an even more complicated rebuttal from the Right that the kinds of policies Democrats would have used to "spread" that growth would also probably have destroyed much of it.

These arguments from the Right would be very, very easy to make. When has redistribution ever been efficient? That's a big reason why I'm not too impressed by Drum's suggestion.

Uh, aren't the rich rich because they earn at a greater rate than the middle class to begin with?

Perhaps Drum shoud read Screwtape Proposes a Toast for inspiration on equalizing growth:

You remember how one of the Greek Dictators (they called them “tyrants” then) sent an envoy to another Dictator to ask his advice about the principles of government. The second Dictator led the envoy into a field of grain, and there he snicked off with his cane the top of every stalk that rose an inch or so above the general level. The moral was plain. Allow no preeminence among your subjects. Let no man live who is wiser or better or more famous or even handsomer than the mass. Cut them all down to a level: all slaves, all ciphers, all nobodies. All equals.

Over the past twenty years there has been a significant redistribution of income from those of the lower incomes toward those of the higher. Has it been efficient? Well, it seems to have been pretty easy. The Old Testament prophets would call it abuse by the rich against the poor, but modern Christians call it noble and ideal.

Over the past twenty years there has been a significant redistribution of income from those of the lower incomes toward those of the higher. Has it been efficient? Well, it seems to have been pretty easy. The Old Testament prophets would call it abuse by the rich against the poor, but modern Christians call it noble and ideal.

There is redistribution, and there is redistribution. Someone who works hard, earns his way to the top, and becomes wealthy has, in a sense, "redistributed" income. But I think he deserved it.

Meanwhile, a government program or programs that take money from one class and give it to another -- This is a different sort of redistribution entirely.

The well-off, the rich, and the super-rich? I dunno. My parents were definitely middle-class. I just went off to college, actually studied hard, and was willing to move to accept a good job. Now I earn more than Drum's mythical $52,000 median income. Apparently my reward is to be hated by Democrats and to constantly fend off their efforts to take a bigger chunk of my paycheck than they already do.

Thanks.

Several unexamined assumptions at work in here.

First of all, the kinds of policies that Drum is talking about are not 'redistributive' ones in the usual sense of that term; i.e., they aren't ones of the government actually taking dollars from one party and giving them to another. Conservatives are always so focused on taxes, but it's obvious once you think about it that tax-based redistribution isn't what Drum et al. are thinking about here, since they are talking about income growth, not checks from Washington. (Though, when the issue of tax policy does come up, of course they do think that taxes should be made more progressive; but that's just a different debate.) Rather, they are talking about all the government policies that serve to keep the present imbalance of power in the market between the haves and the have-nots, or I suppose between the really-really-haves and the don't-have-quite-so-muches. Bad labor policy and letting the minimum wage languish are two of the kinds of policies they have in mind, as well as having a Fed that reacts strongly negatively whenever there's the slightest evidence of a positive pressure on wages. One might also talk about the government's failure to do anything about out-of-control executive salaries, options, bonuses, etc., which sure do look like a collusive attempt by the economic elite to gobble up all the productivity gains for themselves. None of these policy questions involve redistribution in the sense (as Jason put it) "a government program or programs that take money from one class and give it to another".

Now, that's not to say that Zach's original point -- that economic policies can & often do have unforeseen consequences -- isn't 100% right. And so _maybe_ the policies that would have attempted to swing the economy more in favor of workers would have backfired disastrously. But one has to apply Hazlitt's lesson across the board, to conservative as well as liberal policy choices: the government's _current_ policies might be the ones that are, in fact, disastrously backfiring, and _maybe_ they are creating _more_ inefficiencies as they steer all the surplus to the rich, than would be created by various alternate policies that would steer a decent portion of it to, well, the rest of us.

This gives us a sort of answer to Zach's questions in his "Engine of the Economy" post: one way to cash out the difference that Kim et al. are gesturing at, is that conservatives tend to think that it's a natural & just state of affairs for the rich to get all the growth in the economy, whereas liberals think that a goodly portion of it should end up in the pockets of the workers and middle class. What you take to be the natural & just state of affairs will also determine what policies you take to be economically distortive -- liberals will take the current situation to be the economically deleterious one, whereas conservatives will take policies meant to change that situation as themselves deleterious.

