Uncommon Sense

May 7, 2018

Economic Apologetics

It seems that economists, some not all, behave much like Christian apologists. When challenged they respond with what sound like well-constructed arguments but which are just narratives with no evidence (or mixed evidence at best). Take, for example, this narrative:

“… most Americans subscribe to the view that market-determined gaps between rich and poor should be softened by government. The rich should be taxed, and the poor should be helped. But how much should government intervene? One common argument is that there is a trade-off between efficiency and fairness. If the rich are taxed and the poor helped through transfers, the hard work of the rich is punished and the idleness of the poor is rewarded. The rich cut back on their effort—for example, by not opening a new business—while the poor use their windfall to support their leisure, for example, by not taking an available job. The result, say the critics of income redistribution, is that society squanders much more than the $1 of income for each $1 of government help that actually reaches the poor. Redistribution, they believe, should be severely limited, used to address only the most extreme problems of poverty and hunger.” (Source: The Price of Civilization by Jeffrey D. Sachs)

This argument is quite popular right now amongst neoliberal politicians and most of the people in the Republican Party. (I’m shocked, shocked, I tell you.) But does this “narrative” hold water? Is there anything supporting it?

One need only go back into recent history to find that it does not. Take, for example, the rich. Back in the 1950’s and 1960’s the federal government had marginal income tax rates as high as 91%. Did this level of “confiscation” deter the rich from doing what they do? Let’s use the example of Fred Koch, the father of the Koch brothers. Since Fred died in 1967, his final two decades were under the federal tax rates indicated. Having worked for both Stalin and Hitler, he established much of his wealth before WW2. He died a very rich man, passing on his private companies to his son, Charles, to run. Was their any slacking of his pursuit of wealth because of the very high personal income taxes? The answer is no. The same holds for all of the other “titans of industry” of that time.

In that postwar period, the pursuit of the trappings of wealth for immediate gratification focused less on salary (much of which would have just been funneled off into federal coffers) and more on perquisites. Many CEOs had lush offices decorated with expensive art (the company owned them, the CEO didn’t). The company also owned the apartment the CEO lived in, the company limousine, the private jet, etc. For long term wealth, the rich bought and ran companies to increase their value. Since they owned their companies and did not sell them, the increase in the value of those companies did not get taxed. Basically they developed assets to constitute their wealth; they didn’t take it in the form of salary or profits.

Do you know of anyone who made an immense amount of money, north of say 100 million dollars, who stopped working completely? Most of those people just started working on their next hundred million. Billionaires want another billion, etc. Some, like Bill Gates, create a new job they enjoy more than their old one, in Gate’s case, one of being manager of a very large and very well endowed foundation.

Now let us consider the other end of the spectrum. Let’s take Ben Carson. Dr. Carson started out in a very poor family. He is now quite wealthy as a retired neurosurgeon and Cabinet Secretary. Did he stop when he had enough money to cover a nice lifestyle? Did he kick back and put his feet up? No? If you look at any of the rich who have published their stories and select out the ones who started poor (not Mitt Romney or the Walton heirs), every man Jack of them blew right on through any easy living stopping point. Nobody does, except maybe big lottery winners and that situation is quite different. The “poor use their windfall to support their leisure” just doesn’t show up anywhere except in the stories these people tell one another. The majority of the poor work, many work multiple jobs. If their salaries were to be doubled tomorrow, do you think all of those people would be satisfied with their lives at that point and work no harder than they had been or, as is implied, work less? I suspect this would only happen with the people who are working so much now, just to get by, that it is ruining their health, their relationships, and families … but they would keep working.

This “narrative” regarding “income distribution” is a story the well-to-do tell themselves to make them feel as if there is justification for their viewpoint, a viewpoint totally unsupported in reality. So, where do they get this viewpoint? I suggest, in the case of the U.S., that it comes from their religion, not the religion of their scriptures, but the one they hold too now, the one adapted by the religious and secular elites (the rich) to serve their needs. While scriptures clearly talk about things like “how you treat the least of us, you treat me (Jesus)” the current religion talks about the poor being shiftless and lazy and unworthy and … I think you have the picture. I am sure some racial animosity is stirred in here, but that also serves the interests of the religious and secular elites, so they do not discourage it.

Just as with the bullshit arguments of religious apologists, we need to challenge the bullshit narratives of the priests of the new order, the economists.

4 Comments »

  1. Good observation, and word choice.

    Like

    Comment by john zande — May 7, 2018 @ 4:33 pm | Reply

    • Praise from the praiseworthy is always welcome!

      On Mon, May 7, 2018 at 4:33 PM, Class Warfare Blog wrote:

      >

      Liked by 1 person

      Comment by Steve Ruis — May 7, 2018 @ 8:45 pm | Reply

  2. Yes, as you have pointed out, the high personal marginal rates have the effect of forcing the executives to invest more money into their companies – meaning hiring more people, buying more equipment, all of which actually creates much more jobs than taking an 8-9 figure salary and putting most of it into the stock market.
    And on the other end of the wealth distribution, I actually agree that an income meeting most basic needs would disincentivize working. After all, that’s pretty much the main reason why people look forward to retirement, a.k.a. having an income without having to work for it. The problem is, while various government subsidies for the poor don’t provide a comfortable – just basic – standard of living, neither does the working at a low paid job. In some states, the total means-tested subsidies (foodstamps, Medicaid, housing subsidies) can add up to more that the full time wages at the minimum wage, and both often put the person at or below the poverty level. In this situation, why even bother working? Only if a job – any job – would pay much more than the government subsidies and actually provide a noticeably higher standard of living, only that will really incentivize work.

    Like

    Comment by List of X — May 10, 2018 @ 9:13 pm | Reply

    • Yep. Basically if we expect people to pay their own way, we must provide them with the ability to do that. Otherwise we just have organized tyranny.

      I used to be a fan of the Basic Minimum Income but now I prefer a federal job guarantee. This provides the incentives of work but also places a floor under how low you could go. We could also do away with the minimum wage as the wages paid in aguaranteed federal job would become the new floor. Anyone offered employment at less that the feds were paying would get no takers.

      As to what people would do in those jobs, I look to all of the things accomplished under the “make work” programs of the New Deal. That’s a good start.

      On Thu, May 10, 2018 at 9:13 PM, Class Warfare Blog wrote:

      >

      Like

      Comment by Steve Ruis — May 11, 2018 @ 10:19 am | Reply


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