Tuesday, June 24, 2014

Income Inequality, Revisited

For reasons that have yet to be explained liberal American thinkers—as opposed to radical French thinkers—glommed on to Thomas Piketty’s neo-Marxist analysis of increasing income inequality.

Piketty, you recall, explained that the internal contradictions of capitalism—a neo-Marxist notion if ever there was one—would necessarily cause inequality.

The problem was systemic and it required much higher tax rates, a universal tax on wealth and massive redistribution.

After all, the French Socialist president Francois Hollande had adopted exactly the same policies and they had failed miserably. So much so that the Socialist Party was thoroughly repudiated in the most recent French municipal elections.

Now, via Tyler Durden, we have a more cogent analysis of the rampant income inequality that has characterized the Obama recovery.

Cowen quotes famed doomster Marc Faber’s succinct statement:

“The more they [the Federal Reserve] print, the more inequality there is, the weaker the economy will become." Simply put, "it's a catastrophe," Faber told CNBC, "what the Fed has done is to lift asset prices, and the cost of living. In the meantime, the cost of living increases are higher than the wage increases. The typical American household income is going down in real terms." 

If you prefer, here's the videotape:

Durden then quotes Paul Singer, making the same point:

Inequality in the U.S. today is near its historical highs, largely because the Federal Reserve’s policies have succeeded in achieving their aim: namely, higher asset prices (especially the prices of stocks, bonds and high-end real estate), which are generally owned by taxpayers in the upper-income brackets. The Fed is doing all the work, because the President’s policies are growth-suppressive. In the absence of the Fed’s moneyprinting and ZIRP, the economy would either be softer or actually in a new recession.

The greatest irony is that the President is railing against inequality as one of the most important problems of the day, despite the fact that his policies are squeezing the middle class and causing the Fed – with the President’s encouragement – to engage in the radical monetary policy, which is exacerbating inequality. This simple truth cannot be repeated often enough.

It’s not the internal contradictions of capitalism, but the combination of moneyprinting and “growth-suppressive" policies.

But, you knew that already….


Anonymous said...

Diversity begats more inequality for two reasons.

1. Genetic and cultural differences. Some groups have higher IQs and/or cultures that stress education and achievement. If you look only at the Jewish-American population, you see widespread affluence among most of them. Sure, some are very rich, and some Jews are poor. But most Jews are in the upper middle income bracket.

But US has lots of other groups who are lower in IQ and/or have no appreciation for education. Many of those people are going to remain poor. Many Jewish neighborhoods are equal-ish in that most Jews are affluent. Detroit is equal-ish in that most blacks are poor.
But since US has Jews, blacks, Mexicans(who are swelling in number), Asians, Swedish-American whites in the North, Scotch-Irish Americans in the south, and etc, there's going to be lots of economic inequality based on racial, ethnic, or cultural lines.

As France and other European nations fill up with more immigrants from the Muslim and African world, expect to see more inequality with more diversity. European women have 1.2 kids per woman. Black African women have 7 children per women. So many Africans are coming to Europe, and most of Europe will likely become like Morocco or Egypt in 50 yrs. Expect to see more inequality with more diversity.

2. Diversity also feeds inequality because people of a successful group don't want to pay higher taxes to take care of people of unsuccessful groups.

Socialist policies and unions work better in homogeneous societies since the rich are paying taxes to take care of the poor of their own kind. There's a cultural, racial, and ethnic bond between the rich, the middle, and the poor.
Also, the poor will be more appreciative of the help they get from the government since it represents their own people.

So, German-Americans in Wisconsin don't mind paying a bit more to take care of poorer German-Americans, but Scotch-Irish Americans don't want to pay more taxes just so that black welfare mothers can have more kids.

A society that calls for more diversity and equality is seriously cognitively dissonant.

Anonymous said...

Our great national scandal, indeed our national shame, is the denigration and abandonment of our most sacred social investment: the public school system.

People like Obama rail about inequality, but he and his political allies provide unquestioning support for the status quo in a failing public education model. This model has been fading with each successive generation, and we're seeing our nation falling further and further behind. It's not about Common Core or any of that centralized, one-size-fits-all-minds nonsense. That's more of the desperation to find a "solution." There is no solution available as long as the operating assumptions are in place. It's not as much about resources as it is about focus. We're not playing to win the global race to build human capital, we're trying to survive by bringing up little consumers who will do what they're told.

There are five operating assumptions that are destroying our schools: (1) the public school system is a public works program for adults rather than students and their parents; (2) boys and girls must go to school together in the same classrooms; (3) every American child is special and unique and wonderful, protected from any traumatic possibility; and therefore (4) we must protect our children and not allow them to fail; because we know (5) public schools can substitute for an intact nuclear family, with a mother and father in the home.

There was an op-ed in the WSJ last week by someone who was defending teacher tenure. He sounded like a certifiable idiot. The modern tenure system is an indefensible practice, making our ossified institutions more sclerotic. Our school system must turn out skilled citizens to compete in a dynamic global economy. Perhaps one could make an argument for tenure the college level, but it is insane to have such an inflexible employment system for teachers in primary, middle and secondary schools. Curriculum is so standardized and there are so many work rules that it is difficult to justify protection from arbitrary terminations as a compelling government interest. Even if the terminations may seem arbitrary, that's what the rest of us have to deal with in the private sector. Teachers should not be so wildly exempt from the reality of performance demands.

Until we get away from this "public works program for adults" concept of childhood education, our young people will suffer and fall behind in our present educational factory system (sans quality control).

If we don't transform public education into a system that actually educates and challenges our young people, income inequality will grow and grow and grow. The most awful thing about our non-functioning schools in urban and rural areas (as distinguished from suburbs) is that they basically damn most children to a life of destitution and desperation. Most of all, the current approach squashes upward mobility, making the status quo that much more amoral and inexcusable.

We tell our young people that they have to learn because they're going to have to compete against Malaysian kids who earn 80% less. We've geared our economy to make this global economic dynamism possible. That's fine, because creative destruction is a positive long-term thing. But when public education is spared that same creative destruction, it destroys lives. There's no impetus for change. It is unconscionable that at the same time we charge headlong into a globalized economy, we are ignoring the plight of our schools. It's not a money thing, it's about creating a safe, structured environment to learn in.