Alan: I see you're playing the willful moron again. No one, certainly not Drum, is suggesting that the rich shouldn't be richer than the poor. The question at hand (as I think you well know) is whether the rich should continue to get nigh-well all of the benefits of the expanding economy.

Jason,

Ronald Reagan and others said, "A rising tide lifts all boats." Looking at wages over the last 20 years, that simply seems not to be the case.

Of course you don't think income is redistributed from working people to the wealthy, because if the market dictated fifty cents an hour you would consider that a fair wage.

I'm not suggesting that the wealthy not be wealthy. I'm suggesting that they can be wealthy while at the same time paying a Biblical wage.

Looking at wages over the last 20 years, that simply seems not to be the case.

I would beg to differ.

I would beg to differ.

Oooohhhh, SNAP!

The grain field scene exaggerates the end result of "redistribution," but the methods are the same - cut down the rich. The fiscal Left never does tell us at which point they'll stop cutting, though...

(The original context was aimed at education policy, but the principles can be extended to other inequality issues.)

There's something I've been wondering for a long time about the background on all those Biblical passages on the rich: how did most of those people get rich? Honestly or dishonestly? Also, how did they tend to treat the poor? Did the rich tend to abuse their power and influece? And at what point did somebody become rich?

One of the problems with comparing median incomes from two time periods (especially 36 years apart!) is that most income earners of 1970 who are still living have moved into higher income brackets since then; income correlates positively with age, after all. How much of that growth went to the middle class of 1970? Income gap analysis is useless without addressing income bracket mobility.

What would Drum do to increase median incomes?

And yes, I do know that there's a point where the positive age/income correlation ends.

"The grain field scene exaggerates the end result of "redistribution," but the methods are the same - cut down the rich." Please see my above comment, on the assumptions that you'd have to be making to say something like this.

"One of the problems with comparing median incomes from two time periods (especially 36 years apart!) is that most income earners of 1970 who are still living have moved into higher income brackets since then; income correlates positively with age, after all." Which is why what you compare are what, e.g., 40-year-olds in 1972 were making then to what today's 40-year-olds are making now (adjusted for inflation, etc.)

What is being done here by some is to turn the Gospel on its head such that the OT prophets and Christ's concern was the poor taking advantage of the wealthy. A recent settlement by Dell Financial Services on charges of "bait-and-switch" and consumer fraud indicates that the "gleaning" application, while not exact, is appropriate to the prevailing business climate, as Dell is not simply an exception, but much the standard for prevailing ethics. While it is anecdotal, my own personal experience that in at least five of seven automobile purchases, is that the dealers/reps have attempted dishonest dealings.

A separate question is whether or not "entitlement" programs for middle class members who can provide for themselves is wise. I think that is is legitmate concern.

For the sake of discussion, can we get a working definition of "poor", "middle class", and wealthy?

Please see my above comment, on the assumptions that you'd have to be making to say something like this.

People who get worked up over the American income gap overwhelmingly see the gap as a problem to be fixed, and the fix always involves cutting down the rich, giving the smaller portion of the proceeds to lower income brackets and the lion's share to the government. Read my clarification in the second comment - I am criticizing the means - government arbitrarily deciding which citizens are too successful.

Oops - HTML tag is now closed.

I'm having a hard time understanding what you're asserting, Alan.

Are you saying that income inequality in the United States isn't increasing? Are you saying that the decades of empirical evidence, embodied in the United States' Census GINI figures, are wrong? Are you saying that, despite what the Census department is saying, namely that GINI indexes have increased steadily since the late 1960s --meaning income inequality has steadily increased-- isn't true?

Or are you saying that large disparities in income aren't corrosive to a society? That you can have, and maybe even want, a stable, productive, and happy society even in the presence of large amounts of income inequality?

"People who get worked up over the American income gap overwhelmingly see the gap as a problem to be fixed, and the fix always involves cutting down the rich, giving the smaller portion of the proceeds to lower income brackets and the lion's share to the government. Read my clarification in the second comment - I am criticizing the means - government arbitrarily deciding which citizens are too successful." Yes, that's what you're saying, and in doing so you are continuing to spectacularly miss the point. Why not think that the government is _already_ arbitrarily favoring one group of citizens (i.e., the very wealthy) over everyone else? And so the various liberal policies that would restore a chance for the working and middle classes to increase their piece of the pie would be _restoring_ us to a more economically efficient situation? The assumption that whatever has gone to the rich must _of course_ be what the rich should get is exactly the sort of assumption I'm critiquing here.

