Questioning the Left’s Inequality Narrative
Ed Conard on the Downside of Redistribution, and The Upside of Inequality
Back in 2017, Former Bain Capital partner Ed Conard joined the show to tackle one of the most persistent myths of our time — that inequality is unilaterally a bad thing, which must be fixed through redistribution and other government intervention.
This myth is rearing its ugly head again with Biden’s tax-and-redistribute policies surging.
Conard explained how so-called solutions to inequality typically harm the poor and particularly undermine the middle class, by slowing the growth they both depend on for rising standards of living.
Many cite Europe as an example of a more just and equal society without considering the toll that heavy redistribution has taken on their economy. Consider some inconvenient facts about inequality and innovation from Conard — now an American Enterprise Institute fellow — who notes how “shockingly little” Europe has contributed to global innovation of late:
- Apple alone is worth more than the 30 largest companies in Germany.
- America is producing five times as many billion-dollar startups.
- U.S. productivity, as measured by GDP per hour worked, has grown 50 percent faster than Northern Europe’s since 2000, and three times faster than Southern Europe’s with demographics similar to America.
Perhaps the lazy European stereotype was correct all along. But who can blame them given the incentives they face?
Ed returned to the program to discuss the innovation-dampening effects of “soak-the-rich” policies we can expect under Biden. Conard has authored a chapter of a new book, United States Income, Wealth, Consumption, and Inequality, in which he takes on the myth that most inequality is driven by cronyism — arguing instead that at least some inequality is a part of the overall package of American innovation.
TRANSCRIPT
Bob Zadek: Today we are going to discuss a principle that nobody can object to… Or can they? The principle is equality. “Equality” is often preceded by a modifier. There are lots of different kinds of equality. Equality of opportunity, and equality under the law. This morning, we are going to examine in detail the misunderstood concept of “income equality.”
There is even enormous confusion about what that term even means. To help us sort through this, I’m happy to welcome back to the show. Ed Conard. Ed is a best selling author, who has published two books in the top 10 of The New York Times bestselling books.
His most recent book, The Upside of Inequality, How Good Intentions Undermine the Middle Class. Before that he published Unintended Consequences: Why Everything You’ve been Told about the Economy is Wrong. Ed is an adjunct fellow at the American Enterprise Institute, and a founding partner at Bain Capital, where he worked very closely with his friend, colleague and fellow founder, Mitt Romney.
A Deep Dive into Income Inequality
Bob Zadek: Ed, income inequality is a phrase that everybody uses but often, doesn’t really understand. As you use the phrase in your writings and in your hundreds of appearances and debates on mainstream and not so mainstream media, what are you referring to when you use the phrase income inequality?
Ed Conard: The straightforward answer to that is how much income one person earns relative to another. There are four different definitions which are commonly used. One would be market income, what you actually earn out in the marketplace. The second is after taxes and after government transfers, how much money do you have to spend? And very closely related to that is something called consumption inequality, which is how much do you consume?
We know that somebody like Bill Gates has a lot of money and a lot of income and he has a lavish lifestyle, but his lifestyle is very small. He can’t consume very much of his money — most of it is invested, most of it given to charity. Often when we’re talking about before and what we care about, is how much consumption they have. A measure of inequality is consumption inequality, which has not changed since the 1960s. The last is wealth inequality, which is what the proponents of redistribution are most likely to point to these days, because it’s much more extreme than the other forms of inequality. The reason for that is that you have about 40% of the population which is consuming all of their income, every dollar that comes their way. Their wealth is zero. You’ve got a very large segment of the population, which has saved some money for retirement.
A lot of people stop saving for retirement as social security benefits have increased. Often, we say, “Look at the wealth inequality, how it’s growing,” despite the fact that we have put in enormous social security and medicare programs to help people in retirement, which is the very reason why most people are saving.
Then you have a very small group of people who have produced some sort of innovation, or are extremely skilled, as in the case of some lawyers and doctors who have accumulated or own a business which is extremely valuable. We can discuss whether we want to take that business away and give it to other people, which is what wealth redistribution and taxing wealth is really about. I think for the most part we would be giving that to poorer people, presumably.
