Michael Blowhard writes:

Dear Friedrich --

Some interesting postings on the topic of economic inequality from Daniel Drezner (here) and Jane Galt (here) have got me doing a little free-form ruminating of my own. Get ready for deepthink, Earthlings.

Mainly about the rich, in truth. I've got nothing against the rich or the well-off per se. (I'm sure they'll be pleased to hear that.) I can't see why I should. In my experience, most of the top-one-percenters I've known have worked like hell to get there, and they also know enough to feel at least a little grateful and lucky to have succeeded as well as they have. They're no more likely to be saints or devils than people from other income levels are, god knows. And -- though inherited wealth does seem to change something fundamental in a person -- I've even known some pleasant-enough trust-fund babies. Besides, what's wrong with wealth? May we all become wealthy.

Something that doesn't get spelled out often enough is who "the rich" are. Back when I was a smalltown middleclass boy encountering his first Really Rich People, I was horrified, hurt, and angry -- mostly for the sake of my hardworking parents, who weren't likely to be holidaying in Gstaad anytime soon. But as time has gone by and I've seen a few friends, relatives, and acquaintances grow prosperous, I've developed a more forgiving view of wealth.

Most of the well-off-to-rich people I've known aren't Scrooge McDuck plutocrats. Most of the "rich" people I've known have worked 60-80 hours a week for decades, often in decidedly unglamorous businesses. They've lived for years out of suitcases, and on the road. They've made big financial and career bets. And now, in their 40s and 50s, they're finally doing well. One executive I know, for instance, is in his early 50s and makes more than half a mill a year. That's a pleasant lot of dough. But when he was 30 (not so long ago!), he was putting in endless hours, he was barely getting a chance to spend a weekend at home, and he was getting by on 40 grand. He's still working 60-hour weeks, by the way.

In other words: most of them have worked hard and long for what they've got. And -- something I rarely see mentioned -- they're only going to last at this level for another decade or so, if they're lucky. In fact, most of the well-off people I know expect to be laid off in the next five years. They've gotten too expensive, and they can see the writing on the wall.

Older-but-Wiser / Tiresome-Old-Fart Alert here: I've found that it's one thing to be young and indignant and say, Screw the rich, and quite another to watch a relative or friend devote decades of her life to making a success in a viciously competitive field. It's one thing to be young and indignant and say, Let's soak the rich for all they've got -- there's always more where that came from. And it's quite another to see a friend or relative look at the announcement of the government's latest silly initiative, and to hear her say, "Lordy, I've already paid hundreds of thousands of dollars in income tax this year, and now they're going to want to take more?" Hundreds of thousands of dollars? These days, and much more so than when I was a whippersnapper, that strikes me as a lot of money to handing over to a government, especially one many of whose policies you may disagree with.

Incidentally, how "rich" are you when you make a half-mill a year these days? Due respect paid, of course, to the notion that we should all be doing so well. As far as I can tell, a half-mill a year doesn't mean being able to abuse the help, retire in comfort to Tahiti, or to take part in an endless orgy in Palm Beach either. What it means instead is a bigger house in a nicer suburb, a sleeker couple of cars in the driveway, a classier vacation hotel, and some private lessons for the kids. A nice lifestyle indeed, but hardly Versailles.

In any case, I've got no desire to do p-r for the rich, god knows. They can afford better than me, for one thing, and my own priorities have a lot more to do with "The Wife," "free time," "culture," and "friends" than they do with money anyway. Even so, I do sometimes marvel at how badly the wealthy make their own case. Are they that dumb? Are they that self-destructive? The well-off and the rich are of course always going to have trouble rousing up sympathy for themselves. But can't they do better than they do? They make themselves so easy to hate.

Since envying the rich is an inevitable, Such-is-Life thing, I'd coach the well-off to resign themselves to the fact of being envied, and to get practical about life. But I think they make a bad mistake when they defend their interests in a defiant, self-righteous, or a class-warfare way. They ought to be defending their interests in a defending-the-system-that-makes-wealth-possible kind of way. IMHO, they'd be doing all of us, and not just themselves, a big favor if they attended to this responsibility better than they do.

Huh? Wha'? Well, shallow soul that I am, I see these elements at play here.

• In every society, there are always going to be status ladders, inequalities, hierarchies, etc. Hold your breath till you turn blue, but I'll bet you can't name a society where this wasn't the case. Why quarrel -- or at least why quarrel excessively -- with this fact? Perhaps it isn't a bad fact or a good fact. Perhaps it's just ... a fact.

• So far as I understand growth, it seems that if you want economic progress you're going to endure a fair amount of bewildering and disruptive economic wrenching-about. (What a hoot, by the way: the way that some lefties seem to be under the impression that economic inequality is an outgrowth of capitalism and only capitalism. Um, er: how about the France of Louis XIV? Or the kingdoms of Central Africa? Or the Aztecs?) So be it -- but so also be, apparently, the psychological and political challenges of watching others get rich.

• Given human nature, this kind of where'd-it-come-from economic inequality inevitably produces resentment and envy.

• Which means that dynamite is being played with.

Something I've got no patience with is when defenders of capitalism praise competitiveness yet denounce envy per se. (Here's a Weekly Standard piece arguing that envy explains anti-Americanism. The author makes some good points -- but are we really so free of envy ourselves? And is there any reason we should be?) Why? Because part of what drives economic progress is envy.

Why would anyone dispute this? Common experience, etc etc. I don't know about you, but I've known few people who are able to look at Big Successes and say, "Hey, how nice. You know, I think I'll pursue something like that myself!" -- and to do so in an entirely level-headed way, untouched by jealousy or envy. Most seem driven in their work lives to at least some extent by competitiveness, status-craving, material lust, etc. (Why shouldn't they be?) And what's the ad industry about if not seducing, goading and luring us into the pursuit of consumer things, and the consumer life? So I'd like to see the pro-capitalism folks admit that envy and resentment are part of the picture.

Which would enable us to get to a point that it strikes me as crucial finally to get to: admitting that the important question isn't whether envy is good or envy is bad, let alone whether the rich are good or the rich are bad. It's how best to use (or channel, or funnel, or whatever) envy, drive, status-hunger, and competitiveness -- this whole bundle of potentially-explosive, not-very-attractive urges and feelings -- into fueling rather than torpedoing economic-progress opportunities for everyone.