And, again, this image of 'cutting down' the rich and handing over what's been harvested to the less-rich is only apt for direct redistributive policies which, again, aren't what are at issue here. (Similarly, Joel, the question at hand isn't generally one of entitlement programs -- we're talking about policies that would improve the earned income of workers, not hand-outs. The one exception to that, I think, would be state-guaranteed healthcare, since the current employer-provided system makes workers timid in their transactions with their employers, for fear of losing not just their jobs but their insurance with it. So I think that state-guaranteed healthcare (however implemented) would be a terrific part of reinvigorating labor.)

"The median's usefulness to macroeconomic study is limited. It tells us the midpoint of a distribution - in this case, the dollar value that separates the top half of American incomes from the bottom half. It doesn't tell us how those incomes are distributed." Well, yes, but the data (as Greg notes) are a _lot_ more detailed than that, and include distributions by many different brackets. In terms of easy numbers to report, though, it's one of the most useful (and much better than the mean, for example). Maybe if you did a little of your homework on this, and read the approximately one-gazillion articles that have been written on it, you'd understand that.

'If one is gauging macroeconomic growth and that alone, yes. But what ultimately matters is individual prosperity, which is built up over the course of a career. Comparing one teeny point of the careers of the 1972 and 2006 40-year-olds doesn't tell us which group has prospered more. Today's 40somethings might not face an equivalent to the Nixon-Ford-Carter economic downturn." Again we again see your wilfull missing of the point. No one denies that people's incomes (both nominal and real) tend very much to rise with age, pretty much to the point of retirement. What this whole debate is about, though, is how the benefits of economic growth have been distributed to different parts of society. So showing that someone who was 20 in 1976 is making a lot more money now just doesn't answer that question, since as noted, _of course_ we expect that person to be making a lot more money now. We're interested in what that person might have been making now, if other policies had been adopted, and part of doing so is to see what 50-year-olds were making (in real dollars) back when this hypothetical person was much younger, and then we can ask why this person isn't now doing much better than _that_, given how much the economuy has grown in the interim.

"That you can have, and maybe even want, a stable, productive, and happy society even in the presence of large amounts of income inequality?" Actually, Greg, I think you can, so long as most folks feel that things are generally getting better for everyone, and that everyone has a fair shot at getting (or their kids' getting) up the ladder. But that's precisely what has been failing to happen in the last few decades.

Any historical examples, philosopher, of happy, stable, and successful societies where there existed, or exists, a long-term and very large gulf between the halves and have-nots and where the former was/is a tiny fraction of the overall population?

Outside of fictional highschool essays on the genius of Ayn Rand, or some idealistic lyrics by the Canadian Heavy-Metal Power Trio [i]Rush,[/i] I can't think of any.

greg

I think the U.S. over most of its history meets your conditions (as do, um, basically every society ever). And the societies that I suspect you're thinking of have generally failed to meet my conditions, so they aren't counterexamples to my claim.

I think the U.S. over most of its history meets your conditions

Actually, it doesn't -- as the United States Census reports. Income inequality is at its highest point since the forty years when income inequality began to be measured. It's now higher than it was during the Gilded Age, you know the precursor to the Depression.

For a contemporary comparison of income inequality in recent times, see:

http://upload.wikimedia.org/wikipedia/en/d/d4/Gini_since_WWII.gif

greg

And that's not even slightly inconsistent with the claim I made.

I'm having a hard time understanding what you're asserting, Alan. [Followed by litany of studies that neither Drum nor I brought up]

I'm asserting:

1. That Drum's cursory observations don't tell us much about income distribution. Median income alone doesn't tell us anything about the nonmedian ends of the spectrum.

2. That people who focus on income inequality tend to believe that inequality is in and of itself bad. It is bad only if it comes through theft, as with communism or eminent domain abuse.

3. That the people identified by Point 2 tend to believe that government should proactively readjust the gap. This is always accomplished by taking from one demographic and giving to another (and to the government).

Or are you saying that large disparities in income aren't corrosive to a society? That you can have, and maybe even want, a stable, productive, and happy society even in the presence of large amounts of income inequality

Define "large.

