R>G Revisited

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The Washington Post chose July 4 — a holiday kicking off a three-day weekend — to bury an interesting article, and it’s not hard to see why. Check out Zachary Goldfarb's lede:

After making fighting income inequality an early focus of his second term, President Obama has largely abandoned talk of the subject this election year in a move that highlights the emerging debate within the Democratic Party over economic populism and its limits.

During the first half of this year, Obama shifted from income inequality to the more politically palatable theme of lifting the middle class, focusing on issues such as the minimum wage and the gender pay gap that are thought to resonate with a broader group of voters.

The pivot is striking for a president who identified inequality as one of his top concerns after his reelection, calling it “a fundamental threat to the American Dream, our way of life and what we stand for around the globe.”

The Post is the quintessential establishment newspaper, as in tune with everything DC and its satellite suburbs as it is out of tune with everything else. Generally, the Post house style is to provide justifications for the actions of the powerful and connected, because they must be, on average, wiser and better than the populace — if they weren’t, then how would they have obtained their power and connections?

Imagine a “tax” on power — every year, those in whose hands so much is gathered must surrender a small percentage of it, to be distributed among those who have so little.

With few exceptions, then (notably, the articles on Edward Snowden and national security) you shouldn’t read the Washington Post for intellectual stimulation. Rather, read it for insights into the cramped and contorted psyche of the ruling class — there’s really no better way to place yourself into the sort of mental confines occupied by those who hold federal office.

For instance, to read the paragraphs above, it might seem as if the president is being called out for waffling on a core principle, or worse, betraying a group of people to whom he successfully pandered in the last election. The piece might even be interpreted as a lament for what is “politically palatable” in this country, or for the voters who would put the concerns of the middle class over those of the truly destitute. But the Post would never run even mild criticism without outweighing it with rationalizations or outright praise: thus the focus here is not on the president’s shortcomings, but rather his shrewdness, softening his rhetoric in time for the midterm elections. Where once the president had been determined to bring up inequality, not caring “whether that was a good economic message” (according to that ultimate Beltway insider, the mysterious “person familiar with the process, who spoke on the condition of anonymity in order to discuss private conversations”), he has caved to political reality, and shifted his rhetorical course.

Of course, it must just be a coincidence that this new tack steers the president toward the interests of the DC establishment — and toward Wall Street, to boot. If one thought otherwise, why, there are employees at a whole range of DC-based thinktanks, from the Center for Equitable Grown on the left, to the Heritage Foundation on the right, and plenty more in between, all waiting to give soundbites about how one set of words is so much better than another for this thing called the “American middle class,” which we never actually see in the story, but which must exist given how often these important people discuss it. And of course, even the more radical of Obama’s supporters can delude themselves into thinking that such strategery is necessary so that Obama can devote himself to truly egalitarian reforms in his final two years.

It would be unthinkably gauche for the Post to suggest that Obama’s rhetoric on inequality was never sincere, or to point out that Wall Street has overwhelmingly backed Obama from the start — that’s left for journalists such as Tim Carney and unfavored papers such as the Washington Examiner to do. But all in all, the performance in this article isn’t entirely convincing, as if even the Post was tiring of repeating the talking points of K Street thinktankers and anonymous apparatchiks. Maybe it’s the Snowden files, or maybe it’s the shift to a new generation, or maybe it’s just the unstable position of newspapers with our digital present, but the Post is a little uneasy about just how much the people at the top control. And that means at least some portion of the establishment is uneasy about that as well.

The president might have to stop ordering people locked up or killed without some pretense of due process.

All of this made me revisit the discussion in these pages of Thomas Piketty’s book Capital. Piketty’s massive tome oversimplifies to a single principle, given as r>g, meaning that the rate of return on wealth exceeds the rate of economic growth, at least in Western industrialized nations. Were this true, then income inequality would inexorably increase, and wealth would be concentrated in ever greater amounts in ever fewer hands. Of course, as Mark Skousen and Leland Yeager showed, Piketty’s principle rests on several unsustainable assumptions about the permanence of capital and the assumption of risk.

However, Piketty’s principle makes a lot of sense when viewed as a statement not about wealth, but about political power. Yes, the two are related; in the present day, perhaps fatally so. But that sort of crony capitalism would be impossible without the power consolidation represented by Washington DC — the very arrangement that ensures that power will continue accruing to those already neck deep in it.

Piketty’s preferred solution for his perceived economic problem, a wealth tax, would only increase the flow of money going into, and much more rarely out of, our imperial metropolis. Imagine, however, an equivalent “tax” on power — every year, those in whose hands so much is gathered must surrender a small percentage of it, to be distributed among those who have so little. There are benefits straight off: everyone in office would have to list off all the political powers and assets they think they possess, and these could then be compared to the Constitution to get an idea of how deep the cuts would have to be.

