Progressivism: Riches For The Top Guys, Disaster For Those At The Bottom

I love listening to people of the Left -- people like Bernie Sanders, Hillary Clinton, Bill de Blasio, and their international counterparts like Chavez and Maduro of Venezuela, Rousseff and da Silva of Brazil, the Castros of Cuba, or many others -- as they talk about the terrible income inequality under capitalism and the perfect justice and fairness soon to be achieved through government-enforced redistribution programs (run by them, of course).  Many of these people march under the banner of "socialism," while others use different labels ranging from Communism for the Castros, to Chavismo for the Venezuelans, to the Democratic Party for Clinton.  I'll use the catch-all term of "progressivism" for the overall concept of government-enforced redistribution as the appropriate route to justice and fairness among people. 

A few days ago, in a post titled "Progressive Policies Increase Income Inequality," I noted what is to me the obvious fact that implementation of progressive policies, on whatever scale, increases rather than decreases income inequality as it is measured by the commonly-used statistics.  Today, I thought I'd take a closer look at how those policies affect the people at the very top and at the very bottom of the societies in question.

First, let's consider a few of the international examples.  Venezuela is the country where Hugo Chavez and his successor Nicolas Maduro have used a combination of attacks on the rich and redistributionist programs to keep themselves in power for going on two decades.  Many companies have been nationalized; products like gasoline, food, and common household products are steeply subsidized; and for several years the government has pursued a blowout program of construction of subsidized public housing.  Then, late last summer, it emerged that Chavez's daughter Maria had some $4.2 billion in bank accounts in the United States and Andorra.  How did she happen to come into that kind of money?  In a considerable amount of looking, I haven't been able to find any clue.  Nor have I seen any suggestion of any kind of government investigation of possible wrongdoing.  Hey, maybe she just found it in the back yard!  And anyway, Maria hadn't amassed anywhere near the fortune of Chavez's former treasury secretary Alejandro Andrade:

Alejandro Andrade, who served as Venezuela’s treasury minister from 2007 to 2010 and was reportedly a close associate of Chavez, was discovered to have $11.2billion in his name sitting in HSBC accounts in Switzerland. . . .  

But at least the lives of those at the bottom have been improved, right?  It certainly doesn't appear that way from any evidence that I can find.  Of course, all of the deeply subsidized products have disappeared from store shelves.  GDP is shrinking at a rapid rate.  The Economist calls the situation a "mounting economic crisis."  Oh, and did I mention that the government has said that it will turn off the electricity for all of next week and shut the whole country down.  They blame a drought, and a resulting lack of water for the hydroelectric system.  But don't they have the world's largest oil reserves?  Hey, this is socialism!  Anyway, do you think that despite the crisis Mr. Maduro might somehow have operating electricity in his palace next week?

Cuba?  Don't know if you caught the 2014 memoir by former Castro security guard Juan Reinaldo Sanchez titled "The Hidden Life of Fidel Castro."  In case you missed it, here's a summary from Britain's Daily Mail.  Palaces, yachts, servants by the dozens.  Lots of details in the article, but the long headline says all you need to know:

Castro the commie hypocrite who lives like a billionaire: He's posed as a man of the people. But a new book reveals Cuba's leader has led a life of pampered hedonism and a fortune as big as the Queen's

And the ordinary people?  Of course the Cubans don't publish any usable statistics.  But maybe you can get an idea of how they live from the ration system.  From the Guardian (no enemies of the Castros) in April 2015:

Every Cuban family registers with a local supply store, where they can use a libreta or ration book. This typically provides about 10kg (22lb) of rice, 6kg of white sugar, 2kg of brown sugar, 250 millilitres (1 cup) of cooking oil, five eggs and a packet of coffee per person per month, along with 2kg of meat (usually chicken) every 10 days, a bun every day and a bag of salt every three months. Milk is provided for pregnant women and children under seven years of age.  The basic libreta products are guaranteed, but they are not enough – so people often have to travel to several places on several different days to make up the shortfall.

Well, if you like milk, I certainly hope you are pregnant!