We’re talking about increasing the taxes on richer people and giving the money to poorer people, and when we do that what we’re really doing is increasing their consumption, because if you were to give people Bill Gates’s stock in Microsoft, they’re going to sell that stock and consume that money for the most part. Most economists would agree that the right measure is consumption. What we really are concerned about is increasing the consumption of people at the bottom end of the spectrum.
Bob Zadek: To me, the words “income inequality” mean that somebody earns more than somebody else. Well, that just evokes a “duh”, that a doctor earns more than perhaps a middle class worker in a factory or in an office. That’s not a headline, that is neither bad nor good. Different things are worth more, and therefore they cost more. So income inequality is not a defect. It’s a feature. Some things are more expensive than others. Athletes make more than office workers. That’s not a headline. That is not something to be changed. Nobody would say that’s a defect in our system.
The Biden administration will be looking at every policy through the lens of income inequality, which is linked to wealth redistribution. Once you identify that income inequality is a problem, which it isn’t, inevitably the solution is redistribution — to simply legislate a leveling of the playing field, just like trying to legislate that somebody 6'6'’ has to be no taller than somebody 5'10'’.
Links:
- Income inequality isn’t all bad… is it? A long-read Q&A with Ed Conard | American Enterprise Institute — AEI, Oct. 28, 2016
- Five Questions for Ed Conard on Capitalism, Taxes, Billionaires, and More | National Review, Aug. 21, 2020
- Free Chapter, “The Economics of Inequality in High-Wage Economies,” (Oxford University Press) by Edward Conard, from United States Income, Wealth, Consumption, and Inequality
- Taylor: The money talk we should be having
The Morality of Equality
Bob Zadek: Before we get into income redistribution, there seems to be that type of income inequality which is bad as opposed to just being a fact.
Nobody complains that Tom Hanks makes more than the average physician. Nobody complains about it. That is income inequality.
As you understand it, what is bad about income inequality. What is wrong with an hour of somebody’s time being worth more than an hour of somebody else’s time. Why is that wrong?
Ed Conard: It’s a very complicated question. And I always want to give the other side of the argument its due. I think it’s always best to debate them at their highest level. If somebody works harder than somebody else, if somebody takes more risk than somebody else successfully, and builds a business, I don’t think anybody has any problem with that person earning more money. There is an argument where people would say the talents of mankind belong to mankind, not to the lucky recipients. What we want to do is harvest the most value we possibly can from mankind. Even though somebody’s more talented, and even though we’ll allow them to earn more money, how much more money do we have to let him earn, in order for everybody to get the maximum value from that talent?
In the same way that we would say, we all kind of own the oil, we all kind of own the land, we all kind of own the air, people, mankind should benefit from those resources. That’s one aspect, independent of somebody earning more money because of the market.
The question is how much of that should they give back to everybody else. I think there’s a second component to it, which is if you were stealing the money, or getting the money unfairly, and some people would say, even if you’re getting the money luckily — I would say you’re taking risks — some people get lucky when they take risks, some people get unlucky, I view luck and risk as being something that should be rewarded — there’s definitely an argument on the left that says you are just lucky, therefore you shouldn’t get to keep the money.
So if you stole the money or got it from crony capitalism, the left would say that you don’t deserve it and it can be redistributed. I would argue that the conversation will be redirected in the following way. Let’s take it as a matter of the sake of argument that the talents of mankind are owned by mankind, and not by the lucky recipients. All we care about is how to get the most value out of that talent.
There’s always a trade off between whether we want to tax the person more, or do we want to motivate the person to take more risks, work harder, and really use their talents for the benefit of mankind? Even a liberal economist will agree that an investor or an innovator has to put about $5 of value in other people’s pockets in order to put one dollar in their own pocket.