Some important considerations, IM admittedly-childish HO:

• Extremes of inequality tend to produce lots of chances for demogogues who feed on envy, resentment and frustration.

• If resentment and demogoguery get out of hand, economic progress grinds to a halt.

• So: How to reduce resentment and shut off many if not all opportunities for demogoguery?

Thinking very, very hard here, I come up with a magical, guaranteed-to-cure-everything-including-warts, M. Blowhard political/economic program:

• Keep the overall system more rather than less flexible and open. It'll be (inevitably) hierarchical and there'll be (inevitable) economic inequalities. Let's accept that. And maybe this doesn't even have to be bad, especially if the rich and powerful conduct themselves more rather than less responsibily. If people generally know that they too can advance they'll be less likely to think of themselves as exploited and more likely to think of themselves as conducting their own lives as they see fit. Result: less resentment, less demogoguery.

• The rich would do well to give their own behavior (and their own public image) some thought. PR person that I probably should have been, I find myself thinking that the well-off should make a point of being more humble and grateful than they often are. They should make more of a point of contributing to charity, to doing good works, to issuing expressions of gratitude to the system, to being benefactors, to sponsoring poor kids, to springing for high art and high culture. Taking care of these concerns privately may prevent them from being hijacked by the government class.

• And the rich should be much better about self-policing -- they should jump all over each other's bad behavior. Use shame ruthlessly, and make being rich seem like an honorable thing. Show a little class for god's sake, especially in public.

• It can help to knock back the public sector from time to time.

• Shaking up lefty academia never seems to hurt.

• It's probably wise to accept that paying a certain amount of tribute is necessary and inevitable. But it's also important to expose the bald-faced Jesse-Jackson-style shakedowns for what they are.

• Milton Friedman argues that a constitutional amendment tying permitted tax hikes to inflation and population growth would be a big help. Sounds good to me.

Hey, did you realize that the whole rich-people-donate-to-charity thing is apparently peculiar (or at least semi-peculiar) to the States? Happy to be corrected if I'm wrong here -- I'm no scholar of this -- but I do remember running into a piece somewhere explaining that giving-back-to-the-society-that-made-it-possible-for-you isn't widespread outside America. In other countries, the State is expected to take care of such amenities as universities and hospitals.

I've been told, for instance, that in France a rich person who donated money to something (other than the Church) would be seen as a fool. The whole point of accumulating wealth is understood to be to enjoy it and to pass it along to your own bloodline. Of course, well-off French people are paying something like 60% or 70% in income tax -- perhaps they find that kind of giving-back more simpatico, or maybe just more convenient. But the attitude also seems related to how cynical, stuffy, class-ridden and traditional French society is by comparison to ours. Over there, "giving back" is officially enforced; over here, we seem to prefer that at least some "giving back" be done voluntarily. (It's hard to avoid the conclusion, though, that a good amount of "giving back" needs to be done.)

Hey, on an only-slightly-related topic, it strikes me that another thing I'd like to see the pro-capitalism team let itself finally admit is that a hard-driving country like America does goad itself along an awful lot. We're forever dangling goodies in front of ourselves in order to spur ourselves into action, and we're forever goosing our reactions and reflexes on in order to prod more dynamism out of ourselves. We seem willing to do these things more than many other societies are, and one result is a lot of prosperity. But isn't it also legit to say that another result is a (generally) high level of spiritual/emotional stress and exhaustion?

Best,

Michael

PS: For what it's worth, I turned up this list of charitable donations per capita for a handful of countries. Amounts are in euros-per-capita.

COUNTRY................GIVING

Spain..........................122
Belgium.......................120
U.K.............................117
Netherlands.................110
Ireland........................100
France..........................74
Finland..........................70
Austria..........................50
Germany.......................39
Hungary........................32
Slovakia........................25
Czech Republic...............25
Romania.........................5
U.S..............................278

So far as I understand growth, it seems that if you want economic progress you're going to endure a fair amount of economic inequality.

Hm. Well, I suppose it depends on what your meaning of the word "fair" is. But there's no doubt that globally, there's little if any correlation between inequality and growth. Inequality exists in all societies, yes, but that very fact means that it automatically exists in societies which are growing -- as well as societies which aren't. The US has a Gini coefficient of over 40, which is pretty dreadful -- and that's a 1997 figure: the number post Bush tax cuts is certainly significantly higher. (Take a look at http://www.worldbank.org/poverty/data/2_8wdi2002.pdf for the full list). Who's higher? Places like Nigeria, on 50, or Swaziland, on 60. Who's lower? Places like Korea, on 30, or Japan, on 25. You simply can't look at that list and declare that inequality is a price we have to pay for either wealth or growth.

As for your desire to return to a world of noblesse oblige, I don't see it. The whole concept is based on a class-ridden old-money society. And schools and hospitals are public institutions, which should have public backing. The fact that US schools and hospitals have to go begging to the rich is an indictment of US society.

Posted by: Felix on September 24, 2003 5:55 PM

Felix -- Ah, you caught me as I was still editing the posting, and apparently at the very moment I was changing the sentence you quoted. So your criticism's entirely fair -- I thought so too. I've changed the sentence to this:

So far as I understand growth, it seems that if you want economic progress you're going to endure a fair amount of bewildering and disruptive economic wrenching-about.

Which is at least part of the challenge, isn't it? It's less that inequality, even extreme inequality, exists, because it exists in many societies, including many with no growth. It's more that old values and hierarchies get ripped apart by growth and new wealth.

In a traditional society, it's psychologically easy to accept the rich. They are who they are, and they've always been there -- they're one of nature's givens, so envy isn't likely to crop up. But when growth kicks in and you see a neighbor or classmate suddenly prosper to some amazing degree, that can generate a whole series of hard-to-endure feelings in a person. My argument's simply that since this seems inevitably to come with growth (ripping apart, feelings of bewilderment and envy), it pays to spend some time trying to figure out how to allay or manage it.

Incidentally, since we're in econ mode here, why not see these things in terms of tradeoffs? Your typical Euro social-democracy has opted for greater state-enforced social security (and has settled for its drawbacks: rigid hierarchies, slower growth, a less porous social structure), while America has opted for the greater-opportunities approach (and has settled for its drawbacks: makeshift social services, more disruption, less traditional culture). I don't think it's possible to have all the goodies and none of the drawbacks, do you? And ain't it nice that countries take a variety of approaches?