Ideally, the tax would be progressive, so that those with comparatively little scope of power, such as first-year podunk-state congressmen with bottom-tier committee assignments, would only give up, say, a sugar subsidy that helps out a campaign donor. Those at the top, meanwhile, would be expected to turn over much more for the commonweal: the president, for instance, might have to stop ordering people locked up or killed without some pretense of due process.

It would take a while. And realistically, it would never come close to evening things out. But if we had such a mechanism that put power back in the hands of the people — as in, actual control over their own lives, not just as some weak metaphor for voting blocs — we could nonetheless do a great deal to reduce political inequality in the United States. And that would go much farther toward protecting The American Dream, our way of life, and what we stand for around the globe than anything else Obama or any other DC denizen might choose to do.



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What Football Teaches about a Planned Economy

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The growing gap between the poor and the rich (at least the very rich) is reason for concern. With wealth concentration at the top, and an apparently shrinking middle class, no nation can thrive economically, politically, or culturally. But the path forward is not through a centrally managed economy. An economy controlled by the government cannot eliminate economic disparity. If you don’t believe me, look at professional football.

This weekend we saw the divisional playoff round unfold. On the AFC side of the playoff bracket every team that appeared in the divisional round last year appeared this year, and three of the four teams — Baltimore Ravens, New England Patriots, and Denver Broncos — have been playoff regulars for more than a decade. A similar story is told on the NFC side. The Green Bay Packers and San Francisco 49ers were once again in the second round of the playoffs, and each is a storied franchise with regular appearances in the playoffs and Super Bowl. The Seattle Seahawks made their second appearance in three years, and the Atlanta Falcons made their third trip in a row to the playoffs — their fourth in five years.

The winners from this weekend further illustrate the idea that the best teams in the NFL remain relatively the same over time. The 49ers, seeking their sixth Super Bowl appearance, are in the NFC championship game for the second year in a row. The AFC championship game is a repeat from last year and it is the third time in four years the Ravens and Patriots have faced one another in the championship game.

We should not expect this sort of regularity in professional football, and we should see more parity — if centrally planned economies work as expected.

Professional football is a centrally planned economy, with rules to help the worst teams and keep the best ones from always winning. Two of these rules are especially obvious and powerful.

First, the worse a team is, the better draft picks it gets. It is thus, theoretically, able to improve at a faster rate than the teams that pick behind it.

Second, there is a salary cap that keeps teams from spending as much as they might on players. This keeps the most talented players from concentrating in the biggest markets, such as sometimes happens with the Yankees or Red Sox in baseball, where there is no salary cap. In football every team has the same amount of money to spend on players.

In the planned football economy, we should see a more random playoff picture year to year, but instead the gap between successful teams and unsuccessful teams is growing.

In football, then, we should see a more random playoff picture year to year, but instead we get regularity. Such teams as the Cleveland Browns and the Kansas City Chiefs find it difficult to win consistently — and the gap between successful teams and unsuccessful teams is growing. The reason: rules may not be crucial, so long as they are applied fairly. If rules are applied fairly, the better-run organizations will come out ahead on a regular basis. They will separate themselves from the pack. There will be aberrations, but over time, the best will win more regularly.

This little sports experiment indicates that if a centrally managed economy is installed, and rules applied fairly, there will still be winners and losers, and there will still be a disparity between the haves and have-nots. After all, the Dallas Cowboys are worth over $2 billion and the Jacksonville Jaguars just sold for $760 million. And this in a league that has rules aimed at producing competitive and economic parity.

But what we know of politics and business is that the rules don’t always get applied fairly. The more money and power one has, the more access and leverage one can get within the political apparatus. Just ask the National Rifle Association or AIG. Thus, it becomes paradoxical to think that government policy, shaped as it is by lobbyists and special interests, will be equitable and fair. Turning to government to fix economic disparity is turning to the proxy for those at the top of the economic food chain. Those who want the government to intervene in the economy to correct economic disparities miss this paradox.

We have seen the government play favorites during the 2008–09 Wall Street bailouts. We have seen it play favorites in the subsidization of companies such as Tesla and Fisker (makers of $100,000 electric sports cars). Smaller banks, and companies without political influence, are left to sink or swim on their own, while larger ones, and ones that promote a government policy, are naturally aided by the government and use it to maintain an advantage.

Ideally we would see a free market solution adopted because people recognized the paradox and the futility of relying on the government. But a wholesale remake of the political economy is likely not going to take place. This isn’t to say that people are right to compromise their principles, but like a good quarterback, people tend simply to take what the defense will give them and enjoy small victories along the way.

The only feasible solution to this problem is to have simple, transparent government policies for regulations and taxes. The complexity of the tax code and the policies regulating business make it nearly impossible for anyone without a team of attorneys and accountants to chart a successful path. The federal tax code alone is so complicated that it’s not clear whether the fiscal cliff bargain raised or lowered taxes.