So the question is, are you going to try to get that person to create another $5 of value, or are you going to tax the dollar that is in their pocket more heavily? Now, we are already taxing that dollar at the corporate level 23%, then we are taxing it at the individual level, capital gains at 20%, plus state taxes in California would be another 10-ish percent. So that is 30% on top of the 20, which gets you to 50%.
Then we’re also taxing at 50% when the person dies with estate tax. The question then would be, how much more can we continue to tax that dollar versus whether or not we’re going to get an additional $5? As this conversation goes on, I’m going to show you that we have created a lot more than $5, with a lot less talent in America, than other high wage economies like Europe and Japan have been able to produce. If you look at academic test scores as a measure of talent, there’s many other ways to measure it, but I am trying to be quantitative.
We have about half as many talented high scores per capita, we have about twice as many low scores per capita as Northern Europe, which is the second richest place in the world. So with half as much talent per capita, and twice as much low-skilled labor per capita that needs to be managed by high skilled labor to make it more productive to help it earn more money. We have twice the management challenge and we have half the talent, yet we’ve been able to generate incomes which are 30% higher on average, and about 30% higher in the middle class than the richest countries in Europe. When you talk about Germany and Scandinavia and France and the UK, we are 30% higher, and 70% higher than Southern Europe, which is what our demographics are like.
That is because we have done a much better job at motivating our talent to take the risks, to get the training, to work longer hours to produce the innovation that other countries have not been able to get their talent to do. I’ll give you an example.
We are producing five times as many billion dollar startups than Europe is with half the talent per capita, and our economies are about the same size.
And it’s precisely those things that are driving up the incomes of our middle class. So I think you always have this choice. Do you want higher incomes for the middle class? Or do you want more equality? We can get more equality for the sake of getting more equality. It’s highly debatable whether we can have higher middle class incomes when we do that, because everywhere it’s been tried, they have ended up with substantially lower incomes. That is because they haven’t been able to motivate their talent to do the work that’s required to produce the $5.
The Talent Shortage & Total Factor Productivity
Bob Zadek: Your argument is that it’s okay to impose a tax on those people who are the top as long as you don’t cross some mythical threshold, so that they say, “I’m out of here, I’m going to Gold’s Gulch,” I’m going to check out, because I no longer have sufficient incentive to be a producer and to create jobs and wealth. So you want to find that sweet spot that’s high enough to build a fund to redistribute, but not so high so they all catch a flight to Gold’s Gulch. Is that a fair summary of your position?
Ed Conard: I’ll make two little little caveats. Do I think it’s morally right to tax people 50, 60, or 70% of their income? No, I don’t. I think there’s a moral right to freedom, a moral right to free property that we start to impinge on. But does the government have the right to tax people for the common good? Sure. But at some point, do I think it becomes immoral? Yes.
The second point is this: Incentives. When it comes to taxes and return on investment, payoffs and risk taking, happens very gradually over long periods of time. It’s not as though Europe can cut their tax rate and all of a sudden people are going to start inventing Google and Facebook and Intel and Microsoft and Apple and eBay.
It takes a long, long time to do that. Decades and decades. So, what has happened in the United States slowly, over a long period of time is that people have shifted from being mechanical engineers to being computer programmers. We’ve got more MBAs to mix together with our scientists, in order to create the commercialization of innovation. We’ve gradually taken risks that have produced companies like Google and Facebook and Intel, and Microsoft, Apple, to mine the technological frontier. So when our workers, our most skilled workers are going to work in the mines, mining the technological frontier, they are getting exposure to very valuable ideas.
And they’re saying, “Hey, I could start a company.” Google is saying they can invest billions of dollars in that idea. And there’s other entrepreneurs saying I could steal that idea, and run across the street and get venture capital money and create that, especially if Google decides that is not their priority. If you’re sitting in an internet cafe in Greece, you’re not going to get any of those ideas, you’re not going to get the training. The training is not just going to school, but school is important. So it really is on the job training. It’s a lifetime of mining the technological frontier, which allows us to be a lot more innovative. The Biden administration is going to jack up taxes.