In Brazil the leftist Workers Party came to power in 2002, and has been much more moderate in its redistributionist ambitions than its counterparts in Venezuela and Cuba.  But somehow, once taking property from some and passing it around to others is legitimized, it's just not possible for the humans at the top of the redistributionist game to resist taking a big cut for themselves.  And thus it seems that for many years the top pols in Brazil have been conspiring with the top execs at the state-owned oil company Petrobras to overpay for major contracts and have the excess passed back as kickbacks and divided up among the favored.  From Time magazine yesterday:

Prosecutors believe businesses paid almost $3 billion in bribes to state officials for rigged, overpriced construction contracts; those officials then funneled much of the cash to political parties, including the PT, to fund election campaigns.

Impeachment proceedings have recently begun against current President Dilma Rousseff.  Some million or more people took part in protest demonstrations on Tuesday.  And just in the past couple of weeks the investigation has turned to former President and Rousseff mentor "Lula" da Silva.  Da Silva claims he didn't take any "cash bribes"; but then there's that three-story beach house, and the millions to finance the political campaigns.

Fortunately, here in the U.S. we are not nearly so coarse and crude as those Latin American caudillos.  Here we have the Yale Law School to teach budding redistributionist pols how to cash in on their government positions and get personally rich in a much more sophisticated and high-minded way.  And don't forget, tax deductible!  I'm referring, of course, to the Clinton Foundation.  CNN here calculates Bill and Hill's "speaking fees" since 2001 at $153 million.  Now, on how much of that do you think they paid ordinary income taxes?  CNN doesn't tell us, but then why have a Clinton Foundation if it's not going to take a good chunk of the fees as tax deductible "contributions" and then fund the lifestyle of private jets and top hotels as part of the "charitable works"?

Bill de Blasio?  Remember that he was Hillary's campaign manager when she first ran for the Senate in 2000 -- he learned at the feet of the mistress!  He literally hadn't been mayor for a week before he set up his own not-for-profit called Campaign for One New York and started raising slush fund money from nice guys like the teachers unions in multi-hundred-thousand dollar chunks.  $5 million later, today's news says that he is shutting down the "charity."  He doesn't want the "ethical distractions" in connection with his upcoming campaign for re-election.  Really!  No word though on whether he's giving any of the money back.

Well, at least our U.S. progressives take care of those at the bottom.  Actually, it depends on what you mean by "take care."  They can "take care" to double or triple your price of electricity and gasoline through the war on fossil fuels (in which all of Clinton, Sanders, and de Blasio are participants).  Or they can "take care" to "put a lot of coal miners and coal companies out of business," as Hillary put it a couple of days ago.   Or they can "take care" to make the very least-skilled workers unemployable through a big hike in the minimum wage.

Well, you say, at least Bernie Sanders has not used his government offices to personally enrich himself.  My answer is that he hasn't held executive office yet.  I don't believe anyone is immune to the temptation to redistribute to himself once he gets control of the redistribution game.  Maybe Bernie would be the exception.  Fortunately, we'll probably never get a chance to find out.

No Subject Generates More Ignorance Than The Trade Deficit

A few months ago I had a post titled "No Subject Generates More Ignorance Than Poverty."  And I must say I had a good point, since almost everybody gets duped by the intentionally deceptive statistics on poverty put out by the government.  Look around at what people who ought to know what they are talking about say about poverty (you can start by reading that linked post), and you will find an endless series of self-important know-it-alls making fools of themselves.

But I'm sad to report that I have found another subject that makes self-important know-it-alls look even stupider, and that is the so-called "trade deficit."  I started getting into this subject back in September in a post titled "Donald Trump And The Trade Deficit Fallacy", after first watching a clip of Donald Trump talking about it.  In the clip (found at the link), Trump equated a trade deficit to "losing" to the counterparty country that runs the corresponding surplus.  Here is a quote:

What is the United States trade deficit with Mexico, Japan and China?  Let's start with China.  Almost $400 billion per year.  If you have a company when you're losing $400 billion you've got to do something very fast.  We don't.  We've been losing hundreds of billions of dollars per year, frankly for decades.  It's not going to happen any more.   

