Wednesday, August 1, 2012

The Inequality Two-step

Inequality is the polite drawing-room version of the Exploitation narrative.  The Exploitation narrative, so ably set up by Marx, says that the workers inevitably get screwed by their employers.  So government is needed to redress the balance.

The Inequality narrative is more nuanced. It says that inequality is getting worse, so government is needed to redress the balance.  In a review of Timothy Noah's book on inequality, The Great Divergence, Scott Winship takes us through the many mansions of liberal ideas on inequality, and how it is getting worse.  Of course, liberals like to tell this story in a Three Ages template.  First there was a Golden Age after World War II when inequality was low due to strong labor unions, but then, after 1973, it all fell apart as the rich got richer faster.  In the new age, liberals will rectify the problem.  Here is Timothy Noah's solution.
Noah wants to “soak the rich,” create a public-jobs program, “impose price controls” on colleges, “revive the labor movement,” and “elect Democratic Presidents.”
The poor do better under Democratic presidents, you see, although I doubt if they are doing very well under Democratic President Obama.  And the Buffett Rule will stop people from becoming rich.

The problem with the Inequality narrative is that people don't stay where they are put.  Thomas Sowell:
The turnover of people is substantial in all brackets — and is huge in the top 1 percent. Most people in that bracket are there for only one year in a decade.

All sorts of statements are made in politics and in the media as if that top 1 percent is an enduring class of people, rather than an ever-changing collection of individuals who have a spike in their income in a particular year for one reason or another. Turnover in other income brackets is also substantial.

There is nothing mysterious about this. Most people start out at the bottom, in entry-level jobs, and their incomes rise over time as they acquire more skills and experience.
So, what does it do when you impose over this changing situation big clumsy government programs that assume that "the poor" and "the rich" are enduring categories?

There are three steps to the Inequality program, and every step is fraught with questions.  First of all, how much inequality is in fact harmful and unjust?  Second, can programs be devised to ameliorate inequality?  Finally, can any program avoid the introduction of new, legally mandated inequalities?

The record isn't good.  Let's look at a few.  We have universal education, yet clearly middle and upper income people benefit from the education system much more than the poor.  The poor get lousy schools, and the children of the rich get lifetime professorships.  We have national pensions.  But that means that the poor never get a chance to accumulate real wealth, since the government collects their retirement savings through taxes and then returns it in a benefit payment.  Upper-middle class people save money for homes and retirement.  But the money is not just directed at single uses.  It is available throughout life, for starting a business, sending kids to college, for travel, for end of life care.

The liberal approach to everything is a rigid, one-size-fits-all government program, that is so big and clumsy that it can never be reformed.  The smart people figure out how to game the system and the poor get left with the crumbs.

There has to be a better way to deal with inequality.

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