Eliminating Inequality?

So President Barack Obama and the Democratic Congressional leadership are going to end inequality? A half century after President Lyndon Johnson’s attempt to eliminate poverty, progressives aim higher. While cynics may think the real goal is changing the subject from Obamacare, most progressives actually have kept the faith. Eliminating inequality guarantees the moral high ground, especially with a supportive media who also desperately want to believe and who will faithfully transmit whatever theme their political allies send their way.

The media are so culturally dominant that progressives trap themselves into the delusion that everyone down deep agrees with them on equality. The columnist and former Bill Clinton aide William Galston is a good example, claiming: “Most liberals agree with most conservatives that the objective is equal opportunity.” He even quotes Rep. Paul Ryan saying “the condition of your birth does not determine the outcome of your life” as support for the progressive equality agenda. But that agenda actually requires more federal government redistributive, anti-poverty, educational, jobs and family programs that are not so broadly supported.

Washington Post columnist Harold Meyerson will laud President Obama’s commitment to equality and additional redistribution but objects that even the president supports a Pacific trade pact that could reduce the number of American manufacturing jobs resulting in increased U.S. inequality. “By now even the most ossified right-wing economists concede that globalization has played a major role in the loss of American manufacturing jobs” with its “stagnation of U.S. wages and income.” But do they agree trade reduces overall employment or equality?

The pope is even recruited into the righteous cause of eliminating inequality. But are they all really talking about the same thing? Meyerson opposes trade because he believes poor foreigners underbid American workers to win manufacturing jobs from them, with U.S. blue collar workers presumed to lose jobs and income relative to richer Americans thus increasing U.S. inequality. Even if this were true, poor foreigners earning more income actually reduces world inequality. Even Galston believes free trade helps the poor. Meyerson’s is not support for the moral ideal of universal equality as promoted by Pope Francis but quite the reverse by supporting more income for already relatively advantaged Americans at the expense of the foreign poor.

President Johnson launches the War on Poverty, January 8, 1964.

President Johnson launches the War on Poverty, January 8, 1964.

Johnson’s War on Poverty was one program praised by all progressives. But there are reservations. Galston rejects Ronald Reagan’s quip that the U.S. fought a war on poverty and poverty won; but he concedes that the U.S. only “fought poverty to a draw.” Roughly 15 percent of Americans were below the official poverty level by the end of Jimmy Carter’s recession in 1983 and 15 percent still are after today’s Great Recession, a seeming economic stalemate. The Post’s Dana Milbank relying on White House data disagrees, claiming that “if you include all the financial assistance from anti-poverty programs the poverty rate drops to below 8 percent today.”

But the issue is not whether the government spent the money but did it reduce poverty without offsetting negative effects? Republican Sen. Marco Rubio notes that after five decades and trillions of dollars spent, 4 million Americans remain out of work 6 months or more, 49 million people are below the official poverty level, 100 million are receiving federal food aid, labor force participation is at a 30 year low, and the bottom 20 percent of income earners are “stuck there for life.” A study by Bruce Meyer and James Sullivan, however, suggests that based on actual consumption, real poverty is as low as 5 percent: half of those officially poor actually have computers, 36 percent have dish washers and 43 percent have central air conditioning. A recent Census Bureau report found that while as many as 31.6 percent fell below the official poverty line over a recent three year period, only 3.5 percent were stuck there the whole three years.

Official statistics have never counted non-monetary assistance, nor have they looked over periods of time, or at consumption so they have always exaggerated the extent of poverty. Even recognizing some gains from government programs, and the economy generally, Robert Samuelson concedes this was not in fact the aim of the War on Poverty, which Johnson said was for “most poor people [to] become more productive, independent and middle class.” This did not happen. The most popular education program Head Start shows gains at the onset but they are dissipated as soon as the third grade with no positive educational or earnings improvement thereafter. While there has been a net transfer to seniors, it has come from the young. Welfare for poor women has allowed them to gain independence from earned wages from potential husbands but has transferred dependency to government. As a consequence, the share of single-parent families in the U.S. has tripled since the war on poverty, up to 34 percent today. Children of such marriages are more likely to drop out of school, get pregnant before age 20 and be unemployed, self-perpetuating poverty rather that eliminating it. In the 1960s only 6 percent of men between ages 25-54 were without jobs compared with 17 percent of men today, the supposed beneficiaries of jobs programs.

It is clear that nothing in the president’s State of the Union or the Senate Democrats’ proposals would do anything that would eliminate poverty more than the past fifty years of poverty fighting, much less reduce inequality. The only difference today is there is no more money or the willingness to spend what there is, as the polls clearly demonstrate. Even many proponents know this; deep in their heart of hearts most do not believe that redistribution would do much to solve the paradox that the more funds are redistributed downward, the more work incentives and independence are reduced. The great French analyst Alexis de Tocqueville warned that this was the threat to American democracy. Indeed, Aristotle said it more generally even earlier.