I do think, by the way, that people who won't rest until America turns into a highly-centralized, Euro-style social democracy are dreamers who are going to be waiting for a long, long time. The whole idea's at war with the country's history and structure. And besides, have you visited Arizona or Alaska or Montana? A lot of Americans simply don't like the idea of a centralized social democracy. They (or their ancestors) often came here to get away from Euro approaches, they're mad as hell at those who'd try to impose it, and you're going to have to pry their cold dead fingers from the barrel of a gun before you get them to accept it. Why fight it? Anyway, such is my feeling. Settling for something more ramshackly, imperfect and loose strikes me as much prefereable. Otherwise, you're going to be spending your life trying to herd masses of ornery snakes into a few canvas sacks.

Also, hey, it's worked pretty well. Tens of millions of immigrants have come here and prospered. Not a minor achievement for a society, and well-deserving of a gold star, no? Name me a European social democracy of which that can be said, for one thing.

This may just be flag-wavin' ol' me carrying on battles with phantoms and not you, but just once I'd like to see a Europhile look at America and say, Hey, y'know, they may be onto something. Sigh.

Anyway, curious to hear how you respond to the Drezner and Galt.

Posted by: Michael Blowhard on September 24, 2003 6:23 PM

Felix:

(1) Doesn't it beg the question to simply announce that a high GINI number (a measure of income inequality) is "dreadful"? I mean, I would assume that a more reasonable measure of "dreadfulness" would be a fall in the absolute income of "the poor." Best I can tell, that's not happening. (I seem to recall almost a decade ago reading that in America the lowest income quintile consumed more than the medium income quintile consumed in the 1950s.) So if the situation of the poor is not deteriorating, what about income inequality is "dreadful" exactly. What suffering does it cause and who is doing that suffering?

(2) Yes, many places grow economically. Few (none recently) that are as large as the U.S. grow as fast as it does either on a percentage or especially on an absolute basis. Obviously the challenges of growing the largest, most technologically advanced and in many ways the most efficient economy in the world (and the one that supports the largest military establishment) are somewhat more profound that growing a very small country in which simply eliminating obvious inefficiencies and applying technology not developed locally permit quite significant growth--at least on a percentage basis. And even technologically advanced societies around the globe have an easier time of it than America, as they are able to take advantage of both American innovation and markets. So your international comparison seems a trifle strained, at least to me--I'm not at all sure you're comparing apples and apples, so to speak.

(3) What exactly do you mean when you say "inequality" is or isn't a "price we have to pay"? Who is "we"? Who does the "paying"?

Posted by: Friedrich von Blowhard on September 24, 2003 6:40 PM

I'm not herein defending or attacking the latest tax cut plans. But I did note during the "debate" that has happened on various TV shows that you are right---"the rich" do a lousy job of policing or defending themselves, and the tax cutters to a lousy job of defending the tax cuts. The impression is always that it's just another "perk" for the upper class, who have the money to bankroll the candidate's next campaign, and so it is all self-dealing to the nth degree, which on that level makes it easy to despise and attack. There is always a faint comment about---well, the upper 1% are who create the jobs, so this will be good for all of us. No statistics, no proof, no reasoned explanation. And therefore, a lot of people who only pay some attention don't buy it. No stats, either, on the amount of charitable giving that is also provided by the upper 1%. (It's like in "The Music Man" when all the town ladies are complaining about Ole-Miser-Whathisname. And someone asks---You mean whathisname of the Whatshisname Gymnasium, and Whathisname Library, and Whatshisname Park? THAT ole miser?")

And I've never exactly figured out why they are so bad at it---they start to leave the impression that job creation is incidental, and they really ARE just taking care of the priveledged few who can make their next campaign easier to finance.

Posted by: annette on September 24, 2003 8:22 PM

My impression is that charitable contributions aren't tax deductible in most of Europe, which probably relates to the lower charitable giving. I read a wonderful Frederick Forsythe short story about a dying Englishman who pretends to convert all his wealth to gold and have it all buried with him at sea so that he can actually leave all his money in cash to an orphanage without the government taking the majority of it in taxes. To an American who thinks of charitable contributions as tax deductible, however, the story didn't make any sense initially.

Posted by: Steve Sailer on September 24, 2003 10:31 PM

Come on, Michael -- no source for your charitable-donations list? If Steve is right and European donations often aren't tax-deductible, then of course Europeans would have much less reason to report their charitable donations, and so the total reported would be much lower. In the UK, many charitable donations are tax-deductible, but you normally need to jump through quite a lot of hoops to get the tax deduction, which most people don't bother doing. Meanwhile, in the US, people have a strong financial incentive to overreport their charitable donations on their tax returns. If you also consider that most Europeans would consider it completely bizarre to give money to schools or hospitals, and so exclude those from the totals, I think we can deduce -- well, nothing at all, really.

I'd also be interested in your sources for your assertion that Europe has "a less porous social structure" than the US. I can't be bothered to look it up right now, but as I recall, class mobility is no greater here than it is across the pond: the single biggest determinant of how rich you are remains how rich your parents are. Yes, there are rags-to-riches tales in the US, but they exist in Europe, too. Do please provide me with evidence that they're more common here.

As for your starry-eyed view of American immigrants, I take it you do include the original Anglo Europeans, who plundered the country from its original inhabitants, and that you don't include the African slaves whom they imported to do their dirty work. A cheap shot, I know, but a relevant one: would you say that immigrants are statistically more successful in the US than they are in, say, Canada, or even the UK, France or Australia? If not, then your point is meaningless. And let's exclude the WASPs from the calculations, to make it fair.

Friedrich -- So long as large numbers of inhabitants of the richest nation on earth have no access to health care, have literacy rates more common in countries with GDPs per capita a tenth of the US level, suffer from diseases of poverty like tuberculosis, are disenfranchised from the democratic process, etc etc, then I'd say that this society is failing. A high Gini coefficient is in and of itself a bad thing: it breeds resentment and underclasses. What's more, today's entrepeneurs, who made their money through their own hard work, generally have a much more cavalier attitude towards the poor than the robber barons of yesteryear, who had to tour their railroads and coalmines and would see with their own eyes on a regular basis the hard work and poverty which was the basis of their wealth. If a society does not look after its poorest then it is no society, it's a Hobbesian nightmare.

