At the Wall Street Journal Phil Gramm and Michael Solon weigh in on the issue of income inequality, drawing attention to a new study that attempts to take into account the distinction between cash income and compensation which in the United States is considerable. Offhand I would say most compensation growth for those in the bottom three quintiles has come in the form of something other than cash. Here’s their take on inequality:
How exactly are we poorer because Bill Gates , Warren Buffett and the Walton family are so rich? Mr. Gates became rich by mainstreaming computer power into our lives and in the process made us better off. Mr. Buffett’s genius improves the efficiency of capital allocation and the whole economy benefits. Wal-Mart stretches our buying power and raises the living standards of millions of Americans, especially low-income earners. Rich people don’t “take†a large share of national income, they “bring†it. The beauty of our system is that everybody benefits from the value they bring.
I don’t know enough about Warren Buffett or Wal-Mart to venture an opinion but Bill Gates became rich at least partially as a consequence of rent-seeking. Without patents and copyrights he’d still be managing a little software development company.
The kind of income inequality I’m worried about is the kind that’s the result of rent-seeking and the scope of that is expanding rapidly. Bankers, large software companies, the entire healthcare sector, and, now, the automobile manufacturing sector are all direct beneficiaries of the federal government. They haven’t exactly pulled themselves up by their bootstraps.
How does that hurt us? Go back and read “What Is Seen and Unseen?” Then, especially in the case of banks and the healthcare sector, think about moral hazard. It hurts us because of the other things that might have been done, things that would have produced more jobs and more evenly distributed prosperity.
And if Gates, Edison, Ford, Carnegie and the Wright Bros had been subjected to Obamacare mandates, a lot of their early income and wealth would have been squandered on perinatal care for breeders andthe attempt to educate “stupid Amerikan” brood, leaving less to throw into their growing enterprises or to attract the indispensable geek talent.
I think that’s a good critique, and my opinion is that the general argument they are making about added value applies better to small businesses.
This hearkens back to Obama’s line, “You didn’t build that” and to his remarks to Joe the Plumber back in 2008. I recall a lot of heated discussion on blogs then with liberals pointing out that businesses are built on the backs of taxpayers (thus entrepreneurs should accede to higher taxes and more regulation.)
This ignores two points: first, that the business owners already pay taxes and deal with regulations so there is nothing wrong with pushback against the limits of those. And second, entrepreneurs put their own capital and sweat on the line in order to leverage the public goods. They require infrastructure, governance, and security to create their businesses but they clearly provide added value, expanding the tax base and creating the secondary infrastructure for commerce.
Microsoft manufactures a product. Walmart provides an outlet to purchase that product. From this paragraph, it appears they are trying to rehabilitate Warren Buffett, but they cannot. They have generated some gibberish because they have no idea of what he does. They should have said that Warren Buffet supplies the capital to start or expand businesses such as Microsoft or Walmart.
The truth is that Warren Buffett uses the rent-seeking and the currency creation of the financial system to build his fortune. He may invest in companies, but he would not have made billions this way.
These writers are clueless about how much of Warren Buffett’s fortune would not be possible without the government. Had he been born in the previous century, he would not have had the means to create his fortune.
The issue remains that a very small group of people controls such a high percentage of our wealth that it is inevitable that they will also influence our politics. It is also inevitable that they will have a lot of control over over private enterprise. Their incentives, i.e. to make themselves and their families/friends wealthier, is not the same as wanting the country to grow in wealth. Seems like a recipe for disaster if we are going to put all of our eggs in a small basket.
Steve
Don’t care to read up, but are they talking about medical insurance making compensation more equal. There are lots of problems with that line of argument, and maybe I’ll mention a couple if I get to a keyboard later.
There’s also some – nebulousness, I guess – about what is and isn’t poverty, a good deal of which is seems dishonest to me, but then I’m as crazy as Jimbino these days. Again, will have to wait for a keyboard and probably another thread.
America has always been about inequality–slavery, whites vs blacks, Pinkertons and the National Guard vs union strikers, WASPs vs anybody else who wanted in on their lives, cops vs ghettos, etc. etc.
This country has always had a ton of malice in it. Part of it exists in the pretense that Wal-Mart is a provider to the Waltons, its employees and the shoppers who can afford nothing else, or behind the notion of ‘job creators’, i.e. that those who want jobs should treat the employer like an honest artisan who has created something out of nothing.
The government became entangled in trying to stop some of this without having any idea of what should happen except curbing the excesses and providing stability. The generation of people who were around Roosevelt–the first one–had genuine ideas about how to invest America’s wealth in ways independent of creating more capital or exemption from capital. I would say very few people–certainly not the money that funds hacks like Phil Gramm–has any interest in a 21-century Gifford Pinchot.
“And if Gates, Edison, Ford, Carnegie and the Wright Bros had been subjected to Obamacare mandates”
Actually, Ford increased salaries well beyond the norm for his time. He found that it gave him a stable work force, and better profits. Also, under the supposedly horrible regulatory load the wealthy carry, their share of income and wealth keep growing. How exactly are they being harmed?
Warren Buffett
“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.â€
― Warren Buffett
Steve
@steve
Warren Buffett understands how the financial system works, and it is not how you were taught in college. H knows he can create currency faster than the government can take it from him, and he knows that Keynesian economics depends upon him creating currency as fast as he can.
If you were able to catch him, you would take down the system that provides the wonderful goodies, and he knows it. For years, conservatives worshiped Warren Buffett, and now, the liberals are bowing down to his wisdom. He is nothing more than a hustler, and he knows it.
Jimbino isn’t talking about rich Henry Ford or Bill Gates of their maturity, but of the young and hungry businessmen trying tobuild something. The regulations now serve to largely protect the already rich & powerful, or at the very least make sure they get a big cut of any new revenue streams.
You have the government hustlers who try to take a cut from the businesses, but of course, they are not as smart as they think they are. If President Obama could outfox Warren Buffett, he would not have gone into politics.
@Dave Schuler
For some reason @Jimbino’s comments seem to be on a time delay.
That’s because for whatever reason all of his comments get caught by my spam detector. I moderate them one by one as I get around to it and they become visible.
This is one of the two (the other being peak debt capacity) biggest issues facing the US economy. I hope it gets further discussion.