Is everybody going to quit their job and stop working? Probably not, especially people who are on the verge of solving something big? Okay, they think they really have an opportunity. But gradually over time, will our young people continue to say, “I’m going to be like Bill Gates and Steve Jobs”? We know in the United States, when Bill Gates and Steve Jobs walked away with hundreds of billions, almost a trillion dollars of value — armies and armies of risk takers came in their way to try to duplicate the success that they had achieved. That didn’t happen in Europe. That didn’t happen in Japan. In Europe, people go on vacation. They don’t take the incremental hour and get back to work and sit at my computer, saying, “I’m going to work till 10 o’clock at night, by God, I’m going to grab that problem and I’m going to be a millionaire.”
They don’t. They say, “I’m going to take the month of August off.” It’s not just taxes, these things multiply together. If you have no ideas, the tax rate doesn’t matter, you’re not going to take a risk if you don’t have a good idea. On the other hand, if you have so many good ideas that you can tax everything at 50% and cut your pile of ideas in half well, that’s a wonderful place to be, yet nobody’s in that place.
We know if you look at what’s called total factor productivity, the productivity that’s coming from know-how — not the productivity that’s coming from capital investment, not the productivity that’s coming from educating our workforce (although we’ve largely saturated our workforce with education at this point), but the amount that’s coming from innovation from know-how is shrinking over time. We’re at about a half a percent a year right now, down from about double that in the 1990s. So it’s not like we have this huge surplus of ideas and we can say, you know let’s just whack it all by 50% and we’re going to continue to grow and a half a percent from innovation every year. That’s going to directly affect the wages of everybody else in our economy.
If you restrict the supply of low skilled labor, and then you increase the amount of innovation, you’re going to have money, you’re going to go spend it and you’re going to drive up the wages of everybody else. On the other hand, if that labor is unrestricted, because you can get three hour an hour labor overseas, you can get $3 an hour labor in Mexico, somebody’s willing to come across the border, it’s much harder to drive up the wages of low-skilled workers, if you’ve got an unconstrained supply of low skilled labor. So there’s an issue that will come back to haunt us on inequality, which is how do we drive up the lowest skilled wages i f that’s what we want to do. I gave you the outlines of how the economy works in a way that we can drive up everybody’s income.
Bob Zadek: I’m troubled intellectually with a concept you just now said, “drive up wages.” That would suggest that wage rates simply can be manipulated. Government can in effect cause people to earn more. I don’t understand how that works. You cannot legislate that a car is going to be worth more tomorrow than today. You cannot legislate it. It’s a question of what somebody is willing to pay for it. You cannot cause wages to go up. Indeed, I don’t even think that’s a valid goal of government. It’s like the valid goal of the government is to legislate that my house goes up every year in value so I can be richer. If you have any faith at all, in a marketplace, wages are worth what they’re worth, what somebody is willing to pay for them. If we’re talking about work in the private sector, that wage is worth only its contribution to the success of the enterprise. That cannot be legislated.
Ed Conard: I think you can legislate wages. You might not want to, but you do that by restricting the supply, because prices are set by supply and demand.
In the 1950s, what you found was that engineers and marketers were designing products that were produced by blue collar workers and consumed by blue collar workers. We went through an enormous period where we transition from agriculture to manufacturing, where the middle class got a lot richer as a result. All of our talent was focused on creating products and marketing products that were being produced by blue collar workers, and we were filling factories up with equipment, and all of that was driving up wages relative to where they were on the farm. We had a boom in agriculture as well. That freed up all the employees to make the transition.
What do smart people do today? They work from Google, Facebook, Intel, McKinsey, Goldman Sachs, etc. They don’t employ any blue collar workers, and they’re largely working for each other, increasing their own productivity. So where is our economy based today? It is an information-based economy. It’s fine, it’s probably the best use.
In the United States, where we have a shortage of talent, we are even more focused on creating innovation that increases the productivity of our constrained resource, which is talent. All of the information technology is used for entertainment, but the talented people are using it for data and information and decision making, and that is making them a lot more productive.