Somehow I naively thought that if Trump kept saying things this uninformed he would quickly be laughed out of the race, or alternatively maybe he would take ten minutes to learn about the subject and stop talking nonsense.  But then there he was last night, celebrating after a new string of primary victories, and basically saying the exact same thing over and over again.  It's not just that he has fallen for the "trade deficit" fallacy; he has decided to make it a, if not the, central theme of his campaign.  We're "losing" to China and Mexico, and if I become President I'm going to turn that around.

Well, fortunately, I was watching this on the Fox Business channel, where surely they would have some savvy business types to call Trump on this and point out why what he was saying doesn't make any sense.  The hosts were Lou Dobbs, Charles Gasparino and Kennedy.  And, after listening to Trump's speech, Dobbs promptly launched into a monologue about how absolutely right Trump was!  Our trade deficit is "enormous," it's been going on for decades, these kinds of "imbalances" just can't last, we're racking up huge "debts" to other countries that can't be repaid, it's "unsustainable," etc., etc., etc.  Gasparino and Kennedy?  Who are they to disagree with the great Lou Dobbs?  Basically, they didn't say anything. 

I can't even figure out where the idea that a trade deficit is so terrible comes from.  Essentially, a trade deficit is the result of summing up millions of private transactions, reflecting the preferences of millions of private actors, and it's unclear to me why anyone should even care that after a year of all of that the Chinese or Mexicans ended up holding more dollars or dollar-denominated bonds and we ended up with more consumption goods.  The right way to look at that is that we provide some combination of a reserve currency that they think they can trust (at least more than the other terrible currencies) and a perceived relatively-safe place to invest, and in return they are willing to pay for that by allowing us to consume more than we produce of current goods and services.

Particularly wrong-headed is Dobbs's contention that a trade deficit represents racking up unsustainable debts.  Consider the (large) piece of the trade deficit that is simply accounted for by foreigners accumulating dollars.  Yes, in a sense, that represents a "debt" of the United States.  But it's a debt that is not a claim against the taxpayers, and can only be collected on by spending the dollars to buy something in the United States.  Suppose the foreigners try to "collect" on the debt.  They spend the dollars in the U.S.  If they actually spend more dollars in a year than they accumulate by selling stuff to us, then they have collected on part of the debt.  How does that appear in the books?  As a trade surplus.  By the logic of Trump, Dobbs, et al., isn't that a good thing?  So then, why is this "debt" a problem, and why is it supposedly "unsustainable"?

Another part of the trade deficit gets invested in the U.S. by buying U.S. corporate bonds and other securities.  Again, can anyone explain why that is a problem, particularly a problem that the U.S. government needs to worry about?  This is not debt that the taxpayers are on the hook for.  Apple, for example, is a big corporate borrower.  It is very profitable, and has more than sufficient profits to sustain its debts.  If it wants to, it can maintain and even increase its level of debt indefinitely.  Why should it be a matter of public concern whether this debt ever gets repaid?  And if the profits go away and the debt can't be sustained, then the (foreign) lenders will lose some or all of their investment.  Again, who cares?

OK, some of the trade deficit money gets invested into U.S. government bonds.  These bonds are a claim on the taxpayers, and they are a problem.  But they are a problem because the U.S. government is overspending and putting too much burden on future taxpayers.  That burden has nothing to do with whether there is a trade deficit, and would be just as much a problem if we had nothing but trade surpluses and all the bonds had to be sold domestically.   

Anyway, for today's final entertainment, I point you to the op-ed in today's Wall Street Journal by Anne Stevenson-Yang and Kevin Dougherty titled "China's Looming Currency Crisis."   If you had been listening to Trump and Dobbs you could be forgiven for having thought that China was "winning" and it was the U.S. that was in crisis because of the huge trade deficit.   But then what exactly is this "crisis" for China, as described by Stevenson-Yang and Dougherty?  You guessed it:  It's that the darned Chinese, instead of using their savings (accumulated in dollars via the U.S. trade deficit) to buy yuan (and thence to buy goods or make investments in China), are either holding the dollars or making investments in the U.S. and Europe.  

