Thursday, August 29, 2019

How the Government Creates Wealth Inequality

There are economic storm clouds on the horizon, but for now wages are rising, jobs are plentiful, and poverty is falling. Democrats running for president need an economic line of attack, so the solution has been to focus on wealth inequality. Senator Bernie Sanders claims that there has been a “massive transfer of wealth from the middle class to the top one percent.” Senator Elizabeth Warren lambastes America’s “extreme concentration of wealth.” Even the establishment Joe Biden laments, “This wealth gap that exists in the United States of America is so profound now.”

Wealth inequality has risen in recent years, but by far less than the Democrats and many media articles imply. The scarier claims about inequality usually stem from the flawed data created by French economist Thomas Piketty and his colleagues. More careful studies by other economists and the Federal Reserve Board reveal surprisingly modest changes in wealth inequality given the huge revolutions in globalization and technology that have occurred.

Are increases in wealth inequality the awful thing that Democrats claim? It depends on what causes them. Much of the recent modest rise in wealth inequality stems from innovations in our economy that are pulling everyone up. Brian Acton and Jan Koum, for example, built huge multibillion dollar fortunes by creating WhatsApp, which provides free phone service for 1.5 billion users globally.

Acton and Koum’s success may have increased the wealth owned by the top 1 percent, but their product has created massive consumer value as well. Most of the wealthiest Americans are entrepreneurs who have fueled economic growth, which is clear in examining the Forbes 400 list. Wealth created this way is not the zero-sum struggle that Democrats imagine it is.

That is the good news. The bad news is that the government itself generates wealth inequality in at least two ways that make us worse off. First, governments give subsidies, regulatory preferences, and other crony-capitalist benefits to wealthy insiders. In the recent Fat Leonard scandal, for example, Leonard Francis gained hundreds of millions of dollars of government contracts by cozying up to Navy officers and providing them with gifts, prostitutes, and other favors to get them to do his bidding.

The other way that the government fuels wealth inequality is a deeper scandal. The expansion of social programs over the decades has undermined incentives for lower- and middle-income families to save while reducing their ability to save because of higher taxes. Government programs have displaced or “crowded out” wealth-building by all American families but the richest.

Politicians complain loudly about wealth inequality, but their own policies are generating it. This issue receives too little policy attention, but it is profoundly important and reveals the hypocrisy of the political left.

Many Americans have saved little for retirement because Social Security discourages them doing so, as does the heavy 12.4 percent wage tax that funds the program. Economist Martin Feldstein found that every dollar increase in Social Security benefits reduces private savings by about 50 cents.

Social Security accounts for a larger share of retirement income for the non-rich than for the rich, so this crowd-out effect increases wealth inequality. In a simulation model, Jagadeesh Gokhale and Laurence Kotlikoff estimated that Social Security raises the share of overall wealth held by the top 1 percent of wealth holders by about 80 percent. This occurs because the program leaves the non-rich with “proportionately less to save, less reason to save, and a larger share of their old-age resources in a nonbequeathable form.”

A study by Baris Kaymak and Markus Poschke built a model of the U.S. economy to estimate the causes of rising wealth inequality. They found that most of the rise in the top 1 percent share of wealth in recent decades was caused by technological changes and wage dispersion, but the expansion of Social Security and Medicare caused about one-quarter of the increase. They concluded that the “redistributive nature of transfer payments was instrumental in curbing wealth accumulation for income groups outside the top 10% and, consequently, amplified wealth concentration in the U.S.”

More government benefits result in less private wealth, especially for the non-rich. It is not just Social Security and Medicare that displaces private saving, but also unemployment insurance, welfare, and other social spending. Some social programs have “asset tests” that deliberately discourage saving.

Total federal and state social spending as a share of gross domestic product soared from 6.8 percent in 1970 to 14.3 percent in 2018. That increase in handouts occurred over the same period that wealth inequality appears to have increased. Generations of Americans have grown up assuming that the government will take care of them when they are sick, unemployed, and retired, so they put too little money aside for future expenses.

Cross-country studies support these conclusions. A 2015 study by Pirmin Fessler and Martin Schurz examined European data and found that “inequality of wealth is higher in countries with a relatively more developed welfare state . . . given an increase of welfare state expenditure, wealth inequality measured by standard relative inequality measures, such as the Gini coefficient, will increase.”

A study by Credit Suisse found: “Strong social security programs — good public pensions, free higher education or generous student loans, unemployment and health insurance — can greatly reduce the need for personal financial assets. . . . This is one explanation for the high level of wealth inequality we identify in Denmark, Norway and Sweden: the top groups continue to accumulate for business and investment purposes, while the middle and lower classes have a less pressing need for personal saving.”

That is why it is absurd for politicians such as Sanders and Warren to decry wealth inequality and then turn around and demand European-style expansions in our social programs. The bigger our welfare state, the more wealth inequality we will have.

The solution is to transition to savings-based social programs. Numerous countries have Social Security systems based on private savings accounts. Chile has unemployment-insurance savings accounts. Martin Feldstein proposed a savings-based approach to Medicare. The assets in such savings accounts would be inheritable, unlike the benefits from current U.S. social programs.

