A false defense of income inequality

Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

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“Gap Psychology“ describes the desire to distance oneself from those below, and to come closer to those above, on many positive measures — income, wealth, power, education, etc.

In a comparative world, those at the top have two ways to remain at the top or even to increase their distance from the rest: Move higher or move those below, lower.

In America, the top 1% chooses both methods, as evidenced by the efforts of the Republican Party, which gives tax breaks to the wealthy while denying benefits to the poorer.

Excerpts from the following article summarize the right-wing defense of income inequality — a defense that claims income inequality either doesn’t exist or is beneficial to all.

A conservative scholar, Scott Winship, questions whether the US really has an inequality problem
QUARTZ, Written by Dan Kopf

Scott Winship is now one of the most prominent academic skeptics of the idea that rising inequality is harming the US.Quartz spoke with him about the state of the debate on inequality in the US.

Quartz: So let’s start really broadly. Is increasing income inequality in the United States a problem?

Winship: Maybe? There are some empirical questions in the social sciences that are very hard to answer convincingly, and .this is one of them.

The answer is not all that difficult. There is significant evidence that increasing income inequality is a problem.

Who, other than perhaps Mr. Winship, is willing to claim that the poorer are equal to the richer in crime commission and victimization, diet, health, education, housing, and political power?

Crime commission and victimization: The poorer are more likely to be victims and perpetrators of crime than are the richer:

As Aristotle said, “Poverty is the parent of crime.” That is why Chicago’s affluent “North Shore” suburbs have almost no violent crime, while Chicago’s poorer neighborhoods are rife with violence.

A disproportionate number of shooters and victims are poor.  The problem is lack of money, not innate morality.

There’s a powerful correlation between cities’ income inequality and their crime rates, including both property and violent crime.

How Income Inequality Affects Crime Rates
In a 2002 study by World Bank economists Pablo Fajnzylber, Daniel Lederman, and Norman Loayza, it was found out that crime rates and inequality are positively correlated within countries and also between countries. The correlation is a causation – inequality induces crime rates.

Economist Gary Becker says an increase in income inequality has a big and robust effect of increasing crime rates. Poverty alleviation has a crime-reducing effect.

Diet: The poorer tend to have worse diets than do the richer:

Health: The poorer tend to live shorter, less healthy lives than do the richer.

In the United States between 2001 and 2014, higher income was associated with greater longevity, and differences in life expectancy across income groups increased.

Education: The poorer tend to be less educated than are the richer:

Statistical Abstract of the United States, US Census Bureau.

No one doubts that housing is positively related to income.  Yes, Mr. Winship, the richer do live in better houses than do the poorer.

Political power:

Dictatorships and plutocracies operate on the reality that richer people have more political power than do poorer people.

None of the above is surprising, but Mr. Winship seems to downplay its significance. His conservative approach can be summarized: Income inequality may not really exist, and anyway it’s not harmful.

As he says:

It’s not the case that the rich are getting richer and the poor are getting poorer, which is a concern many people express.

The middle class and the poor have actually seen their incomes go up quite a bit over the last 40 years. Median household income is at an all-time high.

Overall poverty, child poverty, and poverty among the kids of single mothers are at all-time lows.

The story for the middle and the bottom is a lot better than most folks believe.

Aside from cherry-picking statistics, Mr. Winship ignores the fact that rich” and “poor” are relative terms, not absolutes.

If you earn $10,000 a year, while others earn $1,000, you are rich, and the $1,000 earners are poor. 

But if you earn $10,000, and everyone else earns $100,000, you are poor.

In both examples, you earned $10,000, but in the first, you were rich and in the second you were poor.

So, whether or not America’s middle class and poor may have increased income, is a diversion. Income inequality has risen.

The poorer are getting poorer. The richer are getting richer.

Winship continues:

Conservatives tend to believe that income inequality increases economic growth, which benefits the middle and the bottom.

You can call it “trickle down.” The liberal position is often that every dollar that goes to the top is a dollar that is taken away from the middle and the bottom.

Winship wants you to believe that widening the income Gap benefits the middle and the poor more than does narrowing the Gap.

But as you will see, he skirts the inequality issue, and merely says everyone benefits when the total economy grows, so why worry about inequality?

Further, no economically educated person, liberal or otherwise, believes that the total of available dollars is fixed, so that “every dollar that goes to the top is a dollar that is taken away from the middle and the bottom.” He’s putting conservative words into liberal mouths.

I’ve found that countries that have higher inequality tend to have higher living standards for the middle class and the poor.

I would not assert strongly that that is a causal relationship. But it is not what you would expect to find if inequality was bad for growth.

He doesn’t reference the research that supposedly shows higher income inequality equates to higher living standards, perhaps because such research doesn’t exist.

If you go the CIA’s World Fact Book, you’ll see no such relationship. Quite the opposite.

The GINI ratios of third-world nations tend to cluster above the U.S. score, while first-world European nations all fall below — exactly the opposite of Winship’s claim.

Winship says:

I have argued for an Office of Opportunity in the White House to make income mobility a national priority. In my version of this office, it would spend about $20 billion a year on local experiments to promote school readiness among young kids.

I think we really have to focus on younger kids because of the vast test score gaps by income and by race when kids start school.

He acknowledges “vast test score gaps by income and by race,” yet “questions whether the US really has an inequality problem.”

Then comes the “lazy poor” myth espoused by the rich:

I think the evidence from welfare reform is that a lot of people that aren’t working can work, and that it would actually reduce their poverty and increase their income if they could be encouraged to do so.

I don’t look at work requirements being punitive, I look at it as being better for a lot of people receiving those benefits.

The rich claim the poor are slothful “takers,” and need to be “encouraged” (via punishment) to work. Apparently, just being poor is not punishment enough.  Winship wants to make them poorer, as additional “encouragement.”

He says:

The policies liberals pursue to try to expand mobility too often revolve around just spending more money. They tend to think if you are cutting programs that is bad for mobility, and if you are expanding programs that is good for it.

Yet, Winship wants a $20 billion-per-year Office of Opportunity, to increase income mobility, but doesn’t want to spend more money on the poor, because the poor supposedly are unmotivated to improve.

If this makes sense to you, please explain it to me.

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IN SUMMARY: “Poor” and “rich” are comparatives, not absolutes. The rich become richer either by increasing their own wealth or by decreasing the wealth of those below them.

Income inequality leads to inequality in crime commission and victimization, diet, health, education, housing, and political power.

While humans are not all equal, today’s level of American income inequality is incompatible with a well-functioning democracy.

The Ten Steps to Prosperity is a recommendation for dealing with excessive income inequality.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. ELIMINATE FICA
(Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.

2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE
(H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”

3. PROVIDE A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All)
(The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Guaranteed Income)) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.

4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONE
Five reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.

5. SALARY FOR ATTENDING SCHOOL
Salary for attending school. Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.

6. ELIMINATE FEDERAL TAXES ON BUSINESS
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce your personal income.

7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and business taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.

8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME.
(TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.

9. FEDERAL OWNERSHIP OF ALL BANKS
(Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.

10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY