Avoiding “Inequality”

There is widespread discomfort with the word “inequality.” It’s OK in all quarters to use “poverty,” but not “inequality.” Why? Because poverty is something I can choose to alleviate a bit with my discretionary charity–it’s my choice, not my fault that it exists. But, “inequality” implies that something is unfair, maybe even implying that I have more than my fair share, and this means I “should” contribute to alleviating it because it is my obligation, not just my free choice. Inequality means it is my responsibility. People don’t like that.

That’s the essence of it. Most of us like feeling charitable of our own free will, but not feeling obligated to help others.

For example, it has long been clear in the West that the contribution employees of major companies make to United Way (usually the charity of choice for payroll deduction), is almost always entirely discretionary. That means the code of conduct around this is that no employee will ever be confronted by her boss asking why she didn’t commit a larger share of her income. However, not so long ago (e.g., in the 80s), it was common in the East (e.g., Cleveland) that a major employer would specify what percentage of income management felt should be given to United Way (usually 1-3%), and an employee would be challenged if he didn’t meet that target.  I know, because I was the chief of staff to the CEO of a major West Coast bank when he took his rotation to head the U Way campaign for a couple years. He wanted to know why the giving was so much higher in the East than in the West. I went there to find out.

My guess is that this is no longer the case, anywhere in the US. We have evolved to a society where it is almost impossible to find a sense of obligation associated with discretionary giving. It’s so much easier and more fun to give when one can view giving to be entirely charitable–“I do it because I want to–but certainly not because I have any obligation to do so. After all, this is my own hard earned money.”

And this attitude permeates the range of incomes. I think most lower paids also feel this way now. After all, due to what has transpired since 1980, they also have much less to charitably give away.

It is not surprising to find this attitude among Conservatives. For Conservatives, the common view is that those of lesser income, for the most part, simply didn’t apply themselves. That, or maybe those at the top are simply endowed with greater talent and that is just “God given,” not something to be tinkered with. This attitude is bolstered with a conservative economic argument that any kind of redistribution will reduce the incentive of people who are striving to rise–which takes both hard work and the willingness to take risk–the attributes characterizing our forefathers who drove their wagon trains across mountains and plains to earn their fortunes. And then another conservative argument–that if the wealthy are taxed, we won’t have sufficient savings going into investment to drive economic growth.

But it is confusing to find this attitude also common among many liberals Why is it that we also fall prey to this substitution of focus? Here are a few of the reasons that liberals fall into this trap:

• America holds tight to the Horatio Alger theme across all spectrums–the belief that everyone can pull himself up by the bootstraps.
• Those of lower income are vulnerable to a number of appealing elements of the complex Conservative agenda: Reducing taxes is highly appealing when real wages haven’t increased in 30 years, while costs such as housing and college tuition have gone through the roof. It’s easy to vote for tax reduction without realizing that after the politically unchangeable (entitlements and defense), the impact will be reduced funding of the public schools your children depend on for future “mobility” or “opportunity.”
• Lawrence Mishel offers one more important explanation for Centrist Democrats adopting the mobility/opportunity preference over inequality in an April 9, 2015, article for The American Prospect: the top 1% are not only Republican donors, but also Democratic donors. Note Hilary Clinton’s cultivation of Wall Street. I could go on about the big money issue, but that’s not the point of this post.

To summarize, there are all these “appropriate” political terms being used–“poverty,” “mobility,” “opportunity,” “shared prosperity,” and others. There is a rather universal avoidance of the term “inequality.”

Part of the reason is that it’s just easier and more comfortable to view charity as a choice, not an obligation.

Part of the reason is the widespread continued adherence to the American ethic of being able to bootstrap oneself, notwithstanding the increasingly evident greater difficulty in doing so–especially without the right parenting and education. And who can argue those don’t cost money–yes, parenting too–parents working two jobs to get by cannot do the right parenting.

Part of the reason is the seemingly effective Conservative rhetoric, and the attendant loss of confidence in government, which leads to sympathy to just starving government–notwithstanding the impact on schools and support systems.