You also say that "obviously" the US has it harder than other countries when it comes to growth. Really? I'd say the simple fact of being able to print the world's reserve currency in and of itself is a huge advantage. Also the network benefits of being a nation of 300 million people, all of whom, more or less, speak the same language and recognise each other's qualifications. Plus, of course, there are enormous resources here, both natural and financial, coupled with nasty protectionist legislation designed to keep any foreign competitors on their knees. Once you're on top, it's actually pretty easy to stay number one.

Shall follow the links tomorrow.

Posted by: Felix on September 24, 2003 11:01 PM

Annette -- Bizarre, isn't it, the way so many of the rich seem to have no idea how to present themselves? What's your guess about what the cause of that is? Guilt? Harmless ineptness? Or are they maybe dreadful people? I lean towards "lousy audience sense" myself, but that may just show my showbizzy temperament getting the better of my mind.

Steve -- That's interesting, thanks. It'd still indicate a different value-set in the States than in Europe, wouldn't it? I mean, we put a priority on charitable donations by making them tax-exempt, where the Euros put a priority on the state by making it next to impossible for that money not to go to the state.

Felix -- I'm not sure what your quarrel with me is vis a vis charitable donations. I argued in my posting that rich Americans should make more charitable donations. Why does that rub you the wrong way? Note that I didn't suggest that all the world's problems would thereby be solved, and that the list of donations-per-capita is there because it's interesting, not to prove a point. I'll get the source if you insist, but what are you suggesting? That I made it up?

As for prospering immigrants: um, you have heard that tons of Italians, Irish, Germans, Asians, etc etc, have come to this country, right? Many of whom arrived poor, or poor-ish, and many of whom (and many of whose descendants) are now middle-class, or even better-off. So tell me again why I shouldn't be saying that "tens of millions of immigrants have come here and prospered"? I'll also venture that tens of millions of immigrants rising into prosperity in any country would itself be a pretty good indicator that that country has a relatively porous social structure. And it's certainly something I'm not seeing happening in, say, Germany.

Are you suggesting that the bottom-of-the-barrel poor in, say, England and France are better off than the bottom-of-the-barrel poor in the States? Really? Are you including the Arabs and Africans in the suburbs of Paris who can't get to the city's downtown late at night because the authorities shut down the Metro to keep the center of town a little safer?

I'll elbow my way just for a sec into your exchange with FvB just because the assertion that "poor people have no access to health care" in America is a particular bugaboo of mine. Happy to discuss health-care policy problems, of which there are no end. But it's just wrong to say poor people here have "no acccess" to health care. All they have to do -- and what many, many of them in fact do -- is go to a hospital's emergency room. Hospitals are forbidden to deny them emergency-room care, something that's become a major problem in hospitals located close to the Mexican border, which are finding themselves providing a lot of "free" medical care to illegal immigrants. There are other programs as well that the poor can and do take advantage of. I've got one acquaintance here in NYC, for example, who's about as poor as you can be without actually becoming a homeless person -- he hasn't made a penny in years. But during those penniless years he's had numerous health worries, and has managed to get (thanks to city programs I don't understand) what I'm sure has been tens of thousands of dollars' worth of treatment. So while there are certainly many things to be said about the problems the poor have with health care, "no access" to it isn't quite right. Now, back to Felix vs. FvB.

Posted by: Michael Blowhard on September 24, 2003 11:33 PM

In your discussion of envy here you make the common mistake of confusing it with jealousy. The jealous man wants something another man has, or to keep something of his own; the envious man wants the other man not to have it. There is a story of a French scullery maid in the 1780s who is supposed to have said to a passing aristocratic lady, "Come the revolution, we'll all be equal; I'll go in silks, and you'll carry coal."

Envy doesn't correlate with Felix's dreaded Gini coefficient either. As Helmut Schoeck points out in his great book on the subject, the most envy-ridden societies in the world are certain African tribes that are so poor that practically the only thing worth envying is a slightly more spacious mud-hut.

Posted by: Aaron Haspel on September 25, 2003 1:23 AM

Felix:

Love you, babe, but your style of argumentation seems to be to get up a good head of steam and let loose with a shriek, an approach that's a tad short on logic.

A high Gini coefficient is in and of itself a bad thing: it breeds resentment and underclasses.

(1) Excuse me for pointing out again that you're assuming what you are trying to prove--that high GINI coefficients are in and of themselves evidence of a problem. Are you really suggesting that nobody resents the rich in countries with lower GINI indexes? Have you some statistical detail to suggest a correlation between lower GINI indices and lower objective measures of resentment? The closest objective measure I can think of for resentment of the rich would be the progressivity of the income tax, which would appear to suggest that European welfare states suffer from far more resentment of the well-to-do than the U.S. does, despite their lower GINI indices.

(2) As for your notion that the level of income of the most affluent classes has a causal effect on the creation of an underclass... well, that one parted my hair on the way over. Perhaps you could explain that to me. According to most left-wing writing I'm familiar with, underclasses are the result of the absence of industrial jobs, which is related to the income levels of the wealthy exactly how?

So long as large numbers of inhabitants of the richest nation on earth have no access to health care, have literacy rates more common in countries with GDPs per capita a tenth of the US level, suffer from diseases of poverty like tuberculosis, are disenfranchised from the democratic process, etc etc, then I'd say that this society is failing.

(3) I think Michael pointed out that the poor do in fact have "access" to health care in the U.S. (I seem to remember significant expenditures on a little program called Medicaid.)

(4) As for the poor being disenfranchised from the democratic process, (a) they have no legal disability, so any disenfranchisement is voluntary and (b) I'd pay money to see a country where the poorest section of society is highly politically active. By this definition every nation on earth is "failing."

(5) As for TB, the WHO website makes this comment: "Global trade and the number of people travelling in aeroplanes have increased dramatically over the past 40 years. In many industrialized countries, at least one-half of TB cases are among foreign-born people." Apparently the TB problem of the U.S., to the extent that it has one (which it doesn't in relation to Eastern Europe, Africa or Southeastern Asia) is the result of not exerting sufficient control over our citizens and visitors (legal or otherwise), not an inability to get such healthcare paid for. Do you really think someone walking into a hospital with a case of TB in the U.S. is going to be turned away for care because of an inability to pay for the care? Please.

(6) As for literacy rates, the U.S. has the most widely accessible system of education in the world. It would appear that we don't exert enough coercion on our poorer citizens to ensure that they learn to read. Do you support greater control of the poor in the U.S.? I seem to remember you being terribly unhappy with me for suggesting that such control is the only practical way to eradicate problems of poor socialization quickly in our libertarian society. Why are you suddenly backsliding?