Sanders and Warren are right to criticize crony capitalism as a cause of wealth inequality. But their big government approaches to social policy would have the opposite effect on wealth inequality than what they may believe



Repudiating Globalism

It may be the most pressing and difficult problem facing the American people today.

When the stock market cratered in 2008, America’s ruling class bailed out Wall Street — and Europe — at the expense of Main Street. In 2016, Britain voted 52% to 48% to leave the EU. For the last three years, that vote has been ignored. Also in 2016, the American public decided they’d had enough of an increasingly unbearable status quo and put a political novice in the White House. That status quo was globalism, which remains the primary threat to the well-being of our nation.

In a highly insightful column, American Greatness editor Chris Buskirk illuminates what ordinary Americans are really up against, courtesy of transnational elitists who see countries, patriotism, and a significant portion of their fellow Americans as anachronistic, or beneath contempt. Globalists are “citizens of the world,” and if their profits and “principles” are served by hollowing out middle America, or accommodating the Chinese military while snubbing our own, so be it.

Buskirk explains the origins of their mindset. “All of us share a rich heritage that is under attack by a pernicious idea as old as human history,” he writes. “It is the idea with which the serpent tempted Eve, it is the idea that man can be his own god.”

He goes on to identify the chief characteristics of this megalomania. Globalism is an “advanced form of secular liberalism” that is “messianic” and “dehumanizing.” Those who challenge its supremacy? They are “shamed, deplatformed, ostracized, and often made unemployable,” he adds.

Yet the most revealing part of the globalism centers around its “materialist, man-centered nature.” Why? Because that nature makes globalist elites “overtly hostile to Biblical religion and the family, both of which represent competing power centers and must therefore be degraded or destroyed.”

Thus, “bitter clingers” who have the temerity to resist making cakes celebrating same-sex weddings must be sued — and sued again — even after the Supreme Court rules in favor of First Amendment religious protections. Public schools must embrace the transgender agenda, even at the kindergarten level, while teaching American students to hold their own nation in contempt. Alternative lifestyles, are promoted as being equal, if not superior, to the nuclear family, even as the nuclear family itself has been eviscerated by the Nanny State.

Moreover, the rise of another pernicious concept, “identity politics,” is no accident. Keeping the “peasants” distracted by race, gender, and sexual identity is designed to keep “the wage-earning classes, meaning, almost everyone — from focusing on the fact that real wages have stagnated for nearly 50 years while the price of the three largest expenditures in life (housing, education, and healthcare) have soared,” Buskirk explains.

The peasants’ primary supporter? The concerted effort by the globalist-run, Democrat Media Complex to convince the nation that President Donald Trump is a racist has been unrelenting. And because it hasn’t worked out quite as well as expected, he is now a “white supremacist” — a term not only applied to Trump but to everyone who voted for him. That leftists can say this despite the reality that many of those same voters opted for Barack Obama — twice — is indicative of the utter contempt they have for the average American’s ability to notice such monumental hypocrisy.

That contempt is driven by the globalist reduction of humanity itself to economic terms, whereby people become nothing more than interchangeable cogs in the globalist machinery. They also become expendable. Note the globalist antipathy toward Trump’s effort to reform an intellectual property-stealing and militarily belligerent China via tariffs, despite the reality that its government stands on the verge of crushing populist dissent in Hong Kong. Globalists are no doubt concerned — but only with the economic implications.

Make that economic implications directly related to their own interests. By stark contrast, columnist Pat Buchanan reveals what three decades of globalism have wrought economically for ordinary Americans: “$12 trillion in trade deficits and a loss of 70,000 factories and 5 million manufacturing jobs.”

Social costs have been egregious as well: “more divorces, more consumer debt, more children raising themselves because their mother is forced to work outside the home to make ends meet, and a declining fertility rate,” Buskirk explains. “Across Europe and the United States, citizens are not having enough children to replace themselves.”

The globalist “solution” to decreasing domestic populations? Rather than incentivize child-bearing, globalists embrace unfettered immigration, both legal and illegal. Anyone who disagrees is “bigoted” and “xenophobic.” Ironically, the same globalists talk about the ascension of job-killing artificial intelligence, and yet again the “solution” they propose for that problem isn’t limiting immigration. It’s Universal Basic Income, absent any concern for the dignity-sapping implications it engenders.

After all, what “interchangeable cog” wouldn’t be content with “free money?”

Buskirk believes the time is ripe for a wholesale assault on the status quo, and the keys are reviving the institutions that used to form the bedrock of the nation. They include family, religion and real life friends as opposed to the orchestrated diminishment of friendship wrought by social media. He also proposes the abolition of post-war globalist institutions that were founded by the United States but “have become destructive and actually undermine the peace and prosperity of the American nation and degrade human life here and abroad.” It’s hard to argue with the two examples he cites, namely the United Nations and the European Union.