[I]n China getting money out of the country is now the major preoccupation of both families and corporations. Risk-averse individuals are trading out of the wealth-management products they used to buy for 10% yields and moving their money to safety in the U.S., Australia, Canada and Europe.   

To put it another way, their supposed "crisis" is no more than the other side of the accounting entry of our trade deficit.  And Stevenson-Yang and Dougherty certainly discuss this as if it is a crisis for China.  Hey, the yuan might depreciate!  Stuff might cost more in China!  Well, I guess then we both have a crisis.  If so, the only solution would be to make the trade accounts of every country with every other country balance to exactly zero every year.  Good luck with that!  Maybe we can do it by hiring another few million bureaucrats for the U.N.  

For myself, I agree that China has maybe not a crisis, but a problem.  The problem is loss of faith in competent stewardship of the economy by the government, leading to capital outflow and likely a recession, which may be a long one.  The people react to the climate of fear at home by accumulating a more trusted currency (dollars) and putting their investments in the U.S. and other Western countries.  On our books, this shows up as a "trade deficit."  How could anyone not regard this as advantage U.S.?

Trump Voters And The Magical Belief In Government Action

After violent protests forced the cancelation of a Trump rally in Chicago on Friday night, I listened for about half an hour to Trump being interviewed on the subject by Sean Hannity.  Much of the discussion was about the illiberality of the "liberal" left, but some considerable percentage of the time was also devoted, after a fashion, to issues of economic policy.  I say "after a fashion" because, as usual with Trump, there were no specifics.  Instead, given the opportunity, with all the time in the world, to lay out anything he wanted about economic policy, what Trump did was repeat, over and over, the same line:  "We're going to bring the jobs home."  By my count, he uttered that line at least half a dozen times in the half hour, and that was the beginning and the end of what he had to say about economic policy.

Well, what does that even mean?  What is the thing that supposedly Trump is going to do that will "bring the jobs home"?  Certainly, he did not mention anything in this interview.  In previous interviews, I have heard him go as far as to say that we are "losing" in international trade to countries including China and Mexico, and that he can fix that by doing better "deals" than our current incumbents.  But the better "deal" consists of what, exactly?  

Unfortunately, I think that many or most Trump voters actually believe that we are somehow "losing" in the arena of international trade, and that there is something a President can do to change that.  On a similar note, the Obama voters believed that their man could "stop the rise of the oceans" and "heal the planet."  Is there really much difference?

How would you measure whether we are "losing" to another country in international trade?  Me, I would start with per capita GDP.  That statistic would basically tell you which country's workers have the higher-value jobs, and by how much.  So how does the U.S. stack up against China and Mexico in per capita GDP?  Here is a chart compiled by Wikipedia that includes per capita GDP numbers for all the countries of the world from three sources -- the IMF, the World Bank, and the UN.  All three are pretty close for these purposes, so I'll use the IMF numbers (which come from 2015; the others are for 2014).  And the answer is:  US per capita GDP for 2015 is $55,904; Mexico is $9,592; and China is $8,280.  Whoa!  That's saying that people in the U.S., on average, are close to six times as productive as Mexicans, and almost seven times as productive as Chinese.  I would submit that any rational person would conclude that we are killing them in the international economic competition.  Indeed, it's not remotely close.  (And by the way, did you know that even after the tremendous economic growth in China in the last two decades, Mexico is still the wealthier country by a considerable margin?  It pays to look at the statistics.)

Are these jobs that are one-sixth or one-seventh as productive as our jobs the ones that Trump plans to "bring home"?  Another way of looking at that is that Mexican and Chinese jobs are not productive enough to support a wage as high as the U.S. minimum wage for any but a tiny percentage of their workers.  How could it possibly be a good thing to bring those jobs here?

