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Thursday, May 19, 2005

Marxian Class Warfare: The Income Gap

Liberals will never be satisfied until everybody has been rounded up and locked into the cage of income equality.

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Both the New York Times and the Wall Street Journal are running series of articles lamenting the “widening” income gap in the United States and even stating that young Americans have a better chance of getting ahead in life if they move to socialist Europe.

It’s no surprise that liberal-socialist media (which includes the reporting side of the Journal, though definitely not its editorial board) never stop hammering on the most basic of socialistic themes: society’s ills arise from unequal income and property distribution, which theoretically results from the institution of private property ownership. 

Most present-generation reporters, editorialists, and script writers have been educated in a fairy-tale vacuum.  They are literally ignorant of reality and uniformed about history.  It’s not their fault, because that’s what liberal-socialist educators have taught them.

Biologists used to believe that equilibrium was the normal state of affairs in nature.  In any particular biological habitat, they believed, different animal and plant populations would stabilize under normal conditions.  Examination of actual living conditions over time, however, made it clear that the normal state of populations is flux, up and down, over time, as the result of diseases, hard winters, dry summers, incursion of new predators, etc.  Dominant groups in one period will probably be reduced by predators, but will rebound as the predators later have less to prey upon.

This same sort of Goldilocks, equilibrium fairy tale is what students have been taught regarding economic and social conditions.  In this socialist fairy-tale model of human existence, the natural state is one of harmony, tranquility, and plenty.  Income disparities and other hardships are not natural conditions.  Crime is caused by rich people who deprive the poor of the things that would be abundantly available to them in the state of nature, and wars are caused by corporations seeking to increase their profits at the cost of human blood. 

Therefore, students are taught, the intellectual elite have a right and a duty to restructure society to neutralize rich people and big corporations by bringing them under the full regulatory control of collectivized government and redistributing their wealth to “the people.”  For a synopsis of this mode of thinking, take a look at Cornell University’s critical studies website.

A few points can be made about the two series of articles bemoaning the income gap. 

First, this “news” breathlessly reported by the Journal and the New York Times is not news.  It’s a perennial weed that sprouts every year in the New York Times.  The simple truth is that it’s just a standard plank in the Democratic Party’s platform.

The following is a sample of article headlines from the Times:

June 26, 2003, Very Richest’s Share of Income Grew Even Bigger, Data Show, By David Cay Johnston

May 15, 2002, Census Shows Bigger Houses and Incomes, but Not for All, By Peter T. Kilborn

February 7, 2002, More Get Rich and Pay Less in Taxes, By David Cay Johnston

May 31, 2001, Study Details Income Gap Between Rich and Poor, By Richard W. Stevenson

February 26, 2001, Wealthiest Pay Declining Share of Their Incomes in Taxes, By David Cay Johnston

June 16, 1998, In Booming Economy, Poor Still Struggle to Pay the Rent, By Jason De Parle

June 14, 1998, Benefits Dwindle for the Unskilled Along With Wages, By Peter Passell

May 18, 1998, Carter Speaks of ‘Chasm’ Dividing Rich and Poor

Second, as my friend Ray Justus observes, the income gap has widened since the 1960s because of President Johnson’s liberal-socialist Great Society welfare-entitlements programs.  The Great Society produced an explosion of illegitimate births and single-parent families.  Incomes in families living on welfare payments will inevitably fall behind income levels of people in families where one or more people work full time.  The Great Society also produced an explosion of crime, drug abuse, and the rapid spread of AIDS, all of which result in disproportionate numbers of dysfunctional individuals whose incomes will permanently lag those of working people.

Third, as Alan Reynolds writes in Wednesday’s Wall Street Journal editorial page, statistics supporting the socialist income-gap analyses have been used with deceptive selectivity.  He writes:

“Major newspapers are in the throes of Mobility Mania: who “makes it” in America, and why; who doesn’t, and why not. This newspaper [the Wall Street Journal] began a series last week titled “Challenges to the American Dream.” The New York Times followed suit with a multiparter on “Class in America,” which aims to disparage the notion that the U.S. is a land of opportunity by claiming that “new research on mobility, the movement of families up and down the economic ladder, shows there is far less of it than economists once thought and less than most people believe.”

“Yet the scholarship commonly cited in support of such assertions—new research by Gary Solon of the University of Michigan, David I. Levine of Berkeley, and Bhashkar Mazumder of the Chicago Fed, among others—says no such thing.”

“....The discovery that something has not changed, or might have moved imperceptibly in either direction, would not normally be considered front-page news. But income distribution is an agenda-driven ideological fixation that frequently impairs journalistic judgment. To fully understand this non-news about unchanged class mobility, it helps to focus on a few reasons why some people earn more than others—they work harder, and have more experience and/or more schooling.”

Finally, in a similar article from Forbes Magazine (11/1/99), Edwin S. Rubenstein, research director of the Hudson Institute, wrote:

“Inequality

THERE IT WAS IN THE OCT. 1 WALL STREET JOURNAL: A chart demonstrating that income inequality has been rising in the U.S. The chart said that the highest quintile (which it defined as a fifth of the population) commands 49.2% of the nation’s household income, compared with 3.6% for the lowest quintile.

It is true that inequality has been rising in the past few years—economic expansions tend to stretch things out. A good recession would equalize things considerably, although the price would be paid by Americans at the bottom. But the other point being made by the Journal, that income is distributed in an extremely lopsided way, is open to interpretation.

Taken raw, the income statistics could certainly induce guilt among readers of the Journal or of FORBES, since they tend to fall in the high-quintile group. The median (half above, half below) FORBES subscriber has a household income of $167,000, according to the last count published by our marketing department in 1998. This is comfortably above the $132,900 cut-off for landing in the top 5% .

But there are a few things wrong with the way the Journal presented the data. For one thing the Census Bureau quintiles represented not fifths of the population but fifths of the total count of households. This is an important distinction. It turns out that well-off households have more people in them than poor households. A top-quintile household might consist of two schoolteachers in Chicago and their three children. A bottom-quintile household might be a single woman living on Social Security. Count income per person, rather than income per household, and the income distribution flattens a good bit.

There are other ways that the raw income numbers exaggerate inequality. Robert Rector and Rea Hederman of the Washington D.C.-based Heritage Foundation have identified some important ones. They have adjusted the census data to take account of the impact of public policy and also demographic and sociological factors. The chart displays the Rector-Hederman analysis, applied to 1997 Census Bureau data (the Journal figures were for 1998).

The most obvious factor is public policy: Taxes reduce income; health benefits and noncash government transfers like food stamps increase it, as do capital gains. This results in what Rector and Hederman call “comprehensive posttax income” (see chart on previous page; green bar).

Their next adjustment puts income on a per-capita basis, further reducing inequality (yellow bar).
Next, higher-income earners work more than low earners—the top 20% work nearly twice the hours of the bottom 20% . They get paid for it, of course. But Rector and Hederman calculate that a hypothetical adjustment for hours worked would further reduce apparent inequality (blue bar). The ratio of top households’ income to income at the bottom drops from 14: 1 to 3: 1.

Too much inequality in the U.S.? Rector and Hederman say that the more affluent half of the population (“the bulk of the most skilled and productive”) provides 60% of the hours worked and gets 70% of the posttax income.

This share, they say pugnaciously, is “remarkably low.”

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