Posted by: Friedrich von Blowhard on September 25, 2003 3:59 AM

Sorry, it's late and I forgot to respond to your arguments about why the ability of an enormous economy like that of the U.S. to grow rapidly isn't more impressive than the ability of a far smaller economy to grow at the same percentage rate. Umm, I don't know how to say this politely, but your arguments are fairly ludicrous. I would say the most ludicrous one is that American protectionism keeps our competition on their knees. Other than in agriculture (where we still can get pointers from the EU) who the heck are you talking about? Not Japan. Not China. Not Airbus. Not Siemens. Oh, perhaps you mean the French computer industry?

Posted by: Friedrich von Blowhard on September 25, 2003 4:11 AM

"Of course, well-off French people are paying something like 60% or 70% in income tax"

Actually, the top progressive individual income tax rate in France is now slightly below 50 percent.

Posted by: Hugo on September 25, 2003 5:08 AM

Aaron -- Thanks for clarifying the envy-vs.-jealousy thing. It's a helpful distinction. FWIW, I never encountered much "envy" until coming to New York, which is (by my middle-American standards) seething with it. Also, FWIW, I tried the Schoeck years ago. It seemed interesting, but lordy it was a slog. I admire you for slogging all the way through it. I should probably give it another try.

Hugo -- Thanks for updating me on French ttax rates. I'd never pretend to be a tax scholar, and was recalling info that a Paris-based friend told me a few years ago. I just did a fast web-sweep and turned up an interesting Forbes piece here. It makes mention of the new top income-tax rate. But of course also of many other taxes -- a new "flat tax," a wealth tax, the VAT, etc etc -- France seems to have what Forbes calls the highest Misery Index (for entrepreneurs) rating of any Euro country.

But just to clarify for anyone who's paying attention: despite my longwindedness in the posting, I had only a few points to make.
* There will be richer people and poorer people. Why get hung up about an inevitability?
* Yet it has to be admitted that some of the feelings that inevitably get kicked up by progress are something that need attending to.
* Why? Because they're volatile and are as likely be destructive as productive. Don't want that.
* So this playing-with-a-powderkeg phenom needs some attending to and care.
* I then make a few modest (and possibly worthless) suggestions about how to attend to it.

Underlying the posting is some annoyance with the Left, which bases many of its policies on envy (in Aaron's sense) of the rich, as well as with the Right, which has a humanly offensive tendency to exalt dynamism and competition while denying that any of the feelings and energies that econ progress entails are volatile. The Left is forever trying to transform America into a centralized social democracy (good luck, kids!), while the Right thinks it's done with the problem of economic inequality when it says "Tough luck! Suck it up!"

Both approaches seem idiotic to me, yet we're stuck with them endlessly replaying themselves at each other. It seems to me (again, FWIW) that one way to begin to leave this boring logjam behind is to get over a few things -- such as the idea that the rich are this or that. And to recognize that of course economic progress shakes loose a lot of feelings, many of which aren't pretty.

I could be wrong about this, but that's the posting's argument. It ain't about health care or immigration policies, or America-vs.-Europe. It's about our tendency to get hung up on things that it's childish to let ourselves get hung up on.

Posted by: Michael Blowhard on September 25, 2003 8:23 AM

An American client once gave me the: well if you're so smart, how come you aren't rich?

I replied: "rich in what?"

He sincerely couldn't understand my question.

Posted by: ijsbrand on September 25, 2003 9:34 AM

"Incidentally, how "rich" are you when you make a half-mill a year these days?"

I can't really respond well to most of your post because I wouldn't consider $500,000 a year rich as in "the rich," those folks said to be different from you and me - unless that cash was an annual gift from a trust.

Unless we're talking about "rich kids" in which case I mean kids who've always understood that mom and dad and family friends will make sure they attend the right schools and get the right job and people will sing the rich kid's praises... or heads will roll.

Posted by: j.c. on September 25, 2003 10:22 AM

"b) I'd pay money to see a country where the poorest section of society is highly politically active. By this definition every nation on earth is "failing."

Generally, I agree with FvB, but I would point out at least one exception---South Africa during the Mendela and Steven Biko era. And...a remarkable social revolution took place, although it took way too damn long. But it does prove that when a group of people stand up and say "enough" loud enough, the world, dammit, does change.

Posted by: annette on September 25, 2003 10:35 AM

IJSbrand -- Yeah, some people can really fixate on money, can't they? I wish more Americans measured life by something other than dollar signs. (Hence 2Blowhards.) On the other hand, Eurosmugness can be a little something to contend with too, don't you find?

JC -- It's an interesting question, isn't it -- at what point do you become "rich"? I did a fast websweep and turned up these figures, dated 1998 (but the best I could do in the middle of a busy day):
* To get into the top one percent, you have to earn over $230,000 a year.
* To get into the top half percent, you have to earn $524,000 a year.
* People in the top tenth of one percent earn over $1.5 mill.

Where would you draw the "rich" line? I dunno myself. I'm happy to settle on a half-mill, and then create a category apart for immense inherited wealth. But that's just something that suits me.

A propos of nothing but the webresearch I was doing, one of the things that doesn't get enough recognition is how much the typical American moves around between income quintiles or quartiles in the course of a lifetime. During my first year out of college, for instance, I was doing the slacker thing -- raking leaves, being a busboy, sleeping late, mooching off my girlfriend. And for that year I was counted among the poor. These days I'm contentedly middle-class -- no reason, really, for anyone (other than me) to have been concerned about my economic wellbeing.

Anyway, here's a passage from a review of Alm and Cox's book "Myths of Rich and Poor" that illustrates the point nicely:

"The University of Michigan study shows that only 5 percent of those in the bottom fifth of the income distribution in 1975 were still there in 1991. What happened to them? They moved up to the top three-fifths of the income distribution - middle class or higher. Even more amazing is that 3 out of 10 of the lowest income earners in 1975 moved up into the top fifth of income earners by 1991. Those who were poor in 1975 had an inflation-adjusted gain of $27,745 in average income by 1991. Among workers who were in the top fifth of income earners in 1975 were better off in 1991 by an average of only $4,354.

Poverty is largely a transitory experience for people who are willing to work as Labor Department data confirms. In the early 90s, the median duration of poverty was 4.2 months. Only a third of the 36 million Americans the Bureau of Census classifies as poor had been below the poverty line for 24 or more months. This boils down to a long-term poverty rate of 4 percent compared to the overall official rate of 13.3 percent in 1997."