To make matters worse, it turns out that the US has not only a very high level of inequality compared to other countries, but also has a very high correlation of intergenerational income. Zero on the vertical axis means equality. A high number there (the US) means that our rich parents end up with rich kids. We can debate why this is true, but it is true–and this is NOT positive “mobility.”

The reality is that inequality is real, getting worse, and fixing it is an obligation. For the critics, no, it doesn’t mean making everyone equal. It doesn’t mean destroying incentive or investment. Changes in taxation can be modest, and we should also take from defense and from entitlements.

In a January 29, 2015, article written for Stratfor, George Friedman provides a lucid summary of what has happened to our middle class across the last generation, along with a warning of the dire consequences of allowing the trends to continue. I recommend this article for clarifying what we have all been suspecting.

He starts by comparing the lifestyle opportunities for those of median income in 1989 vs 2011. Median income of 2011 ($49,103), adjusted for inflation, is below that of 1989. Making it even worse, today’s family at median income cannot live comfortably, which was possible in 1989. Friedman breaks it down in detail, but housing costs and college tuition increases in real terms make it far more difficult, without adding up all the rest.

Looking back to even earlier periods of better life for our middle class, Friedman attributes the feeling of great prosperity in the 60s to the GI Bill’s college tuition and attractive mortgage terms for vets returning, and to the interstate highway funding, which made the suburbs reachable and affordable. Thomas Piketty attributes much to Roosevelt’s New Deal and Lyndon Johnson’s Great Society and related programs. Both agree that these kinds of programs resulted from catastrophic events–the Great Depression and WWII. Without such external shocks to motivate something like that in present terms, it appears to both Piketty and to Friedman (and certainly to me) that we are caught in a trend of economic events that is increasingly negative for our middle class.

John Maynard Keynes forecasted in 1930 that by now we would be enjoying a 15 hour work week, due to anticipated advances, primarily in technology. No one will dispute that those came, along with globalization, and indeed brought great wealth. But Keynes failed to anticipate that the benefits of those advances would flow to the owners of capital, and not to the workers.

Friedman describes what happened to corporate America across this period, accelerating since 1980. Long term employment is all but gone. Disruptive innovation is abounding. Those who are not agile enough or too old get left by the wayside. Neither the company nor the government protects them. We are seeing a massive structural shift in the nature of our businesses and our work opportunities.

Friedman argues that our powerful American ideology was built on the idea of perpetually improving living conditions for our middle class. We are losing that, and with that loss we stand to lose a significant portion of our geopolitical power. I have argued in earlier posts that we have unintentionally caused some significant portion of growing terrorism, as young disadvantaged people of color look at our arrogant proselytizing of American ideology and do not find it working in reality–certainly not for them, and not even for us anymore.

My brother was one of the last single employer workers (now retired from Bell South). I had 7 employers. By the numbers shared in Friedman’s article, we both made it above the “medians” and, while not really wealthy, we have had good lives. We worry about our children and grandchildren, for whom the workplace offers little security and little wage growth, if you end up being “just a worker,” not making it to management or a critical skill (like “engineer”= coder, or something like that). And, regardless of your level, you better be agile–there is no net and there is no parachute these days. Disruptive business changes fast, and you have only your own resources with which to respond.

So, do we continue to advantage the wealthy in taxation so as to incent innovation and investment in order to promote more growth which might trickle down; or do we tax the rich, and redistribute into more equalizing programs such as infrastructure and schools?

Friedman summarizes the dilemma: “The left cannot be indifferent to the historical consequences of extreme redistribution of wealth. The right cannot be indifferent to the political consequences of a middle-class life undermined, nor can it be indifferent to half the population’s inability to buy the products and services that businesses sell.”

I agree entirely with his summary of the dilemma, and I respect Friedman’s acknowledgement that the solution is beyond him.

I would only add my opinion that the described challenges to redistribution (the solution proffered by the Left) through higher taxes on the wealthy (reduces investment by wealthy and reduces incentive) are applicable only at much higher levels of taxation than anyone has suggested. Much of profits accumulated to wealthy has not been going into jobs producing investment, and we have had stronger economic growth in periods of our past when taxes on the wealthy were much higher than any liberals are currently proposing.

