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© 2008 – 2014 John T. Burke, Jr.

Wealth Redistribution

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One of the sleaziest, most disingenuous arguments exploited by politicians is the “wealth redistribution” theme.  Whenever an influential corporate sponsor of some creepy politician is confronted with proposed legislation, which might change the status quo by reducing unconscionable profiteering, we are told that the new bill is a “socialist” attempt at “wealth redistribution”.  Unfortunately, there are too many sheeple who don’t realize that “wealth redistribution” already happened.

The recent uprisings in the Middle East have demonstrated how difficult it can be to maintain a plutocracy in the modern world.  As the American voting public becomes more familiar with the economic circumstances which led to the Egyptian turmoil, attention gradually gets refocused on how our domestic situation compares with Mubarak’s dystopia.  Blogger “George Washington” (a former law school professor) of Washington’s Blog recently wrote a piece concerning how the “Gini coefficient” demonstrates that America’s upward wealth redistribution has reduced this nation to banana republic status:

Egyptian, Tunisian and Yemeni protesters all say that inequality is one of the main reasons they’re protesting.

However, the U.S. actually has much greater inequality than in any of those countries.

Specifically, the “Gini Coefficient” – the figure economists use to measure inequality – is higher in the U.S.

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Gini Coefficients are like golf – the lower the score, the better (i.e. the more equality).

According to the CIA World Fact Book, the U.S. is ranked as the 42nd most unequal country in the world, with a Gini Coefficient of 45.

In contrast:

  • Tunisia is ranked the 62nd most unequal country, with a Gini Coefficient of 40.
  • Yemen is ranked 76th most unequal, with a Gini Coefficient of 37.7.
  • And Egypt is ranked as the 90th most unequal country, with a Gini Coefficient of around 34.4.

And inequality in the U.S. has soared in the last couple of years, since the Gini Coefficient was last calculated, so it is undoubtedly currently much higher.

So why are Egyptians rioting, while the Americans are complacent?

Well, Americans – until recently – have been some of the wealthiest people in the world, with most having plenty of comforts (and/or entertainment) and more than enough to eat.

But another reason is that – as Dan Ariely of Duke University and Michael I. Norton of Harvard Business School demonstrate – Americans consistently underestimate the amount of inequality in our nation.

Ariely and Norton’s paper, based on their 2005 poll of 5,522 citizens about their preferences for wealth division, has been the subject of much commentary.  Last fall, Bruce Watson wrote an article for Daily Finance discussing Ariely and Norton’s report.  As Watson explained, the following empirical data compiled by Professor Edward Wolff, (and incorporated into the Ariely-Norton paper) portrayed the “real world” wealth distribution in America:

Currently, 85% of America’s wealth, which is defined as total assets minus total liabilities, is held by the country’s richest 20%.  Meanwhile the upper middle class holds 11%, the middle class has 4%, and the lower class and poor share an anemic 0.3%.

Here’s how Watson summarized the results of the Ariely-Norton research:

In the poll, the vast majority of Americans across the political, gender and wealth spectrum displayed a markedly skewed understanding of how America’s money is divided.  On average, respondents thought that the rich hold only 58% of the nation’s wealth, 32% less than their actual holdings.  They thought that the middle class controls 13% of the country’s wealth, more than three times their actual holdings.  As for the bottom 40% of the population, the assumption was that the lower class and poor own a measly 9% of the country’s wealth.  In reality, these two groups control about one thirtieth of that amount.

Who Should Get the Money?

Although the perception that America’s wealth distribution is unfair cut across partisan lines, Republicans and Democrats disagreed about the ideal distribution.  People who voted for George Bush believed that the richest 20% of the population deserved roughly 35% of the nation’s wealth.  Kerry voters radically disagreed:  they felt that the rich deserved only about 30%. When it came to the country’s poorest citizens, Bush voters felt that they deserved about 9% of the country’s assets; Kerry voters preferred to give them 12%.

Respondents making over $100,000 per year, the group most heavily skewed toward a top-heavy distribution of wealth, advocated a system in which the top 20% received about 40% of the country’s assets and the bottom 20% got roughly 7%.  Yet even this comparatively Dickensian wealth distribution still gave America’s rich less than half of their current holdings, while giving the poorest more than twenty times their current holdings.

In October of 2008, before the full extent of the Wall Street megabank bailouts had been completely understood by most Americans (and before those multi-million-dollar bonuses had been awarded to the malefactors who caused the financial crisis) the Gallup Organization conducted a poll on the subject of wealth redistribution.  This is what they observed:

A majority of Americans (58%) say money and wealth should be more evenly distributed among a larger percentage of the people, although slightly less than half (46%) go so far as to say that the government should redistribute wealth by “heavy taxes on the rich.”

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Still, in each of the four times Gallup has asked this question in recent years, between 45% and 51% of Americans have gone so far as to agree with the fairly harsh-sounding policy of “redistribut[ing] wealth by heavy taxes on the rich.”

Because the polls discussed above reveal that the current wealth distribution is unacceptable to most Americans, the “wealth redistribution” argument — as it is often used by politicians – should be a non-starter.  Perhaps a program of  “enhanced tax incentives for generosity” might enjoy more widespread acceptance than Gallup’s “heavy taxes on the rich” – to the point where an overwhelming majority of Americans would support it.