When he has been asked to specify the jobs that he thinks should be done in the U.S., Trump has sometimes referred to automobile assembly line jobs that have gone to Mexico, or computer assembly that is now done largely in China.  These of course are about the lowest-value jobs in the automobile and technology sectors today.  Think about what goes into a car or a computer today, and you immediately realize that there are zillions of much higher value jobs that the rational country would greatly prefer to have.  Which is a better job, designing the new sensors that will keep cars from crashing into each other, or snapping the same two pieces together on an assembly line two hundred times a day every day of the year?  Creating a new computer chip to maximize gas mileage, or screwing on door handles all day long?  I say, good luck to the Mexicans and Chinese with those rote assembly jobs.  Within our lifetimes, they will mostly be done by robots. 

I have a fundamentally different diagnosis from Trump as to the basic economic problem of the U.S.  The problem is not that good jobs are moving abroad as we "lose" to other countries.  The problem is that our own job-creation machine is not working at the pace that it should.  And that, in turn, has little to nothing to do with international trade policy, and everything to do with what I have called the "war against the economy" being waged by our government domestically.  In that article in August 2015 I listed a few of the intentional efforts of our government to suppress economic activity:

[M]assive wasteful spending and debt accumulation; artificially suppressing cheap and reliable energy in favor of subsidizing expensive and unreliable energy; overregulation and endless phony prosecutions directed against anyone who dares to make too much money in a financial business; forcing people to overpay for wasteful health insurance (Obamacare); big tax increases; and more.

What could actually help our economy take off?  How about stopping the suppression of cheap energy?  How about recognizing our financial sector as the crown jewel of our economy and ending the demonization of it?  In a simple summary, how about basic encouragement of productive economic activity instead of intentional demonization and suppression?  But instead we have Trump proposing better "trade deals" with China and Mexico.  Meaning what?  Tariffs?  Quotas?  How are things like that going to help?  

Lack Of Understanding Or Respect For The First Amendment

Lots of people pay lip service to the First Amendment, and its importance to our democracy.  But how many people actually understand it, let alone have any respect for it?  And lack of understanding and respect for the First Amendment are particularly prevalent among those in positions of power and authority.  Hey, what fun is power and authority if you can't shut up your critics?

One of my favorite Stalinist corners of the federal bureaucracy has long been the FDA, where they somehow think they have the absolute right to determine what can and cannot be said in this country about any substance that might ever cross human lips.  First Amendment?  What's that?  The FDA first won my award for "Top federal effort to suppress free speech" back in 1999, for its long-running efforts to ban so-called off-label marketing of pharmaceuticals.  Sixteen years and several tens of billions of phony fines collected from pharmaceutical companies for constitutionally-protected conduct later, the FDA was continuing to march forward undeterred in its campaign to ban off-label marketing, when suddenly last August it found itself enjoined from enforcing those restrictions against a company called Amarin.  Amarin had sued in federal court seeking the injunction by asserting that the FDA could not point to anything false or misleading in its proposed marketing campaign; and a judge in the Southern District of New York (Engelmayer) agreed and issued the injunction.

At the time the FDA vowed to appeal, but yesterday comes news that they have backed down and settled with Amarin.  Do you think that was decent of them?  My take is the opposite:  They were facing near certain crushing defeat in the Second Circuit; and by settling now they will continue to take the (outrageous and preposterous) position that their off-label marketing restrictions are still viable, and to attempt to continue to enforce those restrictions against others.  From the Times article linked above:

The agency on Tuesday downplayed the implications of the deal. In a statement, it said that the settlement applied only to the Amarin case and that its position on whether companies have a constitutional right to provide truthful information about off-label uses had not changed.

Well, that's how much respect and understanding the FDA has for the First Amendment.  How about some others quoted in the Times article?  For example, there is Dr. Joshua M. Sharfstein:

Leaving such decisions to a judge, not the F.D.A., concerned Dr. Joshua M. Sharfstein, a former principal deputy commissioner at the F.D.A. who is now an associate dean at the Johns Hopkins Bloomberg School of Public Health.  “The courts are at the precipice of taking over a fundamental F.D.A. function of calling balls and strikes in the drug market about what’s truthful and not misleading,” Dr. Sharfstein said.