I believe the pendulum has swung too far to the right. We don’t need to return to anything near past periods of peak taxation, but there is room to move to the left without harming investment or incentive. Would that we could concentrate our bi-partisan attention on just what programs would move us toward more balance–shared prosperity as we believed we could and should provide–a return to our beliefs as a nation, and set an example for the global community.

Inequality and Carbon Emissions

April 7, 2015

There is a likely correlation between these two, but that’s not what this is about. This is a plea for Conservatives (economists and politicians) to take a risk and state clearly their answers to three questions, and then back it up with solid research that everyone can comb through and evaluate.

Here are the three questions:

1.  Is it a problem? (and if not, why not?)

2. If it is, should we do anything about it? (and if not, why not?)

3. If we should, just what do you recommend we do?

Isn’t it infuriating when people criticize one who steps out and takes a position on one of these hot topics, but never even chooses to admit it is a problem and offer another solution to it? Critics are abundant. People who have figured out better solutions and can explain and defend them are few. Those are the ones I am looking for when voting time rolls around.

I watched two recognized economists on youtube yesterday, attacking Piketty’s Capital in the Twenty-First Century. I read the book, and I know that Piketty did not suggest specifics to his wealth tax, except in an illustrative manner. And, in doing even that, he suggested the rate of such tax could be very low (low single digits) and still be quite valuable. So, when one of yesterday’s critics used a 20% tax on grandma’s silver collections (when grandma was assumed to have no income), I was infuriated. Then, he went on to suggest Piketty would tax jobs creating capital investments. Piketty never suggested that. These liberties taken may not be caught by those who haven’t read the book.

Then, there was a long diatribe about how capital and wealth are not the same, that capital cannot be measured, but wealth can, and that it’s not appropriate to substitute wealth for capital. In economics terms, that may be true, but in the real world, that doesn’t really matter. Wealth is a reflection of capital. This is an example of obfuscation–attempting to take advantage of the average reader’s lack of an economics degree, when the particular argument doesn’t even matter.

The names of these economists don’t matter either, because you can google “criticisms of Piketty” and see dozens of them. I think much of the criticism is either professional jealousy against a young French economist who did years of painstaking research and provides it to whoever wants to question it; and to bias on the conservative side. For deep seated bias against doing anything about the rising wealth of the 1% while wages are stagnant for the middle class and below, facts don’t really matter.

So to those two and others of similar mentality: Have a field day with any criticisms you feel–that can be healthy; but, before you leave, answer these three questions.

My own opinion:

1.  It is a problem. Many of us DO care that some make 10’s of millions without giving back. We don’t need to take the majority of their income or wealth, but we should take a larger portion than we are now, not a lesser portion as many Conservatives argue.

2. While some may actually feel the gradual slide toward an oligarchic nation is not a problem, and others may feel it will somehow correct itself without government action, I feel we need action. If somehow economic forces begin to move in the other direction, we can reverse direction in taxation. But if they don’t, we are experiencing increasing social pain that is becoming enormous. This is no longer the egalitarian nation our forefathers envisioned.

3. Redistribution is the only answer. Even Conservatives will not cut major programs to fund measure to help resolve our impending crisis. Unless we can take from existing programs, such as health care (move to single payer system), defense, or social security, we have to have income to rectify our imbalance, and in that case, it can then only come from more taxes. While the US and other developed countries are similar in income distribution before government redistribution, we are among the most unequal when the amount of government redistribution is entered into the calculation–we simply do not provide as well as other developed countries, for health care, education and various social support programs. We can debate how to spend the new money (infrastructure and education would top my list), but we desperately need to get moving.

First, a modest increase in taxes will not dis-incent the super-wealthy. Second, we need the money to start to close the growing divide. Some of the uses can benefit both the wealthy and the poor–e.g., infrastructure.

If any of my readers can direct me to Conservative arguments which address these three questions on either Inequality or carbon emissions, I commit to reading carefully with an open mind. I can’t find them!

It’s so easy to say Piketty’s “wealth tax” won’t work. It’s not so easy to answer the three questions.

Let’s put it this way: If you don’t like my proposal, exactly what would you do?