Corrosion s related to inequality in two ways:

1. When the inequality is due to theft. (Communist Cuba, revolutionary France)
2. When spiteful, covetous weasels get upset over the "rich" simply because they're rich, regardless of how those riches were earned. (Blue states, revolutionary France)

Well, yes, but the data (as Greg notes) are a _lot_ more detailed than that

I was responding to Drum's musings, which were NOT a lot more detailed than that.

Any historical examples, philosopher, of happy, stable, and successful societies where there existed, or exists, a long-term and very large gulf between the halves and have-nots and where the former was/is a tiny fraction of the overall population?

Well, to answer that one must identify historically happy, stable, and successful societies, define "rich" for these purposes, and determine which of them, if any, never had rich people.

What this whole debate is about, though, is how the benefits of economic growth have been distributed to different parts of society. I don't care about the distribution. I care HOW the distribution takes place. I am not a supporter of direct subsidies to or government-backed loans for business. I oppose arbitrary taxes that favor or penalize some businesses over others. I oppose the Wright Amendment and other government monopoly grants. There's three examples of dishonest gain - what others are there, outside of outright fraud and embezzlement? (Or frivolous lawsuits - lawyers are an industry, too.)

How did that 80% increase in total income come about? The discussion really can't go much further without that answer.

I know this comment is way too late to be seen by anyone, but I'm making it anyway. I think that the median income since 1972 has understated the increase in living standards for the following reasons:



1. The paper kinda dismissed this, but income does not show total compensation, or what the employer has to pay out for the work of employees. Total compensation doesn't just include income and benefits, but also the taxes levied upon the employer, the costs of creating better working conditions, and the regulation costs an employer must bear in hiring an employee. I agree that one can't quantify this cost easily, but the phenomemon still exists.



2. Immigration. If you look at another statistic, poverty has increased since 1972, but looking at the demographic breakdown, black poverty has decreased tremendously, with white poverty stagnating and hispanic poverty increasing. In short, a greater number of hispanics has created more people in the bottom half than otherwise and brought the median down.



3. How the CPI has always exagerated inflation, due to increasing quality and other reasons. For example, how do you compare the cost of internet access today to internet in 1972? Having this access of information was something that NOBODY had. This inaccuracy of the CPI then understates the increase in real incomes for all income groups.



4. The drop in the quality of education since 1972. If a person's wages are fairly proportional to the quality of education they received, then one could then expect a drop in wages. I don't know how to quantify it, but many high school dropouts exist out there also depressing the median wage.



5. Finally, the most controversial reason, the "superstar" effect. Do Steven Spielberg, Elton John, Michael Vick or Alex Rodriguez not deserve their wealth? They didn't earn it through connections, but through talent and hard work which earns more in today's society because of globalization and the application of technologies. Spielberg can make a film that will now play in many multiple countries, possibly making over a billion dollars, where a film in the 1970s would only play to a few countries outside the US. This same dynamic also applies to CEOs such as Jack Welsh, who can generate results with a global yield.



Despite all these reasons, I still do think many in the top bracket have not earned their wealth, mainly with government contractors. The old CEO of Fannie Mae presents the best example of somebody obtaining wealth through government coercion. The special tax-exempt status given to his organization treated him well, with an income IIRC in the hundreds of millions of dollars, far higher than the average CEO.



Still, in my humble opinion, the five factors listed above give the main reasons for the increasing income inequality appearing in the main economic measures.

Sorry for the spaces in my comment. The preview showed my post with no paragraph braks at all and I added [less than]br[greater than] to make the preview look right. That should be fixed.

If I understand your answer, Alan, I think it is summed up as:

1. Yes, the measurements by the United States Census and others showing growing income inequality in the United States are wrong.

2. Even if they were right, income inequality isn't a bad thing. In fact, it's a good thing.

3. Income increases to those who realize them are entirely due to the merits of the individual receiving the income increase. Society plays absolutely no role in determining which individuals are economic winners, or losers.

greg

1. I haven't said A N Y T H I N G about official stats on income inequality. I have said that Kevin Drun did not supply those stats. Read what I write, will you?

Just thought of something - does that 80% in increased income count individuals alone, or individuals and companies? If the latter, then a huge portion would be represented by companies, whose income is reinvested to create more company profitability and more jobs.