Unfortunately, unless that “overwhelming majority of Americans” has an army of lobbyists to advance such an initiative, the cash registers politicians portraying the effort as “socialism” will be the only voices that matter.



Formula For Failure

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The Democratic Party is suffering from a case of terminal smugness. Democrats ignored the warning back in 2006, when the South Park television series ran the episode, “Smug Alert”.

I recently came across a dangerous manifestation of  “The Smug” in a recent article written by Ed Kilgore for The New Republic, in which Mr. Kilgore complacently explained “why Obama won’t face a primary challenge”.  We are supposed to forget about the “shellacking” taken by Democrats in the mid-term elections.  We are to ignore the fact that “mischief-making pundits have seized on a couple of polls to burnish their narrative”.  In an act exemplifying what my late father described as “tempting fate”, Mr. Kilgore proceeded to belittle the most serious criticisms of the President, while daring lightening to strike:

Above all, primary challenges to incumbent presidents require a galvanizing issue.  It’s very doubtful that the grab-bag of complaints floated by the Democratic electorate — Obama’s legislative strategy during the health care fight; his relative friendliness to Wall Street; gay rights; human rights; his refusal to prosecute Bush administration figures for war crimes or privacy violations — would be enough to spur a serious challenge.  And while Afghanistan is an increasing source of Democratic discontent, it’s hardly Vietnam, and Obama has promised to reduce troop levels sharply by 2012.

The timing of Kilgore’s supercilious disregard of a challenge to Obama’s presence atop the 2012 ticket could not have been worse.  Thanks to the efforts of the late Mark Pittman, a Freedom of Information Act lawsuit filed by Bloomberg News has forced the Federal Reserve to disclose the details of its bailouts to those business entities benefiting from the Fed’s eleven emergency lending programs initiated as a result of the 2008 financial crisis. The Fed’s massive document dump on December 1 (occurring right on the heels of the WikiLeaks publication of indiscretions by Obama’s Secretary of State — Hillary Clinton) has refocused criticism of what Kilgore described as the President’s “relative friendliness to Wall Street”.  Although Mr. Obama had not yet assumed office in the fall of 2008, after moving into the White House, the new President re-empowered the same cast of characters responsible for the financial crisis and the worst of the bailouts.  The architect of Maiden Lane III (which included a $13 billion gift to Goldman Sachs) “Turbo” Tim Geithner, was elevated from president of the New York Fed to Treasury Secretary.  Ben Bernanke was re-nominated by Obama (over strenuous bipartisan objection) to serve another term as Federal Reserve Chairman.

In the 2008 Democratic Primary elections, voters chose “change” rather than another Clinton administration.  Nevertheless, what the voters got was another Clinton administration.  After establishing an economic advisory team consisting of retreads from the Clinton White House, President Obama has persisted in approaching the 2010 economy as though it were the 1996 economy.  Obama’s creation of a bipartisan deficit commission has been widely criticized as an inept fallback to the obsolete Bill Clinton playbook.  Robert Reich, Labor Secretary for the original Clinton administration recently upbraided President Obama for this wrongheaded approach:

Bill Clinton had a rapidly expanding economy to fall back on, so his appeasement of Republicans didn’t legitimize the Republican world view.  Obama doesn’t have that luxury.  The American public is still hurting and they want to know why.

The Pragmatic Capitalist criticized President Obama’s habitual reliance on members of the Clinton administration as futile attempts to bring about the same results obtained fifteen years ago.  Obama’s appointment of Erskine Bowles (Clinton’s former Chief of Staff) as co-chair of the deficit commission was denounced as a recent example.  Bowles’ platitudinous insistence that it’s time for an “adult conversation about the dangers of this debt” drew this blistering retort:

Yes.  America has a debt problem. We have a very serious household, municipality and state debt crisis that is in many ways similar to what is going on in Europe.   What we absolutely don’t have is a federal government debt problem.  After all, a nation with monopoly supply of currency in a floating exchange rate system never really has “debt” unless that debt is denominated in a foreign currency.  He says this conversation is the:

“exact same conversation every family, every single business, every single state and every single municipality has been having these last few years.”

There is only one problem with this remark.  The federal government is NOTHING like a household, state or municipality.   These entities are all revenue constrained.  The Federal government has no such constraint. We don’t need China to lend us money.  We don’t need to raise taxes to spend money.  When the US government wants to spend money it sends men and women into a room where they mark up accounts in a computer system.   They don’t call China first or check their tax revenues.   They just spend the money.

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Mr. Bowles finished his press conference by saying that the American people get it:

“There is one thing I am absolutely sure of.  If nothing else, I know deep down the American people get it.   They know this is the moment of truth”

The American people most certainly don’t get it.  And how can you blame them?  When a supposed financial expert like Mr. Bowles can’t grasp these concepts how could we ever expect the average American to understand it?  It’s time for an adult conversation to begin before this misguided conversation regarding the future bankruptcy of America sends us towards our own “moment of truth” – a 1937 moment.

I hope it doesn’t take “a 1937 moment” for the Democrats to appreciate the very serious risk that the Palin family could be living in the White House in 2013.



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