Crossville Chronicle, Crossville, TN

May 19, 2014

Stumptalk: A major cause of income inequality

By Phillip J. Chesser
Chronicle contributor

CROSSVILLE — Liberal economist and New York Times columnist Paul Krugman recently expressed uncontrolled joy after reading French economist Thomas Piketty’s new book "Capital in the 21st Century," where, according to news reports (I haven’t read the book) he advocates an eighty percent income tax on those making more than $500,000 a year. According to reports, the purpose of this new tax rate is to reduce income inequality, not to increase revenue to the government or to fund new programs.

Citizens may infer from President Obama’s recent public comments about income inequality that he is a student of Professor Piketty or at least a fan. Until he provides further details, it appears that the president’s goal is to follow the Piketty model and take more money from the wealthy.

One must assume that the psychology behind the president’s and Professor Piketty’s reasoning is that people of lower means will be happier when upper income people have less wealth. They won’t see any changes in their own standards of living but will be happy nonetheless because someone is sticking it to the rich. This is the politics of envy taken to a new level.

Truth be told, even if he wants to the president cannot do anything to solve income inequality in the time he has left in office. But in all fairness to him, there is not much of a positive nature that any president can do economically to redress income inequality. Blaming presidents for economic woes — unless they really do something unwise (like ObamaCare) — is a popular sport, but presidents have little to do with how the economy operates. All promise prosperity, but if it comes during their terms of office that’s pure luck.      

But back to income inequality: an important cause of income inequality was stated quite clearly and convincingly by Charles Murray and Richard J. Herrnstein in their 1994 book "The Bell Curve." In that book the authors warn that our rapidly developing information age seriously disadvantages people who lack the high level of cognitive ability (Murray and Herrnstein call it “g”) needed to acquire, process, and use complex information. This age’s increasingly information intensive economy favors those on the left hand (the high IQ) side of the bell curve. And they are the new meritocracy, the people making the most money. Levelers and redistributors like the president and French economist Thomas Piketty think that’s unfair.

Murray and Herrnstein’s ideas are of course controversial. They conflict with the American delusion that anyone can do anything if he works hard enough, which is not true. Hard as I might have tried, I could never have done work that required high-level mathematical ability because I have never had the mathematical chops that such work requires.

Like athletic or musical ability, high-level cognitive ability is unequally distributed and no amount of specialized education or innovative educational programming can close the gap. This, not the lack of a progressive tax system, is the reason for increasing income inequality in the United States. At one time there were plenty of low skilled manufacturing jobs that allowed unskilled people to earn middle class incomes. Now they can’t; those jobs are gone and have been replaced by low paying service or retail jobs or not replaced at all. That’s a major reason for high unemployment and the decrease in work force participation. Fortunately, the government safety net keeps people from starving, a fact that bothers some people but not me. That’s our world.

Although I am an enthusiastic proponent of capitalism and the free market (without the free market capitalism is an empty promise), as it has developed, the contemporary economy shuts out certain people. In the past government-made work projects were created to keep people employed, but they never worked for very long, the New Deal and the Great Society included. It was a growing economy that solved unemployment problems, but a new growing economy will exclude some people. In this information and technological economic era, it makes economic sense to guarantee an income to the people on the right side of the bell curve. That will be cheaper than hugely expensive government make work programs, which create highly paid bureaucratic jobs and costly training programs but work only for the people who run them.

And by the way, while much cheaper than make work and useless training programs, the safety net is still very expensive. Its maintenance requires and will continue to require a wealth producing economy and working people willing to fund it. Liberal leaders should resist their compulsion to always demagogue those who create wealth. It’s in their interest, if they don’t know, to learn how wealth is created and to support those who create it. Anti-business politics kills the goose that lays the golden eggs and harms the very people for whom progressives say they have the most compassion.