2. I stated explicitly that whether income inequality is bad depends on how honestly income is earned. Some ethical income gaps are good, some are bad - it depends on what the earner does with that money. If the money goes to the Irish Republican Army, it's bad. If it buys nothing but luxuries, it reflects shallowly on the earner but provides jobs for producers of luxuries. If it goes in the bank, it helps the banking industry and its customers. If it goes into stocks, it helps corporations and their stockholders. If it goes to a worthy charity, it helps its beneficiaries. If it goes to an unworthy charity, some (if any) goes to real charity and some gets unnecessarily and/or illegally sucked up in overhead (William Aramony) and/or improper causes (Holy Land Foundation for Relief and Development, allegedly).

If it's sucked up by an excess profits tax, it serves as a substitute for government fiscal control - and private-sector entities that would have gotten that money through trade, investment, or charity don't get it. As Hazlitt taught us through the book cited by this post, income redistributionists never factor that cost into their calcualtions. They see the government program, not the entities that got stiffed to fund it.

3. I stated explicitly that some people earn income through meritless means, and listed specific examples - monopoly, subsidy, fraud, embezzlement, frivolous lawsuits, tax policies that favor some businesses over others. (An example of the latter is tax breaks for incoming new businesses for which existing businesses do not qualify.) There's also eminent domain abuse (there goes my chances of getting on Jerry Jones' Christmas card list).

If someone were to produce a product that is totally noncontroversial in nature (say, an algebra textbook, translated into many languages) and through totally honest business dealings were able to earn $500 million in worldwide sales, would that income gap be bad? Why? That author isn't getting in the way of the junior accountant in Seattle.

If the thought "why don't we just target bad income gaps, then?" crosses anyone's mind, ask yourself if you'd trust the government to distinguish between the deserving and undeserving rich. Or if the government is in a position to discriminate against one type of bad income gap - that of rich folks who spend beyond their means.

We have free markets for a reason - to ameliorate the risks associated with centralized markets.

I support the basic principles of capitalism, although I grant that purists would view me as a socialist. As a capitalist, I find income inequality not only inevitable, but not inherently destructive or unfair. My point is that income inequality can rise so much as to be destructive to the moral fabric of a country. Let's say that we reached the point where 1% of the U.S. population owned 99.9% of the property. I would see no possibility that any sense of community or common identity could be maintained. I will grant, however, that an economy would stagnate before it reached the level of my example.

Also, I might be willing to negotiate for a more free economy if there were certain brakes (caps on interst rates, etc.) and the rules applied equally. In Oklahoma, mostly Republicans who claim to be "free enterprise" and detest "handouts" supported local government building a massive complex exclusively for the operation of a Pro Bass Shop sporting goods store. The government owns the bulding and leases it to Pro Bass. In the first year or so, projections of sales fell far short of what was needed to make the lease payments. My experience is that many "free enterprise" folks mean only that they don't support welfare or health care for the poor, not that they see anything wrong with government footing their bills and/or contributing to unfair competition.

Alan is continuing to miss the point so spectacularly, that I am starting to wonder whether he is being wilfully moronic, or just plain moronic. There's nothing in anything that's been said about picking deserving or undeserving rich, or about the government picking particular business winners, or anything like that. So, please stop threadjacking.

Also, this just made me laugh: "I haven't said A N Y T H I N G about official stats on income inequality. I have said that Kevin Drun did not supply those stats." See, Alan, there's this thing called the in-ter-nets. And here on the in-ter-nets, we have these things called 'links', that connect up one post to various other posts by the author and by other authors. Also on these 'blogs' that you may have heard of, often there are a series of posts on topics, with 'links' to the various entities that the person is arguing with. And very often a writer's posts only makes sense in the context of what recent posts that they have made, and what they have linked to. I'm sorry that no one has sat you down and explained that to you before. Anyway, for someone to claim that since Drum didn't include all this data (and more besides) then that somehow makes all that science not fair game for the conversation -- when it is obvious to anyone who actually read Drum's post & the items linked to it & the other posts that are clearly part of that conversation, that these data & studies are the basic background for that conversation... well, for someone to do that, they'd have to be pretty damn clueless. Or just a jerk.