If simplicity and transparency were instituted, however, anyone who cared to pay attention would be qualified to do so, thus making it far more likely that the rules would be fairly written and fairly applied. The average citizen would no longer be at the mercy of politicians or pundits when struggling to decipher what the government had actually done.

Of course, simplicity and transparency would not generate economic equality either; but that's not the goal. Inequality is going to exist. Our primary concern ought to be with inequality generated, or exacerbated, by government intervention.




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The Healthy Society

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British Prime Minister David Cameron, speaking on February 5, deplored “state multiculturalism,” a failed doctrine of “encourag[ing] different cultures to live separate lives, apart from each other and the mainstream.” Immigrants should feel, rather, that they were living in an inclusive society, sharing a national identity, culture, curriculum, and language. Lacking such a sense of belonging and experiencing, instead, segregation and separatism, some young Muslims in Britain had turned to extreme Islamism. Cameron cited the “horror” of forced marriage in some immigrant communities. He proposed “a two-month programme to show sixteen-year-olds from different backgrounds how to live and work together.”

Earlier, on October 16, Chancellor Angela Merkel had expressed similar worries for Germany, home to some four million Muslims. The idea of people from different cultural backgrounds living happily "side by side" without a common culture did not work, she indicated: "This [multicultural] approach has failed, utterly failed." French President Sarkozy has said similar things.

Such remarks might be code words for anti-Islamism, but I am not cynical enough to think so. The worry of Cameron and others seems plausible, but it requires nuancing. It is perhaps soundest for a situation with two aspects. First, only one substantial immigrant culture, rather than several, confronts the local culture. Second, the authorities work to preserve the distinction — as, for instance, through year-by-year, not just transitional, public-school instruction in the immigrant language.

But this scenario does not necessarily recommend the opposite: different cultures melted into a homogeneous dominant one. A good society, true enough, does require consensus on ethical norms such as treating other people honestly and honorably, respecting their rights and property — not cheating, stealing, or committing aggression. Such consensus can accommodate differences in details of etiquette and lifestyles (arguably extending to same-sex and even polygamous marriages). Furthermore, a good society requires acceptance of a common legal system, without special privileges or burdens for particular groups. Consensus on the political system also rules out seeking change by violence, but it admits advocating even radical change by constitutional means.

While rejecting militaristic and imperialistic nationalism, Ludwig von Mises welcomed liberal nationalism, including movements for liberation and unity of populations speaking a common language (Nation, State, and Economy, 1919/1983). Liberal nationalism can be a bulwark of peace. Different nations should be able to respect and — to interpret a bit — even share in each one’s pride in its own culture and history. By extension, such mutual respect and celebration can extend to members of different national heritages within a single country. A healthy multiculturalism welcomes a diversity of interests and heritages without official favor or disfavor for any.

A diversity of national heritages can enrich a country’s overall culture. Quasi-native speakers of heritage languages, especially with their own publications and broadcasts, can promote language-learning and can be useful in diplomacy and in war. Diversity even of national restaurants and foods — Chinese, Mexican, Greek, German, French, and so on — multiplies options for work and for leisure. Cultural diversity can bolster a general awareness of history.

Diverse national heritages can scarcely offer benefits as great as those of the occupational division of labor and of domestic and international trade. They can, however, multiply the variety of niches in life in which a person or a family can feel comfortable and important. They can help avoid the dismal opposite, a society in which individuals must feel superior or inferior in competition on a single scale of overriding significance (money being the most obvious metric). A diverse society includes all sorts of (decent) persons, including, yes, entrepreneurs and investors obsessed with creating wealth and making money. Few people, however, can realistically expect outstanding success on the monetary scale. Pursuing an unattainable material equality would foster attitudes and politics incompatible with a quasi-equality of a more humane and more nearly attainable type.

A healthy society — to continue my amateur psychologizing — comprises many “noncomparing groups” (so called by analogy with the noncompeting groups recognized by the 19th-century economist John Elliott Cairnes). People should not be ranked according to the fields in which their accomplishments lie. Each person should have a chance to excel in something, whether craftsmanship, business, scholarship, athletics, a hobby such as collecting classic cars or rare coins, a religious group, travel and adventure, conviviality, or self-effacing service to mankind.

And, yes, cultivating a national heritage. Many kinds of excellence should be as respectable as the amassing of fortunes. A teacher could continue associating without embarrassment with former colleagues or students who had become business tycoons, not because progressive taxation had lopped off their huge incomes but because scholarly values and monetary values were regarded as incommensurate yet of equal dignity. While the approach to equality sought by left-liberal egalitarians implies measurement, true liberals need to follow Herbert W. Schneider (Three Dimensions of Public Morality, 1956, p. 97; cf. pp. 100, 118) in emphasizing "the incommensurability of human beings.”




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