As the Tax Foundation’s Scott Hodge shows, the top fifth in the U.S. already redistribute 21 percent of their income downward and would have to be taxed at 74 percent to reach income equality. While it is anathema to progressives, the data show that, in general, countries with developed economies and freer markets are more equal (as measured by the Gini index) than less capitalist economies. Indeed, it is reasonable to conclude that the only way world inequality has been reduced has been through market capitalism supported by a tradition of family, work, property and individual moral responsibility. Beyond providing welfare to the relatively few truly needy (presumably mostly lacking computers, central air or dishwashers) and giving temporary assistance to those facing real emergencies—both mostly done by local people who can assess the need, as Tocqueville illustrated—national government policies probably have a net negative effect on Johnson’s goals of productivity, independence, and rising to the middle class.

Contrary to the progressives, America does not need agreement on some policy panacea to end poverty and inequality enforced by Washington experts. What it needs is recognition that the national welfare state is failing and that Americans need to begin the long journey back to the federalism and freedom that made the U.S. the envy of the world.

Donald Devine is senior scholar at the Fund for American Studies, the author of America’s Way Back: Reconciling Freedom, Tradition and Constitution, and was Ronald Reagan’s director of the U.S. Office of Personnel Management during his first term.

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Comments

  1. R Richard Schweitzer says

    This is a very fine disquisition on economics and social impacts of “policy.”

    While no one should want to discourage in any way presentations and opinions of this kind here, one may always hope to find in them some link to the impacts on Liberty; more particularly some relationship with or effects upon **individual** liberty -basically what happens to freedoms.

    This is not to suggest the relegation of economically or sociologically oriented posts to EconLog, merely the inclusion within them of some sense of their connections to Liberty.

    • says

      I share your perspective. It seems that assessing the consequences of policy on liberty is often left as an exercise for the reader. As a starting point, I would suggest taking whatever policy object that has been established by fiat and sanctified by pathos, e.g. diversity, equality, safety, healthcare, etc., and ask whether promoting such object justifies the use of government force. It may, or may not, but if it does, will its use ultimately defeat the purposes for which it was employed? How do we measure and determine the boundary of legitimate force? How should we address the possibility that government force will become excessive, and that the incremental increases in diversity, equality, safety and so on, do not justify its use?

  2. nobody.really says

    ”So President Barack Obama and the Democratic Congressional leadership are going to end inequality?”

    I know Obama has discussed reducing inequality. Has he proposed eliminating it?

    ”The media are so culturally dominant that progressives trap themselves into the delusion that everyone down deep agrees with them on equality. The columnist and former Bill Clinton aide William Galston is a good example, claiming: ‘Most liberals agree with most conservatives that the objective is equal opportunity.’ He even quotes Rep. Paul Ryan saying ‘the condition of your birth does not determine the outcome of your life’ as support for the progressive equality agenda. But that agenda actually requires more federal government redistributive, anti-poverty, educational, jobs and family programs that are not so broadly supported.”

    Again, can we find a quote asserting that everyone agrees with progressives about inequality?

    For what it’s worth, a recent Gallup poll showed that 67% of Americans were dissatisfied with the distribution of wealth and income in the US, while a recent NBC News/Wall Street Journal survey showed that 51% of Americans want government to continue to be involved in reducing equality – including 37% of Americans that want government to do more. http://www.latimes.com/business/money/la-fi-mo-income-inequality-obama-state-of-the-union-20140128,0,7223382.story#axzz2tsk4NGzs

    So clearly a statement that there is unanimity of opinion would be an exaggeration.

    [T]he aim of the War on Poverty, … Johnson said[,] was for “most poor people [to] become more productive, independent and middle class.” This did not happen.

    Didn’t it? It is often useful to distinguish between the chronically poor and the transiently poor. Most people who fall below the poverty line in a year will rise more productive and independent (as measured by an increase in income) over time. This dynamic likely predated the War on Poverty programs.
    (Sometimes people will demand accountability from an anti-poverty program by demanding reports on how many people have “gotten out of poverty.” This gives program administrators the incentive to withdraw resources used to help the chronically poor, and instead focus resources on helping the barely poor, e.g., college students. Indeed, it provides an incentive the spend resources simply on COUNTING the barely poor and then tracking them until they pop above the poverty level. Moral: Beware of clueless people demanding accountability.)

    Whether the majority of people who ever fall below the poverty line ultimately reach the middle class presumably depends on the definition of “middle class.”

    In the 1960s only 6 percent of men between ages 25-54 were without jobs compared with 17 percent of men today, the supposed beneficiaries of jobs programs.

    Why supposed?

    True, the data suggests that changes in government programs since 1960 have depressed employment for men ages 25-54 – if we can assume that there have been no other changes over that period that would affect employment. Changes such as globalization. Changes such as modernization that has placed an ever higher premium on education and an ever lower premium on muscle power. Changes such as the growth of ever more addicting drugs, the growth of incarceration rates that make people unemployable, and the growth of tracking data (employers demanding Social Security numbers on job applications) that make it harder for people to escape the mistakes of their past.