Got that?  According to ex-FDA "principal deputy commissioner" Sharfstein, it's a "fundamental function" of an executive agency of the government (here the FDA) to decide what you can and cannot say.  And the courts just have no business meddling!  Really, did this guy (or anybody else who now or ever has worked for the FDA) even go to high school?

Meanwhile, in the same category, there's another important case on off-label marketing that I haven't yet mentioned here.  Justice has been prosecuting a guy named Howard Root, CEO of a company called Vascular Solutions, Inc., for supposed off-label marketing of a device called Vari-Lase for the treatment of varicose veins.  Root took his case to trial, with the full support of his company and his board, and in February a federal jury in San Antonio, Texas acquitted him of all charges.  A lawyer named Kevin Riach notes the significant aspect of the trial:

Notably, the trial court instructed the jury at the opening and close of trial that truthful off-label promotion is not a crime because such speech is protected by the First Amendment. This instruction marks the first time that the First Amendment protection for truthful off-label speech has been adopted by a court outside the Second Circuit, and it is a significant blow to the government’s ability to prosecute companies for off-label promotion. The court’s instructions are likely to be cited by other companies facing False Claims Act and criminal liability for off-label promotion in future cases.

And there's nothing like an acquittal to finally give a wrongly-accused defendant the ability to open up and unload against the outrageous and oppressive government.  From a statement by Root after the verdict:

"The company and I are vindicated by today's verdict, but outraged by the obscene legal process we were forced to endure," Root said in a statement. "There is simply no excuse for abusive and dishonest conduct in any U.S. governmental agency, much less in the Department of Justice and our law enforcement agencies."

All I can say is, he was still a lot nicer than I would have been.

Anyway, the FDA is not giving up on this, but gradually the fissures are opening.

Destructive Government Activity Just Keeps Advancing

There are two fundamental political narratives out there.  In one narrative, hard working people create wealth by engaging in economic activity.  Ultimately everyone benefits from the economic activity, although some benefit more than others, and only a few become extremely rich.  The main role of the government in the economic sphere is to create conditions to incentivize the economic activity so that wealth can be created.  In the other narrative, wealth somehow pre-exists as a fact of nature.  Maybe it comes from the tooth fairy.  Because the wealth pre-exists, there is no need for government to create a good environment for economic activity; rather, its role is to pass the wealth around equitably, so that everyone can lead comfortable and stress-free lives.  But somehow a nefarious class of billionaires, or maybe it's the "hoarders and speculators," has seized most of the wealth for itself.  

Of course the government policies implied by Narrative I and Narrative II are diametrically opposite.  For a recent extreme case of the implementation of Narrative II-style policies, we can look to Venezuela.  For almost two decades since the late 90s, the government has engaged in vast and expanding redistributions, accompanied by punishment of the entrepreneurial class.  Nearly 20 years in, the Central Bank reported that the economy shrunk by 7% last year (almost certainly far underestimated), and annual inflation is in the multiple hundreds of percents.  What is the cause of this ongoing disaster?  According to Venezuelan President Maduro (in his State of the Union speech in January), destructive government policy has nothing to do with it; instead, it's the wealthy speculators:

Addressing the causes of the economic emergency afflicting the country, Maduro derided the Venezuelan private sector for having carried out “an investment strike” of national industry and refusing to cooperate with the government. He blamed private companies for participating in speculative pricing, causing mass devaluation to the country’s national currency. 

Fortunately, nobody in the U.S. would be that dumb.  Just kidding!  The rhetoric of Bernie Sanders is more or less indistinguishable from Maduro's in the diagnosis of the causes of economic malaise, and in proposed cures.  Here is Sanders on his website:

The reality is that for the past 40 years, Wall Street and the billionaire class has rigged the rules to redistribute wealth and income to the wealthiest and most powerful people of this country.  This campaign is sending a message to the billionaire class: “you can’t have it all.”