FWIW, it seems to me that the "long-term poverty" referred to above is the thing to be concerned about, where a lot of what's journalistically referred to as "poverty" (slackers, people temporarily out of work, etc) can be overlooked. Also that there's a practical reason to be concerned about extreme inequality, which is that the resentments (and other ugly feelings) engendered by it create too many opps for bad policies, some of which might well have the effect of killing (or at least choking) the goose whose golden eggs we should all be enjoying.

I got over working myself into too much of a moral huff about these things long ago. But I'm happy to fret and speculate about certain practical problems...

Posted by: Michael Blowhard on September 25, 2003 11:10 AM

Before I respond to everything else, I have to just agree with annette here. Just look at recent political activity in places like Venezuela, Brazil and Peru – the poorest section of society is very much setting the agenda in these countries. I could probably add Taiwan to the list, too. And in fact the USA is the ONLY democracy I can think of where a (cough) democratically-elected government seems to go out of its way to implement policies designed to benefit overwhelmingly the richest sliver of society. Maybe Russia, if it counts as a democracy.

Posted by: Felix on September 25, 2003 11:16 AM

Oops, Michael managed to post in between me and annette. And as I suspected he might, he decided to illustrate income mobility with disingenuous statistics from within the USA, rather than comparing this country to European nations like I asked him to after he came out with his "less porous social structure" line.

What are the primary factors behind these income-mobility statistics? (1) Students. A kid at law school or business school has no income, and so is considered to be in the bottom quintile for these purposes. Silly. No one's worried about them, and their future success means nothing in terms of income mobility. (2) Retirees. Someone making a lot of money is likely to be near the end of their career, and so in five years' time might well have retired. Again, this does not mean that they've dropped massively down the income scale in any meaningful sense. (3) Felons. There is a very strong correlation between poverty and crime, but if you're poor and get arrested and thrown in jail, you no longer count in the income statistics. If you look at CLASS mobility rather than income mobility, then suddenly the US social structure looks a lot more rigid.

But I'll pick up your earlier gauntlet, Michael. Yes, I'm saying that the UK and France have fewer bottom-of-the-barrel poor than the US (I'm happy to use your criterion of being below the poverty line for 24 months). If I have a minute today, I'll see if I can find some stats.

Posted by: Felix on September 25, 2003 11:31 AM

Felix -- I'm puzzled by your antagonistic tone. ("Disingenuous"? Please.) I've said, and I guess I'm stuck saying it again, that (contra much of the Right) extremes of inequality are genuinely something to worry about, as is long-term poverty (which, contra much of the Left, isn't the same thing as "poverty" generally). I may be a little bewildered by your tone and your prose, but still it seems to me that we're in agreement on these points.

So what are you flailing away at here? Trying to extract a coherent assertion or two from the chaff you're throwing around, I'm guessing that you dislike my suggestion that Euro-style, centralized, social-democratic approaches to American problems are probably a bad idea. I'm happy to debate that, but I may well be wrong about what it is that you're trying to say.

Have you read the Galt and Drezner yet? Eager to hear your thoughts about them.

Posted by: Michael Blowhard on September 25, 2003 11:42 AM

I would point out one other example of the poor being "politically active" (if you can call it that). While Bin Laden and the Saudi royals can hardly be called poor---a lot of the foot soldiers and henchmen certainly are. And this is an extreme, as MB points out, that we do have to worry about. NOT that I think Bin Laden would care about their inequalities, or that what they are doing is going to fix it. But I think its where a lot of feelings of disempowerment and disenfranchisement come from, and then it affects everyone including "the rich." Just ask the last Russian czar.

Posted by: annette on September 25, 2003 11:54 AM

What I'm flailing away at, Michael, is the theme running through your postings that although inequality might be a bad thing, it's somehow inevitably tied up with everything that's good about America, and that any attempt to end it would also put the kibosh on the American Dream. So what I'm saying is that contra received opinion on both sides of the pond, Americans find it no easier to rise to riches from poverty than Europeans do. I'm also saying that there are fewer Europeans in poverty than there are Americans in poverty, and you can define that with whatever time filters you like. I'm also picking myself up off the floor after reading Friedrich's assertion that the US has "the most widely accessible system of education in the world". Hell, go 90 miles south of Florida and I'll show you a more widely accessible system of education, in a much, much poorer country with a significantly higher literacy rate. Or if you think that Cubans don't count because they're not free, go one mile to the north and compare yourselves to the Canadians.

You say the list of donations per capita is interesting, but surely it's only interesting insofar as it means something. My point was that it's pretty much impossible to draw any coherent meaning out of it, since there's almost no conceivable way that it could be comparing apples with apples.

You're right that, thanks to Medicaid, the very poorest in society actually have pretty good healthcare. It's the working poor who don't. And there's a hell of a lot of important healthcare which can't be provided by an emergency room, and if you don't have health insurance, your emergency-room bills will be astronomical, meaning that unless you're completely penniless, there's a good chance that your healthcare will wipe you out.

As for Gini coefficients, here's an experiment for you: excluding the US, which countries would you like to live in, and which countries would you not like to live in? I'd wager that there's an incredibly strong correlation there between the countries with lower-than-American Gini coefficients and the countries with higher-than-American Gini coefficients.

Protectionism: Under US anti-dumping laws, some 50% of US corporations would be guilty of "dumping" their products in the US market. These laws are used the whole time to prevent foreign companies from competing in the US.

As for Galt and Drezner, as far as I can make out they're basically responses to the Krugman piece in the NYT magazine a couple of weeks ago. They don't really argue directly with what he says, largely because it's inarguable: they're more attempts to persuade themselves that even if it's true, it doesn't matter. Well, I'm with Krugman on this one: Rising inequality is a cause for concern.

Posted by: Felix on September 25, 2003 12:24 PM

Gotta chuckle a little at Michael Blowhard's definition of "rich" as $500,000 in annual income. I remember that when I got back from my Peace Corps stint in Kenya in the 1970s, my parent's home looked like a palace. They seemed like the richest people who ever strode the planet.

And they were making something like $10,000 a year. It was 1970's money, but you get the idea.

Michael and I are rich almost beyond the dreams of avarice by the standards of most of the world - and by the standards of 99.999% (could probably stick a few more nines in there) of all the human beings who ever lived.

