Afternoon Widdershins. I hope you survived St. Patty’s Day and are basking in the first glimpses of spring.
Quite fortuitously, a couple of new reports surfaced this week that nicely dovetail with Tuesday’s post. My apologies for nerding out yet again so soon on an economics post, but these reports are important. They will arm you with a silencing rejoinder for any wayward soul crossing your path spouting the typical Tea Party tripe associated with know-nothing, coffee klatch economics.
First, there is the report of the Organization for Economic Cooperation and Development (OECD). Thirty-four developed nations are a part of the OECD and once again, the United States leads in economic inequality while at the same time we are the fifth highest with 17.4% of our population falling into poverty.
A few data points as you are looking at the OECD graph. Most importantly, NO investment income is included in these numbers. That’s right — these numbers are exclusive of any capital gains. The top 10% are closing in on 50% of the economic pie leaving the 90% of the rest of us to divvy-up the remaining 50%. The pre-tax income going to the top 1% has more than doubled since 1980 when we replaced sound economic principles with political sloganeering.
There are two other data points I want you to consider. Look at the meteoric rise since 1980s and then compare where we are today as opposed to the last Gilded Age of 1920. The wealthy have surpassed their previous high watermark! Simply put, it is a great time to be rich!
But not such a great time to be poor. The poor have not bounced back at all since the economic ravages of 2008. The number of Americans reporting they are unable to afford food for their families has risen by 50% since 2008.
You are probably thinking, I already know all this — old Prolix has harped on this issue for years now. This is where the new information comes, but first, I need to clear up some definitional remnants — the words entitlements and redistribution. I hate, hate, hate, and abhor those words. They are words most likely spawned from the satanic synapses of Frank Luntz — chosen not for their accuracy, but for their visceral emotional impact.
Both entitlement and redistribution are pejorative words for the way one person sees another person’s expected largesse. Whether it is a single mother receiving food stamps for her children or a hedge fund manager being taxed at the special and reduced rate of 15% for carried interest, they are both governmental entitlements and redistribution.
Whether it is an earned income tax credit for the working poor or an international corporation paying an effective tax rate of 12.6% (less than the working poor), both are instances of governmental redistribution. Whether it is a senior citizen receiving social security and Medicare or a venture capitalist larding up an otherwise profitable company with monstrous management fees to just put the company in a debt death-spiral as a tax strategy, they are both government sanctioned acts changing the otherwise status quo. Both are entitlements and redistribution. To mix metaphors, all that matters is when the music stops someone else is dancing with a gored ox.
That little definitional interlude leads us to the second report. This one was released by the International Monetary Fund. As you might know, the IMF is anything but a “librul-leaning” organization. It is heavily skewed toward business and economic development — growth is their stated and implicit goal. That fact alone is why I was surprised their report didn’t get any play whatsoever in the press.
Out of a Himalayan mountain of data and research, the IMF report challenges the old saw and conventional economic wisdom that redistribution undermines growth. The report proves just the opposite, if anything, right-sized redistribution enhances and supports faster and more durable growth.
Conversely, income inequality hurts, hampers, and hamstrings economic growth. Simply put, as inequality increases, growth declines. Here are two graphs demonstrating the point.
Of course this type of unconventional counter-intuitive thought is sure to ignite a maelstrom on the right. Why would anyone in the One-percent crowd dare to engage in fact-based self-awareness when they have emotionally charged sophistry in which to drape themselves?
Speaking of the total lack of self-awareness in the moneyed class here’s a great illustration. In his most recent prison interview, that bastion of free-wheeling capitalism Bernie Madoff said, “I’m not a great fan of redistribution of wealth.” I guess Bernie prefers the old-fashioned private sector type of redistribution — plain old theft and fraud.
The IMF research contains recommendations such as needs testing Social Security by phasing out high wage earners, improving educational access — particularly college, improving access to health care, and reforming the tax code to make it more progressive thereby eliminating exemptions and deductions. The research finds by appropriately modulating redistribution it results in a win/win situation — faster, long-term, durable growth while meeting the needs of the less fortunate.
The big takeaway is this: Redistribution is a good thing for economies when right-sized and moderated. Both too much redistribution and too little redistribution are bad for any economy. Just like Goldilocks, if it is just right, everyone is better off since we all do better when we all do better.
This is an open thread.
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