Luckily, the window of opportunities to apply those skills to is even bigger than the increase in productivity. That’s in part why you see wages rising for the most talented people. They’re soaring for the 1%. That’s the fortunate risk takers, who we can come to. What’s happening on the other side of the equation? Three things have happened to increase the supply. One of those is automation. Manufacturing used to be 30% of employment. Now it’s down to 10% of employment. A lot of that shift is to services. We know that the productivity of services hasn’t grown anywhere near as fast as the productivity of manufacturing. It’s much harder to manage services, because you really have to supervise the workers, as opposed to in a factory where you say load that equipment with parts, and the machine makes the person do it and sets the speed, and it can all be kind of engineered, and you can walk away. Command and control management is the way I would describe it. So automation has been one thing, it increases the supply of low-skilled labor.
Low-skilled labor is pushed over to the local service economy. The second thing is $3 an hour offshore labor. We have probably 100 million offshore workers to work on our behalf at $3 an hour, and it makes everybody richer, but 60% of the value is captured by people who aren’t the workers. The top 40% retirees, poor people who are getting jobs, but who are largely getting their money from the government. So 100% of the cost is falling on the worker, and they’re capturing only about 40% of the value. So we’re all getting richer, but not in the same amount. It’s not clear that the lowest skilled worker is benefiting from that. The third is, you’ve had an enormous wave of immigration into the country over the last 20 years, we’ve added about 50 million jobs, half of those have largely been immigrants on the low-skilled side of the wages. So we’ve unconstrained the supply of low-skilled labor. If you restrict immigration or trade, you would increase the amount of demand for domestic low skilled labor. That would start to drive up the wages.
A lot of very low skilled jobs that are very unproductive and don’t get paid much would start getting pruned off. The economy would be smaller, it would be growing more slowly, but wages would be higher. There would be redistribution from the richest people, the most skilled people, to the lesser skilled workers. That money wouldn’t be getting redistributed by some rent seeking politician who’s trying to buy votes, and is largely giving out handouts to people who don’t want to work because after all, anybody can make money who works, while what you want is money for not working, and so you’d be creating works are as opposed to welfare, but you’re doing it through policies by controlling the supply of low skilled labor. We can have a debate about whether that’s good or bad for the American economy. Might not be might be, but I do think you can control with policy the supply, and it will have an effect on wages.
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Force and Coercion: The Essence of Progressivism?
Bob Zadek: I often observe when I have a conversation with progressives — I start with an observation that I ask them to challenge, and they really can’t. The difference between any policy that you on the left would favor and a policy that I would favor, is that the only way you get your policy is through force and coercion. You have to have somebody who was authorized to carry a weapon to force your policy upon your citizens. Every single policy that I propose is voluntary. It requires force only to protect my freedom. That’s the only use of force. I challenge anybody on the left to contest this. They favor a more coercive, less free policy. Government can artificially raise the value of an hour of unskilled labor to restrict immigration. In other words, you deprive the freedom of somebody to move with their family to a place where they can thrive. You deprive them at force, you put a wall at the gate.
When you were speaking about reducing the supply of unskilled labor. You know what I thought of, Ed? That’s what Jim Crow laws did. That’s what the minimum wage did. These were all governmental policies, which are now of course, an embarrassment and abhorrence. They restrict the supply of unskilled labor. In other words, to prevent somebody from selling an hour of their labor, for what they are willing to accept, and what somebody else is willing to pay, you have really explained the mechanics of increasing the value of unskilled labor, and the only way to do it is by depriving huge swaths of the population of core liberties and using coercion and force.
Ed Conard: I agree with you that if you want to control the supply of something you got to do with guns. I don’t disagree with that. I would make two important points that are related to it. The first of all, is it’s not clear that we owe the people of the world the same freedom that we owe ourselves. I think a strong argument could be made that we do. I also think when you talk about who we’re pointing the guns at, we are pointing the guns at the rest of the world and saying you can’t come in or you can come in. We’re setting a policy about who can come in, as opposed to pointing the guns at ourselves.