So, yeah, I can understand why Michael feels good towards the rich...because he (and probably everybody else on this thread, including your humble servant) ARE rich. That's why I like rich folks myself.

Posted by: Casey Abell on September 25, 2003 12:41 PM

Thanks, Casey, for uncovering the elephant in the middle of the room. Of course, the overwhelming majority of Americans are rich by the standards of most of the world or by the standards of how human beings have lived for most of history. It's almost unthinkable, for instance, for an American, no matter how poor, to die of starvation. Which is precisely the point about inequality: it's a bad thing in and of itself, and quite separate from poverty. So if Friedrich says that rising inequality doesn't matter so long as the poorest don't get appreciably poorer, he's missing the point. What counts as rich – and, therefore, what counts as poor – depends very much on what society you're in. Most people would rather be earning $10,000 a year in a country where the average income is $3,000 than they would earning $20,000 a year in a country with an average income of $100,000. In the former they're rich, and in the latter they're poor – remember that a very good working definition of poverty is "half the average standard of living". In many ways, someone living on $20 a day in the US is poorer than someone living on $2 a day in Nepal, since money is much less important in Nepal – where there are lots of people with homes and food who earn no money at all, and are simply living a simple life being part of and looked after by their communities – than it is in the US.

Posted by: Felix on September 25, 2003 1:52 PM

Most people would rather be earning $10,000 a year in a country where the average income is $3,000 than they would earning $20,000 a year in a country with an average income of $100,000. In the former they're rich, and in the latter they're poor – remember that a very good working definition of poverty is "half the average standard of living".

So income inequality is bad because it doesn't flatter the self esteem of the majority, not because it actually harms them. So people who work hard and invest and educate themselves and put their money at risk (and calculate, and scheme, and struggle to get valuable information) should be taxed more heavily to provide psychological benefits to those who...don't.

An interesting theory. An interesting notion of "community." (And people wonder why the "rich" keep withdrawing from "the community.")

Don't blow a gasket, Felix, I know you keep veering to and fro between this psychological notion of the "wrongness" of inequality and a more "practical" argument that a lack of redistribution actively harms the most vulnerable by withholding resources, but I thought we should examine the philosophical premises of this branch of your argument in their pure state.

Posted by: Friedrich von Blowhard on September 25, 2003 2:29 PM

Okay, Felix, try that wonderful two-bucks-a-day life in Nepal. I did six-bucks-a-day life in Kenya, and I have no intention of going back any time soon. Youthful enthusiasm only lasts so long...usually to the end of youth, or thereabouts.

Of course, Felix isn't going to decamp to Nepal to enjoy all that wonderful community and caring and simple life...and hard labor and disease and poverty and a life expectancy of 59. He'll somehow tolerate a far cushier life in this horrible, unequal society of ours.

Sorry to unearth another elephant in the living room...but watch what people do, not what they say. Very few $20,000 folks relocate to $3,000-a-year countries just so they can feel "richer." That's because $3,000-a-year countries are hellholes compared to $100,000-a-year countries.

Posted by: Casey Abell on September 25, 2003 2:56 PM

Yikes! Of course I'd never want to live on $2 a day in Nepal, or $6 a day in Kenya. And once you've experienced a certain standard of living for a certain amount of time, it's very difficult, if not impossible, to adjust to a markedly lower standard of living, even if it's much higher than the people around you. As Casey says, that's why Peace Corps volunteers tend to be young.

I have a very cushy life, thank you very much, and I have no intention of changing it. But it's worth looking at the ex-pat experience: people who get sent off to work in places like Ecuador or Brazil or Indonesia or Kenya often find it quite hard to adjust to life when they move back to the US or UK or Germany or France because they can't have nearly the same standard of living even if they get a hefty pay rise. Suddenly the huge house with a swimming pool nad three or four staff becomes a pokey apartment with a weekly cleaning lady, and they feel much less well off than they were.

As for Friedrich and his supercilious dismissal of psychological benefits just because they're psychological, I'm not quite sure what to say. I'd rather be happier with less money than less happy with more money, and I think most of us on this blog – Michael, certainly – would agree. So we're all paying, essentially, for psychological benefits, and we can deduce that psychological benefits are just as important, if not more important, than financial benefits.

And remember, Friedrich, nobody is advocating increasing taxes on "people who work hard and invest and educate themselves and put their money at risk (and calculate, and scheme, and struggle to get valuable information)". We're advocating taxation ONLY if all that hard work pays off in the form of high income. It's a trade-off: on the one hand you might be less willing to take big risks because you will receive less of the fruits of your labours, but on the other hand you might be more willing to take big risks because the cost of failure is lower: there will be a social safety net to allow you to get back up onto your feet more easily.

Posted by: Felix on September 25, 2003 3:47 PM

"...nobody is advocating increasing taxes on "people who work hard and invest and educate themselves and put their money at risk (and calculate, and scheme, and struggle to get valuable information)". We're advocating taxation ONLY if all that hard work pays off in the form of high income."

Well, phew...at least you're not taxing people who go through all that and DON"T get a higher income!! What a crummy world THAT would be!!

The only thing I would gently point out is that Felix's theory has never actually been proven to work. Saying that more people would take risk, and work 60-80 hours a week, if the after tax rewards were LOWER, because taxes were HIGHER, runs counter to 100 years of investment experience in this country and elsewhere. And knowing that a "safety net" awaits has generally not been conducive to encouraging people to take this kind of risk and responsibility on.

It's people who want the big payoff, the higher-than-market returns, who take these risks, and start businesses, and work crazy hours, and give a damn if the business fails (and, yes, employ a lot of the rest of us). I don't think reducing their payoff is going to make this happen more often (thus employing fewer of us).

I know it's not "fair"---but I actually don't feel bad about taxing people who get---what's the econ term---"economic rent" off a special skill. I really don't care (sorry) what a Major League Ballplayer or a Hollywood movie star pays in taxes. They really aren't taking capital risk. Actually, I'm not sure I care what Dick Grasso pays in taxes on his $140 Million, uh, "windfall."

But I do think we'd all feel it good if the hardworking entreprenuer's incentive to do what he/she does was doused.