And yes, in Sanders world, all that wealth was just pre-existing natural bounty that was stolen by these greedy people.  So, as noted here a few days ago, since 2012 average gasoline prices in this country have declined from around $4 per gallon to well under $2.  That is attributable largely, if not entirely, to the revolution in oil and and gas extraction known as "fracking."  Somehow, that revolution happened so fast that President Obama and his regulatory minions were unable to stop it.  But Sanders?  Asked at Sunday's Democratic debate in Flint, Michigan whether he "supports fracking," Sanders answered bluntly, "No, I do not support fracking."  Don't worry, when President Sanders bans fracking and the price of gas goes back to $4 (and then on to $5 and $6), it will be the fault of the "billionaire class," or perhaps of the "hoarders and speculators." (Does poor Bernie even realize that traditional oil companies like Exxon and Chevron -- and their investors and executives -- would be making a lot more money right now if fracking had not happened?)

And in case you think that a President Hillary would be significantly different in her fundamental views, she answered the same question at the same Sunday debate.  The answer (reported in today's Wall Street Journal) was longer and weasely-er, but basically says that she would ban fracking to the maximum extent she could get away with:

“You know, I don’t support it [fracking] when any locality or any state is against it, number one. I don’t support it when the release of methane or contamination of water is present. I don’t support it—number three—unless we can require that anybody who fracks has to tell us exactly what chemicals they are using.  So by the time we get through all of my conditions, I do not think there will be many places in America where fracking will continue to take place. And I think that’s the best approach, because right now, there are places where fracking is going on that are not sufficiently regulated.”

In Hillary's case, I think you can be sure that she realizes full well that the banning of fracking would enrich the incumbent interests in oil and gas.  That's the donor class!

Meanwhile, redistributionist Narrative II-style policies have brought us places like Philadelphia, Detroit, Baltimore, Cleveland, St. Louis and Chicago.  In New York, we don't have the vast vacant zones any more (after 20 years of Republican mayors), but we do have the massive public housing projects that make it such that the wealthiest county in the country (Manhattan) has a poverty rate far above the norm.  

And of course, what's going on now in New York is an expansion to the commitment to subsidized housing for low income people -- otherwise known as the creation of permanent poverty traps.  The Wall Street Journal in its Greater New York section reports on the political back-and-forth over Mayor de Blasio's plan to re-zone a big low income neighborhood in Brooklyn in a way that would increase allowable density while also increasing requirements for "affordable" units.  This being New York, the controversy is over how deeply-discounted we are going to require the "affordable" units to be.  The de Blasio administration "has offered" to require developers to provide units that are "affordable" to families making "about $31,000 for a family of three."  But of course "housing advocates" want even greater subsidies and deeper discounts for families of even lower incomes.  We are determined to double down on the New York City Housing Authority crisis! 

What is it again that we're talking about on the Republican side?  Trade wars with Mexico and China?

Progressive Policies Increase Income Inequality

If you take just a little time to understand how income inequality is measured, and how government redistribution programs work, it will be immediately obvious to you that increasing the redistribution programs will cause measured income inequality to increase, not decrease.  The biggest reason is that means-tested in-kind redistributions (think public housing, food stamps, Medicaid, Obamacare subsidies) present a tremendous incentive to reduce or stop work in order to qualify, and then are not counted as income to the recipient.  Another reason is that lots more than you might think of the redistributions (Social Security is by far the biggest example) go to people who are not poor.  And don't forget the destructive effects of the minimum wage (kids in multi-earner middle class families get a raise while poor blacks are rendered unemployable).

Last July I wrote an article for the City Journal pointing out this obvious fact (title: "What Causes Income Inequality? Progressive Policies Do.")  I followed that up with a post on August 3 on this blog ("Do Progressive Policies Cause Income Inequality?")  Those articles got some play at the time, but the small eclat quickly faded.  Certainly, my analysis did not cause any notable progressives (think President Obama, Hillary Clinton, Bernie Sanders, Bill de Blasio) to rethink their advocacy of more subsidized medical care, more subsidized housing, more subsidized nutrition programs, a higher minimum wage, and the like, even as they rail against income inequality.