I agree with you that minimum wage laws and Jim Crow laws were pointing the guns at ourselves and that is a very dangerous and often immoral thing to do. The second thing I will tell you is whether we like it or not, we do not live in a free market economy because we have agreed to give out very rich safety net benefits to everybody. We are unwilling to let somebody actually get the market wage. So if we had an economy where we said everybody comes in can get the market wage, although we might be driving everybody down to Indian 50 cent an hour wages when we were overrun by the rest of the world.
Everybody here might be making 50 cents, if we were willing to let them make 50 cents. I don’t think the citizens here who are going to end up making 50 cents who are now making $15 an hour are actually going to elect you to anything, they’re gonna fight you every step of the way. So I don’t think you can pull together a winning coalition with that point of view. But if we were to let them all go to the market wage, I think it would be different than what we’re doing today, which is spending about $1.3 trillion a year — not on the on the elderly, where we spend another $1.5 trillion — on the non elderly, which if you divide by all the people who are under the age of 65, times 20% to get to the number of people in the bottom 20%, that’s $22,500 per person that we’re spending.
Half of that goes to the middle class. That is $90,000 a year for a family of four. Now we’re getting about $25,000 to $30,000 for a poor person. We let a person in from Mexico, who has maybe a market rate, if we let everybody in the world come in — $3 an hour times 2,000 hours a year is $6,000 — we’d better stop giving everybody $25,000 of safety net benefits because we cannot feed the whole world with our economy. So when you set that policy in place, it’s going to have cascading repercussions for other things that you can or can’t allow. Do I think we need immigration? Heck, yes. But the world today administers tests to everybody in the world. We know that what we have is a constrained supply of talent, and an unconstrained supply of low skilled labor.
What I would do is I get all the talented people in the world and bring them here. I would restrict the number of low-skilled I would be allowed into the country and I’d be driving up all the wages of low-skilled workers. It’s not like Google sits around and says, “Oh, geez, we’ve run out of talented people. I guess we’ll stop growing our business.” They go nuts, saying, “I want to build a skyscraper in Romania. And we’ll start hiring people in Romania.” Then the bus driver, the teacher, the waitress, the doctor, all end up in Romania, as opposed to, letting all that demand come here and drive up the wages of everybody. Will it redistribute money? Yes, it would redistribute money. Would it slow down growth. Yes, it would slow down growth.
Would it make the people in our middle class a lot richer, it would make our middle class a lot richer, and they’d stop voting for socialism, and they’d start voting for capitalism. We all go to work for ourselves, and none of us hire any low skilled guys, and we leave them all to fend for themselves at a time when automation is chewing up their jobs and the and the world’s for $3 an hour labor that’s willing to move to us and we are willing to let the southern border open to let even more low skilled workers come in, what do you think people are going to do? They’re not going to be happy with us. It is a policy that we can control. The democrats go, “I’m going to soothe my guilt, I’m just going to throw money at it.”
You don’t have to work to get the money. Even the blue collar Trump supporter is like, “I don’t want a handout, I’m against the handout, a handout destroys my community, destroys my children and destroys my family. I don’t want welfare, I want a higher wage. That’s all I want. I want a shortage of low skilled labor to drive my wages up. If you do that, I’m going to be happy with you and I am going to vote you into political power.”
Otherwise, they stay home and the Democrats take control of the Senate. And what do they do? They open up the southern border and flood the labor in and then they get everybody a hand out to suit their guilt. I don’t think that’s a better alternative. Those are the real world alternatives.
Global Wages and the Limits to Open Immigration
Bob Zadek: You mentioned policies drive down wages. I don’t agree with you that policies drive down wages. What they do is they allow wages to reach their natural level. The policies like restricting labor create an artificial shortage that drives up the prices. The absence of a policy merely means that wages find their natural level. That’s all that it means.