    Alternatively, we could conclude that blue-collar workers face ever bleaker employment prospects regardless of government programs, and while government programs may soften the blow borne by the working class, they haven’t deflected it entirely.

    It is clear that nothing in the president’s State of the Union or the Senate Democrats’ proposals would do anything that would eliminate poverty more than the past fifty years of poverty fighting, much less reduce inequality. The only difference today is there is no more money or the willingness to spend what there is, as the polls clearly demonstrate.

    What cause is there to believe that there is no more money? Last I checked, GDP had never been higher – and the polls I cited suggest people favor moderating inequality.

  3. nobody.really says

    ”[T]he more funds are redistributed downward, the more work incentives and independence are reduced.”

    How do we measure work incentives and independence? And how much incentive and independence is enough?

    As the Tax Foundation’s Scott Hodge shows, the top fifth in the U.S. already redistribute 21 percent of their income downward….

    And what should we conclude from that? What, exactly, should we compare that to?

    Let’s take a market test (“revealed preference”): People in the top fifth of the US have the resources to move elsewhere. By and large, they don’t. This suggests that whatever burdens they feel from being subjected to progressive policies are outweighed by the benefits. In short, 21 percent isn’t high enough yet.

    In part, this reflects the idea that these studies are based on allocations of benefits, not measures of incremental costs and benefits. As Adam Smith remarked, “Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.” Thus, it’s silly to treat things such as law and order as a zero-sum commodity, wherein we assume that the amount of benefits bears some relationship to cost – but if you did, you should assume that people with property derive a disproportionate share of the benefit. It mattered little to the peasant farm worker where the bureaucrats drew the national boundaries at the end of WWI — but the rich cared a lot.

    Or here’s another point of comparison: Imagine that “productivity” and “independence” are motivated by (and reflected in) after-tax power to consume. Hodge cites a study showing that families in the top fifth have an average net “market income” (Income + gov’t benefits – taxes, but inexplicably excluding transfer payments such as Social Security) of around $250,000 – that is, roughly, the power to consume $250,000/yr. So find a society anywhere, anytime, in which people experienced “productivity” and “independence.” (Say, the US during the Reagan Administration?) Now calculate the average net market income of the top fifth of those people. Adjust for inflation. Is it less than $250,000? Then this suggests that the US could adopt still more progressive policies and not eliminate “productivity” and “independence.”

    In short, rising taxes does not impede incentives – so long as incomes are rising faster. By the standards of any place and any time in history, today’s top 20% have VAST after-tax income – even after the Obamacare taxes are considered. If you need an after-tax income exceeding $250,000/yr to experience “independence,” then independence is a very recent – and very scarce – invention. And the idea that members of the top 20% would whimper that an average after-tax income of $250,000/yr is not sufficient to motivate them to be productive would cause their aristocratic forebearers to blanch.

    • gabe says

      Upon further reflection, I have decided to come over to your side. Indeed, I think you do not go far enough. In an effort to assure (insure, perhaps) equality, I believe we must make this part of every American’s daily routine.
      Thus, I am proposing that any time a group of more than three persons assembles, it SHALL be required that each of them removes their wallets and debit cards (available amounts may be checked electronically) for an inspection of current accounts. Simple math will then allow us to re-distribute sums such that each of the participants have an equal sum of money and can maintain their self esteem (not to mention being able to buy a better brand of bourbon). Further, each may then imbue themselves with that MORAL RECTITUDE derived from good intentions.
      What could be fairer? Just consider how each and every day will allow you to be filled with a sense of good will and unlike your [proposal it does not only hit the rich. EVERYONE participates or Nobody does.

      I am looking forward to it!

      Have fun

    • Scott Amorian says

      “Then this suggests that the US could adopt still more progressive policies and not eliminate “productivity” and “independence.””

      If I retain only 1% of my independence, it will not be eliminated. I will still be able, when I sit down for dinner, to choose whether to eat all of my government allocated porridge, or just some of it. At my government mandated job I will be productive to some degree. I will not migrate to some other district because I am not allowed to, but I will still be able to choose whether to walk on the sunny side of the street, or the shady.

      I can make no sense of anything you said.

  4. gabe says

    One may wish to debate whether higher tax rates do do not disincentivize the $250k / yr types but why not consider what it does to jobs. Does nobody remember the luxury tax on autos and airplanes. Seems like Kansas almost went out of business and the time and detroit took quite a hit also.

  5. says

    Hey guys, I’ll take David;s last sentence — and keep working at Federalism.
    “What it needs is recognition that the national welfare state is failing and that Americans need to begin the long journey back to the federalism and freedom that made the U.S. the envy of the world.”
    Respectfully, John

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