His boldest proposal? Breaking the two-income family “trap” by proposing a “‘Family Deal’ that will reorder the American economy in a way that allows a family of five or six to be solidly middle class on a single income and that emphasizes growth through innovation rather than financialization,” he asserts.

These are excellent ideas, but the bet here is none them are attainable until we recognize one of the most serious problems this nation has ever faced: We now have at least two generations of Americans who are virtually unable to make the distinction between real life and cyberspace — or at the very least, willing to give both an equal measure of importance.

As result of this unprecedented development, a metastatic level of social dysfunction has taken hold, manifesting itself as “look at me” narcissism, pathological “copy-cat-ism,” and sexually debilitating isolationism, even as the tech companies engage in what Buskirk defines as “surveillance capitalism” that for all intents and purposes keeps people in line in a way that makes George Orwell’s 1984 seem benign by comparison.

In short, this nation must address what the tech elitist-driven wholesale destruction of privacy is really doing to the human psyche, no matter how many dopamine-inducing “likes” ultimately end up on the ash heap of history. Restricting the access of social media to those over the age of 18, much like we restrict access to alcohol, is a great way to begin. More important, a law restricting the tech titans from accessing a minor’s data, much like Google currently does with impunity in America’s classrooms, should also be enacted.

In short, globalism is totalitarianism with better PR. If America is to remain a sovereign nation it must be thoroughly repudiated.



Transforming America
The left is not shy when it comes to telling us what it thinks about America. From Hillary’s “basket of deplorables” to progressive declarations that the country was founded on racism and genocide, it’s clear that the left just doesn’t like America all that much.

Make no mistake about it, my friends. The radical left wants to completely remake America.

It has already made it clear that if it doesn’t get the outcomes it wants from the Supreme Court, it will fundamentally transform the court. Another way the left aims to transform the country is by getting rid of the Electoral College.

Earlier this week, Alexandria Ocasio-Cortez denounced the Electoral College as “a scam.” Just to be clear, the Electoral College is part of the Constitution and the Constitution is not “a scam.” What else in the Constitution does she consider to be “a scam”?

AOC argued that our system should be “one man one vote.” That is a pure democracy and our system is a constitutional republic. She also said that we should get rid of the Electoral College because it gives too much power to “white voters over voters of color.”

Sen. Joni Ernst of Iowa responded by tweeting: "Actually @AOC, eliminating the Electoral College would silence our voices here in Iowa and in many other states across the country. This is just more evidence of how out of touch the Democrats have become."

Sen. Ernst is right.

As you may know, there is an effort underway to nullify the Electoral College by getting states to award their electors based on the national popular vote, rather than the state’s results. But the Democrat governor of Nevada infuriated the left recently when he vetoed a bill to join this movement. “In cases like this, where Nevada’s interests could diverge from the interests of large states, I will always stand up for Nevada,” Gov. Sisolak said.

The original purpose of the Electoral College was to provide a check against the “tyranny of the majority” and to ensure that the smaller, more rural states were not dominated by the interests of big cities in national elections. It was one of many great compromises that formed our nation.

At the time, most of those concerns were economic. Today there are still economic differences between the states but there is also a growing ideological divide.

The left wants the secular, progressive populations of big cities like New York, Los Angeles, Chicago, Houston, Philadelphia, and Miami to dominate the rest of the country. It wants big cities to decide national elections in order to use the power of the federal government to force the rest of America to live under the values that prevail in the urban centers.

As you also know, the left does not believe in states’ rights. Many of the divisions in the country today could be tolerated if the left was willing to allow the people of Tennessee to have prayer in school even if the people of New York did not want it.

But the left won’t do that. Progressives preach tolerance, but have none for conservative values. They will not allow conservatives to live their values anywhere in the entire country. The radical left wants to force the people who live in 80% of the country to kneel before those who live in the other 20%. This growing intolerance for tens of millions of citizens is not progress. It is a prescription for disaster.

Remaking History

Have you heard about the 1619 Project from The New York Times? It is claiming that the country began in 1619 with the first slave ships and thus the country was evil from the beginning.

Newt Gingrich, Rich Lowry, and others are taking it on. And, of course, the critics are being smeared as racists.

This left-wing deconstruction of history is very dangerous. There is no perfect country. But as Tucker Carlson recently noted, no nation can be fairly governed by people who hate it.



For more blog postings from me, see  TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCHPOLITICAL CORRECTNESS WATCH, AUSTRALIAN POLITICS, and Paralipomena (Occasionally updated), A Coral reef compendium and an IQ compendium. (Both updated as news items come in).  GUN WATCH is now mainly put together by Dean Weingarten. I also put up occasional updates on my Personal blog and each day I gather together my most substantial current writings on THE PSYCHOLOGIST.

Email me  here (Hotmail address). My Home Pages are here (Academic) or  here (Pictorial) or  here  (Personal)


1 comment:

ScienceABC123 said...

The left's utopia is a fantasy world, as such they are always at war with reality. If America were the country they want to change it into, they'd immediately want to change it to something else. It's reality they're truly against.