Prize, Economics, The Great Escape, Inequality, collage, photomontage, JGill, Paul Jacob, Common Sense

 

Categories
ideological culture

The Inequality Problem

Ah, the Paul Krugman Problem! How does Nobel Laureate economist-​cum-New York Times progressive-​blogger come to his conclusions?

The other day, the eminent Scott Sumner noted — in “The power of wishful thinking?” — that in the space of one year Krugman seemed to gain a great deal of certainty about how vital it is to reduce inequality.

Sumner quotes Krugman from a year ago, when he frankly admitted that he’d like to agree with Joe Stiglitz’s thesis about inequality, but just wasn’t able to persuade himself.

Unfortunately, Krugman hasn’t given us a lot of reason to follow his “lead,” his new-​found faith in Stiglitzian equality. Sumner cites a possible “inspiration” for Krugman’s new tune: Krugman’s employer, the New York Times, has, as editorial policy, shifted leftward on such issues. And then Sumner waxes philosophical:

Sometimes an economist will change his view on a single issue because of some new empirical study (although that actually doesn’t happen as much as you’d think, or as much as you might like). But what about when an economist suddenly swings sharply to the left or right on a whole range of unrelated issues?

Many people do go through radical conversions; you can find interesting conversion testimonies of a religious nature, if not so many in political economy.

As for me, the subject of inequality continues to fascinate, like picking at a scab.

I suspect that rising inequality is caused by the very institutions that Paul Krugman regards as bedrock: institutions that redistribute money from one group to another; institutions that regulate behavior for the benefit (we’re told) of the worse off; institutions altogether “progressive.”

Surely there would be more downward mobility for the rich and upward mobility for the poor in a freer society than in a more Krugman-​approved society.

This is Common Sense. I’m Paul Jacob.

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video

Video: Debunking a Popular “Inequality” Meme

You probably saw the original video on Upworthy, a slick presentation of the pop inequality meme. But you probably wondered: isn’t there some slippery income/​wealth evasions going on here? Well, it turns out it’s far, far worse than you (or at least I) guessed:

This response video is from nearly a year ago. But the ideas and stats are worth looking at anyway. 

Categories
general freedom ideological culture

Equality on the Brain

We’re told that “economic inequality” is on the rise.

Ronald Bailey, at Reason’s site, does a pretty good job of setting the record straight. The rich may be getting richer, but the poor aren’t getting poorer.

Further, “the rich” aren’t the same folks one year to the next. There is still income mobility in America. Some poor folks become super-​rich; a majority of super-​rich “1‑percent-​ers” will fall out of that 1‑percent category.  Over time, most folks move from one quintile to at least the next.

What prevents widespread understanding of this? Intellectual muddles. The difference between income and wealth often get fuzzed up, for example. Take two high-​income workers, earning the same pay: The one who saves will wind up with much more wealth than the other who spends it all. And rates of savings vary radically from person to person.

As does everything else.

Making things more complicated? Government policy. Bailouts are now an integral feature to aid some of the rich, to prevent their losses (we’re told) from spreading “financial contagion.”

Considering the moral hazard involved, I’d say “financial contagion” is endemic … on a whole different level.

And the same President Obama today decrying income inequality was yesterday bailing out rich folks.

A question for the inequality obsessed: Since the War on Poverty really set in, poverty rates have leveled off and even worsened (that is, the numbers of the officially impoverished have increased, despite increases in after-​tax/​after-​subsidy incomes) — could you be missing the moral hazard that any sort of bailout portends?

Real economic justice, as I suggested in my most recent weekend column, is just that, justice. Establishment of good rules, no special privileges.

This is Common Sense. I’m Paul Jacob.

 

Graph on this page shows income per household, courtesy Cafe Hayek. Caution: Households changed complexion radically in the 1960s-1980s.

Categories
national politics & policies too much government

A Cry for Justice

Is taking bread from the mouths of those who labor to feed the appetites of able-​bodied adults who decline to work your idea of economic justice?

Or of injustice?

A recent Cato Institute study by Michael Tanner and Charles Hughes found that welfare benefits exceed the minimum wage for workers in 35 states. In 15 states, welfare benefits top $31,200 annually — equivalent to the $15 an hour minimum wage that SEIU and other unions are promoting for fast-​food workers.

In short, at the lowest rungs of the economy, one can make more money not working.

The Washington Post’s Charles Lane advances another aspect of economic justice in a recent column suggesting that while some wealth is merited, the bulk of the wealth swirling about in the nation’s capital is not earned, but wrested from a system where insider politics meets crony capitalism.

And Lane notes that “too many of our public institutions — from Congress to big-​city school systems — have been captured by rent-​seeking interest groups,” warning broadly that, “Various societies have grown free and prosperous by many different methods; dividing up existing wealth according to political connections is not one of them.”

Yesterday at Townhall, I embraced the idea of economic justice, calling for a healthy dose of it, namely:

  1. Stop making welfare pay better than work;
  2. End government subsidies to cronies, farmers, everyone;
  3. Let people create new businesses by ending licensing laws and regulations that serve only to block needed competition.

That’s economic justice.

Not futzing about trying to make us “equal,” but making the basic rules equitable.

This is Common Sense. I’m Paul Jacob.