Joel is certainly right that one can generally see the government, at all levels, going out of its way to help moneyed interests and generally having to be dragged kicking & screaming to help other groups (and, in the last 10 years, it has generally ceased to do the latter at all; see, e.g., the bankruptcy bill, or the attacks on the availability of grants and loans for those who cannot afford to pay for college out of pocket).

Matthew, thank you for your thoughtful contribution to the thread! I think that some of your points are on to something, but some are a bit wide of the mark.

re: 1 - Is there any reason to think that, if all those things were factored in, it wouldn't demonstrate a _greater_ disparity? Corporations tend to put a tremendous amount of resources at the disposal of their executives, for example (corporate jets, access to luxury skyboxes at athletic events, and so on).

re: 2 - That is worth keeping in mind, but my understanding is that even if you just look at whites, you find the same basic effect. And if it turns out that the growth of income for working-class immigrants has also been flat (or worse) over the last few decades, then that's a legitimate political concern as well -- it's surely a factor keeping wages stagnant, for example.

re: 3 - That's all true, but I'm not sure it matters to the question at hand, which is about how the economy has apportioned out the benefits of growth, since as you noted it affects all classes. Also, similar to my point about your 1, wouldn't we expect that the benefits of new technologies, etc., will apply more to the well-off than to the less-well-off? It isn't the guy making $32,000 a year who is getting the benefits of all-in-one web phones, or HDTV, and so on. The question of the equitable distribution of healthcare resources also becomes relevant to this particular question. (E.g., surely more better-off men are able to get the benefits from the existence of Viagra than the many poorer ones who either lack insurance, or whose insurance chooses not to cover that particular pill.)

re: 4 - That sounds right, and it's one of the things that has certainly been mooted about on the left as relevant. Definitely a case for government intervention of some sort! (And that might mean more school privatization, or whatever; most of the liberal folks debating this right now, like Drum, Klein, Yglesias, etc., have a general let-me-see-what-works attitude about school reform.)

re: 5 - Yep, that sounds like a factor, too.

I think there are other factors that need to be brought into consideration as well, not least of which are the weakening of organized labor, and monetary policies that consider wage growth a bad thing. But there's no reason to think that there aren't a number of different factors all interacting here.

There's more, as philosopher points out, to it. Since the late 1960s, median wages for all men have flatlined. Since the mid 1990s or so, median wages for college-educated men flatlined. Since 2000, median wages for college-educated men have steadily declined

There's more going on than is explained by racial or class differences. The economy "grows" year to year (although much of that growth is not real growth, per se, but simply the sideeffect of a growing population) yet workers, white and blue collar, are not seeing corresponding growth in their compensation. In a growing number of cases, their compensation is actually decreasing.

How can it be that the economy is growing while wages do not? The only answer is that the spoils of economic growth are not being distributed equally to those responsible for the growth and are, instead, being bifurcated. The majority of those responsible for growth are increasingly cut out from the rewards of growth.

I suppose there are some that would argue this is "natural." It must be, they say, that the wealthy are themselves actually more productive while the middle and lower classes have become less productive over time. I.e. that the spoils are increasingly going to a narrow elite is not due to some structural disconnect but, quite simply, because the elite have earned it and the rest are only getting what they deserve.

Human history seems replete with examples of this, of examples of noblesse oblige morphed by hubris into "let them eat cake."

I'll only note that such a morph can, and has, taken quite a long time, during which the stump speeches, the business magazines, and the salary surveys are typically equivocal: the inequality isn't a fix, it's the natural and virtuous result of the fact that, hey, the rich just work harder than everyone else.

As I said, it can go on for quite some time but, as far as I can tell, always ends badly; it always ends with a firing squad or the guillotine. Out with a bang, not a whimper.

greg

Drum's thesis wasn't based on volumes of data on income distribution. It was based on two variables: median income and total income. I focused on his thesis.

Can anyone come up with a system that doesn't "overwhelmingly favor the rich" (quoting Zach)? Free markets favor skilled entrepreneurs. Feudalism and Communism favor the nobility (although the Commies use a different title). Prohibition favors smugglers. Mercantilism and protectionism favor highly-connected business interests. Welfare statism and socialism favor government contractors (H. Ross Perot, for one, made his early millions computerizing Medicare records). Systems requiring vast bureaucratization favor those highly-connected individuals who can land cushy bureaucratic posts that wouldn't exist under free markets.

Which system provides the most overall benefit?