This weekend the Wall Street Journal has published a long op-ed by Lawrence Lindsey covering the same subject and making many of the same points.  Title: "How Progressives Drive Income Inequality."    Most notable in Lindsey's article is his collection of data on how the explosion of handout spending under Obama has been accompanied by substantially increasing income inequality.  Here are Lindsey's data on increases in handouts, first since 1968, and then in the seven Obama years:

In 1968, government transfer payments totaled $53 billion or roughly 7% of personal income. By 2014, these had climbed to $2.5 trillion—about 17% of personal income. . . .  Transfer payments under Mr. Obama increased by $560 billion. By contrast private-sector wages and salaries grew by $1.1 trillion. So for every $2 in extra wages, about $1 was paid out in extra transfer payments—lowering the relative reward to work. Forty-five million people received food stamps in mid-2015, an increase of 46% since the end of 2008. Similarly, 71.6 million individuals were enrolled in Medicaid and the Children’s Health Insurance Program, an increase of 13.3 million since October 2013.

So those vast increases in government handout programs should have resulted in at least some notable decrease in income inequality, right?  Of course, it's the opposite -- as anybody who pays any attention to this issue would already have known.  Lindsey discusses the government's three measures of income inequality: the Gini index, the mean log deviation of income, and the Theil index.  What has happened to those during the vast increase in redistributions since 1968?

Despite the redistribution of a sixth of all income [by 2014], inequality measured by all three of the Census Bureau’s indexes is far higher today than in 1968.

And how does Obama's record on income inequality compare to that of his predecessor, GW Bush?

The mean log deviation increased 37% more under Mr. Obama than under President George W. Bush, although when this statistic was released, Mr. Obama had only six years as president compared with Mr. Bush’s eight. The Gini index rose more than three times as much under Mr. Obama than under Mr. Bush. The Theil index increased sharply during the Obama administration, while it fell slightly under Bush 43.

Of the various factors contributing to these results, Lindsey doesn't get much into the one that I think is the biggest, namely the fact that the value of the handouts is not counted as income to the recipients.  (The big handout increases during Obama's tenure have been in Obamacare/Medicaid and food stamps.)  But he does spend some time on the strong disincentives to work caused by the increasing handouts, as well as on the inability of tax increases on high earners to have much if any effect on income inequality.  He points to research from the Hamilton Project and the Urban Institute showing that phase out of government handouts can have an effect equivalent to a marginal tax rate of 50 to 80% for a low income family considering having a second earner get a job.  And he points to a recent study from Brookings that concluded that enacting Bernie Sanders's proposal to increase the top federal marginal income tax rate from 39.6% to 50% would only lower the Gini coefficient by 0.003.

I would think that this issue would be a huge negative for a Clinton or a Sanders in the election; but so far it has been getting next to no attention.  And then, of course, you have the staunch refusal of their core supporters to accept any evidence from the real world.  For example, we have this from a commenter on Lindsey's piece named Skye Priestley:

Mr. Lindsey’s ideas, while somewhat intriguing, are clearly driven by the same inflated mythology that the owners of capital spread so incessantly through every media outlet they can get their grubby hands on: capitalism is the holy calf, and we should all cower lest it be besmirched. I propose an alternate explanation for the fact that income inequality has increased despite the policies of recent liberal administrations designed to combat it. Our nation is increasingly divided by class, and therefore increasingly vulnerable to the concentrating effects of inherited wealth and influence. It is not that redistributionist policies are not effective, but rather that cultural changes have made wealth concentration easy faster than policy changes have made it hard.

It's just that we haven't done enough income redistribution yet!  We have to double down!  Mr. Priestley seems completely unaware that the principal government redistribution programs do not subtract income from high earners, nor do they add income to low earners, as these things are measured.  I would ask Mr. Priestley to consider the main Bernie Sanders proposals of free health care for all and free college for all.  How exactly are these going to decrease income inequality?  But don't worry, Mr. Priestley will not do this exercise.