Saturday, January 4, 2014

Pat Buchanan's clueless defense of income inequality

Patrick J. Buchanan
Recently, a friend posted an old post by David Wong, "6 Things Rich People Need to Stop Saying". The list includes such aggravating and patronizing sentiments as "Hey, I worked hard to get what I have!", "If I can do it, so can you," and "You shouldn't be punishing the very people who make this country work!"

If Wong read Pat Buchanan's latest piece for Human Events, "Inequality — Crisis or Scam?", then he's no doubt updating and adding to the list of arguments which demonstrate how clueless and out-of-touch with poverty many rich people (and their defenders) really are. Buchanan makes it worse because he buys into the Randian fairy tale that the richest are by definition the brightest and best of society and therefore deserve everything they get because they do and create everything (and the poor do and create nothing save babies).

Buchanan begins with a comparison of China under Mao Zhedong in 1972 (more equal) with the China of 2013: "Today there are billionaires and millionaires in China, booming cities, a huge growing middle class and, yes, hundreds of millions of peasants still living on a few dollars a day. Hence, there is far greater inequality in China today than in 1972. Yet, is not the unequal China of today a far better place for the Chinese people than the Communist ant colony of Mao?"

Buchanan not only forgets that China is still nominally Communist, he ends this beginning section with this jaw-dropper: "Lest we forget, it is freedom that produces inequality." Funny ... I thought we were talking about the People's Republic of China; it seems to me they've done a great job of creating inequality without doing much in the way of liberty. So, for that matter, did Soviet Russia. Plenty of illiberal nations throughout history have produced and sustained dramatic levels of income inequality. Buchanan is hardly 200 words into his argument and has already shown he's either oblivious to what he's saying or living in an alternate universe.

Buchanan continues:

Even a partly free nation unleashes the natural and acquired abilities of peoples [including the ability to lie, cheat, bluff and/or steal], and the more industrious and talented inevitably excel and rise and reap the greater rewards. [That may be an article of faith among Randians; history, on the other hand, finds more truth in the quip, "The cream rises to the top — but so does the scum!"] "Inequality … is rooted in the biological nature of man," said James Fenimore Cooper. [Actually, it's rooted in the moral and spiritual nature of man, Bucky, if you'll recall your Baltimore Catechism; the name for it is "original sin".] Yet for many people, from New York Mayor-elect Bill de Blasio to President Barack Obama to Pope Francis, income inequality is a curse in need of a cure, as there is today said to be an intolerable measure of such inequality. [This is an exaggeration of Pope Francis' position, though I can’t swear as much for de Blasio or Obama.]

Buchanan's first act is to argue that the graduated income tax — "about which Karl Marx wrote glowingly in his "Communist Manifesto," he adds, just to make sure we know that such a tax is ritually impure — levels the playing field. "The top 1 percent of U.S. earners pay nearly 40 percent of U.S. income taxes [while taking in 42% of the total financial wealth]. The top 10% pay 70% [and take in 85%]. The top 50 percent pay more than 97% of income taxes [while the bottom 40% actually run negative in financial wealth]. The poor pay nothing. Surely trillions of dollars siphoned annually off the most productive Americans [There's a loaded term!] — in federal, state and local payroll taxes — closes the gap somewhat."

This is numerical sleight-of-hand. For while the top 10% pay taxes that are almost proportional to their portions of the income pie, they still have plenty of disposable (i.e., post-tax) income left to dominate the investment markets:

Wealth distribution by type of asset, 2010
(Source:Wolff, E. N. [2012]. The Asset Price Meltdown and the Wealth of the Middle Class. New York: New York University. Cited in Domhoff, G. W. [2013, February]. Wealth, Income and Power. Retrieved January 3, 2014 from University of California-Santa Cruz:
Investment Assets
Top 1 percentNext 9 percentBottom 90 percent
Stocks and mutual funds 35.0%45.8%19.2%
Financial securities 64.4%29.5%6.1%
Trusts 38.0%43.0%19.0%
Business equity 61.4%30.5%8.1%
Non-home real estate 35.5%43.6%20.9%
TOTAL investment assets 50.4%37.5%12.0%
Housing, Liquid Assets, Pension Assets, and Debt
Top 1 percentNext 9 percentBottom 90 percent
Principal residence 9.2%31.0%59.8%
Deposits 28.1%42.5%29.5%
Life insurance 20.6%34.1%45.3%
Pension accounts 15.4%50.2%34.5%
TOTAL other assets 13.0%37.8%49.2%
Debt 5.9%21.6%72.5%
The point here is that the top 10% own 84% of the financial wealth and 77% of the total net worth of the U.S. while holding only 27.5% of the total debt. Moreover, as a Citicorp document from 2005 asserted, "the resurgence in [the fortunes of the top 0.1%] since the mid-eighties [is] mostly from oversized salaries. The rich in the U.S. went from coupon-clipping, dividend-receiving rentiers to a Managerial Aristocracy indulged by their shareholders." (Kapur, A.; Macleod, N. and Singh, N. [2005, October 16]. Plutonomy: Buying Luxury, Explaining Global Imbalances. Citigroup Global Markets Industry Note; p. 5.) I should observe that the words "oversized salaries" comes in a context that's far from morally disdainful or critical; indeed, the authors recommended a strategy of encouraging and exploiting income imbalances.

Source: Domhoff (2013).

Bucky's next move is to detail the benefits that the poor receive from the social safety network. (This is definitely one for David Wong's update: "The Poor Never Had It So Good Before As They Do Now!") It's possible to quibble with his list of the benefits the poor receive (especially his gall in including "free education" as though nobody above the lowest quintile takes advantage of public schools). However, that would be to miss the point exactly as Bucky does: An ever-increasing wage gap means that "trickle-down" economics isn't working as it should.

And, in fact, real income for the lower 80% is either stagnating or decreasing; the real income of college grads is decreasing even as college tuition and debt are rising. Consumer debt is rising again after a sharp "de-leveraging cycle" during the recession; every dollar a consumer pays in interest is a dollar he can't save for retirement or use to purchase new goods and services. Money isn't "trickling down" to create the storied "incoming tide" that "raises all the boats" because it's being siphoned off at the top: American executives, on average, are being "compensated" not only far beyond their employees and their counterparts in other countries but often enough with no reference to company profitability.

"A good society," Buchanan pontificates, "will take care of its poor." Good; Bucky hasn't drunk all the objectivist Kool-Aid. "But envy that others have more, and coveting the goods of the more successful, used to constitute two of the seven capital sins in the Baltimore Catechism." Ah, I'm afraid his memory fails him again; while coveting a neighbor's wife or goods violates the Ninth and Tenth Commandments as we Catholics reckon them (Dt 5:21), the other capital sin besides envy is also known as avaritia, or greed if you prefer, and is still considered one of the seven deadly sins (CCC 1866).

Buchanan, in sum, is looking at income inequality as a proposed justification for further welfare programs. However, poverty can be lessened by finding new ways to increase employee compensation and to improve the hopelessly corrupt executive compensation determination process so CEO compensation is no longer so far out of line. The first step, as I noted the other day in The Other Blog, is to recognize that employees are consumers, and that money paid by companies in the form of wages, salaries and profit-sharing come back to companies in the form of purchases of goods and services. (If you think about it, wages and salaries are themselve a form of profit-sharing, except that they're paid before tax rather than after tax.)A readjustment that shortens the distance between the top and bottom of the pay scale would improve the lot of most of the people in the lowest quintiles without requiring an increase in prices as would, say, a massive hike in the minimum wage.

This can be done voluntarily, without the need for government intervention or redistribution. (Yeah, yeah, I know ... "That's just crazy talk.") It will have to be done eventually; whether we do it now, while full recovery is still a possibility, or later, after a slump back into another, worse recession is up to the boardrooms ... and the investors, who have up until now been indulging the executive pirates. Certainly we can do it without wrecking the foundations of liberty, or calling into question our foundational premiss, written for all time in the Declaration of Independence, "that all men are created equal". We just need to get rid of the Ciceronian fantasy that the people who crawl their way into the boardrooms of America are "nature's nobility", the most shining examples of Homo sapiens we can provide, and therefore deserve 100 – 6,000+ times the average compensation of their employees.

Yes, income inequality is a fact of the human condition. It doesn't follow that we should indulge or encourage its increase, especially when we begin to see evidence that a large imbalance is a sign of an unhealthy, defective economy. "You always have the poor with you, and whenever you will, you can do good to them" (Mk 14:7; cf. Mt 26:11, Jn 12:8). Certainly, diminishing their numbers through better employee compensation plans would qualify as "doing good".