Posted by: annette on September 25, 2003 4:49 PM

Wow! What a great conversation! I'm a little late, but two points, one about economics, one about evo-bio theory:

1) Economic theory tells us we are all "utility maximizers" -- we get so many jolts of joy from each product consumed. Felix might get 2 jolts of joy from an apple, Michael might get 4 jolts of joy from an apple. So, it would take Felix 2 apples (or more if he has "diminishing marginal returns to apple happiness"!) to get the same utility level as Michael.

Have you ever considered that the very rich are actually really BAD utility machines? I mean something is broken in them and they get very poor levels of utility for each batch of money made. Kind of an underlying if unspoken theme is that we can measure income inequality, but much of what we want is some kind of equality of happiness (or "utility"). Maybe, because I'm right on the median income level and extrordinarily happy, I'm just an efficient utility machine! Maybe some of the poor are too. I know some.

2) Felix and Michael -- there is an interesting bit of evolutionary biology that may come to your rescue on the issue of the "inherent" badness of inequality. It's in the last third of Pinker's "Blank Slate". I don't have it on me, but I remember him citing a study that showed that the poor in country A, with a high ABSOLUTE level of wealth, but a big GINI factor, are in measurable ways worse off (more health problems, family problems, etc) than the poor in country B with a LOWER ABSOLUTE level of wealth, but with less inequality present.

Pinker's case study is trying to show that there are some evo-bio functions that are hard wired into us to make us seek status, and that reprecussions happen to those who don't get it. Policy implication of this? Beats me. Suggestions?

Posted by: Robert Holzbach on September 25, 2003 7:49 PM

"Pinker's case study is trying to show that there are some evo-bio functions that are hard wired into us to make us seek status, and that reprecussions happen to those who don't get it. Policy implication of this? Beats me. Suggestions?"

I think that's how we wind up with Newt Gingrich! :)

Posted by: annette on September 25, 2003 8:19 PM

Mr. Holzbach:

I believe I've seen similar data to that cited by Mr. Pinker. I quoted one study that showed that being low in the U.K. civil service hierarchy was an excellent predictor of high risk of heart disease. I can see that inequality of status would be a significant issue. I'm not quite sure how income redistribution, per se, however is going to rectify status problems. This is why I suggest that people stop working in large hierarchical organizations; they inevitably imply lots of low-status folk for every holder of a high status job. Seriously, one wonders if the apparent advantages--which mostly boil down to security--of a corporate/welfare state are real or in many respects are merely apparent. (In other words, in both corporate environments and in a welfare state, your added security is purchased at the cost of low status and its consequent stress.) All of this (and not, as I suspect Felix thinks, some hostility to the poor) make me question the notion that income redistribution is the solution to all of life's problems.

Posted by: Friedrich von Blowhard on September 25, 2003 11:11 PM

Whether it's corporate or welfare hierarchies you're worried about, Friedrich, the fact is you're advocating a flatter society -- which, I'm afraid, means a lower Gini coefficient. I have every reason to believe that Mr Holzbach is right, and ceteris paribus, a lower Gini coefficient means a happier population, in aggregate. I think your last post might even agree with that, your instinctive run-to-cover about taxation notwithstanding. Of course, redistributive tax policies don't count as ceteris paribus, so we haven't yet proved the desirability of a progressive income tax. But at least we're all working towards the same goal: a flatter society with a lower Gini coefficient.

Posted by: Felix on September 26, 2003 4:45 AM

"Most people would rather be earning $10,000 a year in a country where the average income is $3,000 than they would earning $20,000 a year in a country with an average income of $100,000. In the former they're rich, and in the latter they're poor – remember that a very good working definition of poverty is "half the average standard of living".

"Yikes! Of course I'd never want to live on $2 a day in Nepal, or $6 a day in Kenya. And once you've experienced a certain standard of living for a certain amount of time, it's very difficult, if not impossible, to adjust to a markedly lower standard of living, even if it's much higher than the people around you."

Pefect example of the leftist mind. School vouchers, no way. Egads, send my kid to public school? Are you crazy?

Posted by: Paul S. Mansour on September 26, 2003 10:10 AM

We're advocating taxation ONLY if all that hard work pays off in the form of high income.

This. Statement. Scares. Me.

Hold me, Freidrich...

Posted by: Scott Chaffin on September 26, 2003 6:30 PM

When I think of 'the rich', I think of those for whom their yearly income doesn't matter, as their money just perpetuates itself faster than they can spend it.

Posted by: David Mercer on September 26, 2003 7:58 PM

One factor about the charitable donation chart is that it seems to be mean rather than median giving. This means that a few Bill Gates will dramatically skew the result in favour of the United States (and the ultra-rich in the U.S. do have an admirable history of charitable bequests).

However, that said, if they include church donations in that total, I am surprised that the U.S. average isn't even further ahead.

Posted by: Tom West on September 28, 2003 7:18 AM

One other aspect of extreme income distribution is that at some point, there comes a critical mass of people who believe that they are no longer better off playing "within the system".

Certainly the U.S. has seen this. It has to incarcerate a significant amount of their population (which only seems to raise eyebrows on occasion).

Incarceration rates according to "The Sentencing Project" (www.november.org/stayinfo/breaking/Incarceration.pdf)

US 702
England/Wales 139
Canada 116
Germany 91
France 85

Does noone wonder why such a large percentage of the U.S. population is criminally minded?

I will admit that I think of equality/inequality simply as a balance. Up to a certain point, inequality helps fosters economic growth and wealth creation. Likewise, up to a certain point, equality measures foster greater general society happiness. I think there's a dramatic fall-off at either ends of the scale. (i.e. too much inequality drops growth, too much equality drops happiness.)

The goal for society is to decide where the "sweet spot" lies. This depends on how much you value wealth creation vs. general society happiness and how you measure these things.

Of course, its no coincidence that I believe we are close to it in Canada :-). We have fewer SUV's and monster homes, but also less crime, fewer massively underfunded schools boards, and a fine (if not as high as the best of the American) medical system that everyone has access to.

However, I strongly suspect that different societies will, as a whole, have different sweet spots. Americans (as a whole) really don't seem to mind the inequalities, prefering the economic opportunities. Likewise, the Europeans that I met seem to prefer their place on the balance.

The frantic attacks on the European place on the balance by the other Americans and the even more vitriolic attacks in the other direction seem out of place. Personally, I'm rather more inclined to listen to Americans criticizing the American system and Europeans criticizing the European system.

Posted by: Tom West on September 28, 2003 8:07 AM






Post a comment

Name:


Email Address:


URL:


Comments:


Remember your info?