Ed Conard: We know that the natural level of low skilled labor in the world is zero. It’s $3 an hour, it’s two bucks an hour. Is that what we want in the United States, we want to do $1/hour labor here? We’re going to have a revolution. We already have twice as many low-skilled workers as Europe has, and they are already socialists. You let our country get overrun by the low-skilled worker, you don’t think they’re going to vote for socialism? You don’t think they’re going to vote to take all your money away and take your freedom away. I mean, let’s be practical here.
I’m okay talking about the theoretical — we’ve gotten rich living in a world with $2 an hour labor. But we let that $2 an hour wage pervade in the United States — and it will get here if we open the border wide — we will be overrun by a billion people. We know this is happening in Europe already.
Africa is trying as hard as it possibly can to get to Europe. People in the Middle East are trying to get through Greece to Europe. Europe is going to be overrun by the rest of the world, because they have a very difficult time constraining the border. Northern Europe has all the high scorers, and Southern Europe has the low scores. Northern Europe gets to tax themselves and create a benefit program for themselves. They don’t have to create a benefit program for Southern Europe. Combine it all, Germany is going to be a lot less rich than it is when it has to start providing benefits for all of Southern Europe. If you open up those borders, you’re going to basically say these countries are going to have to provide welfare benefits for the whole world. It doesn’t work.
The Incentives of Redistribution and the Welfare State
Bob Zadek: Milton Friedman acknowledged that a welfare state, which is what we have, is incompatible with open borders. He said his first choice was to scale back the welfare state. Politically impossible. But he would agree with both of us. So of course, you cannot have a welfare state and open borders. The argument does not automatically open the borders. The argument is to limit welfare benefits and tie it in with residency. That’s another show.
Earlier we talked about how high taxes should be on the innovators on the risk takers, and the entrepreneurs. You cautioned us to not have the tax too high because they have a disincentive to create jobs, create wealth and innovate? Of course, that’s correct. So you said the task is to find the sweet spot. High enough to fund the welfare state, but not so high to discourage innovation. It’s finding the sweet spot.
There’s also the same issue on welfare. That’s the issue of income redistribution. Now, you said we have a moral obligation to redistribute wealth to take from the haves to give that have-nots and you specifically identified that as a moral obligation. I say that a moral obligation is personal. You cannot have one person enforcing their view on morality. Income redistribution is enforcing one worldview on morality on another. That’s offensive to me. You also referred to the practicality. If you don’t do some form of income redistribution, you will create unrest, and there will be a lot of unhappiness. To me, income redistribution is simply done to keep everybody calm. How much can you redistribute to keep people calm, while still not discouraging the market that you speak about. It’s that balancing act and different government, different parties and different politicians will find a different spot.
Ed Conard: First of all, are we just trying to keep everybody calm? Yes, I think we’re trying to keep everybody calm. But I would also say this. In large part, the Democratic Party’s purpose is to buy votes with other people’s money. It has been very successful at accomplishing its objectives. We are spending about 22,500 per person in the bottom 20%, even though the money isn’t going there. Why? Because since 2000, we have increased the amount of money going to the middle class to about 10, or $11,000, per a family of four. So they’re very successful, not in keeping everybody calm, but in buying their way to power.
For free marketeers and libertarians, it is not just keeping people calm, even though that might be optimal, it’s winning the election against somebody who’s determined to basically give them more and more and more, no matter how much more. It’s mercy at any cost. It’s more no matter how much more, and it’s gotten to very high levels. We’re not just at the soothing level anymore, we’re at the “give me more” level.
Second, imagine we were in a rowboat and we are set adrift and we all have to work very hard to live and you’re not pulling your weight. Do you get to do whatever you want or do we throw your ass out of the boat? It’s a little more complicated than everybody gets to do whatever they want. This is why I kind of part ways with libertarians. When you’re a rich, talented, successful person, your priority is freedom, freedom, freedom, freedom. Believe me, I think we have taken a lot of freedom away.
I think it’s very dangerous and we have stepped away over the line on that. But I don’t think freedom is the only moral issue. There are other moral issues as well. So if we are in a row boat, and we do all have to work hard in order to survive, and you refuse to pull your weight, it’s not clear that we have to drag you along with us. We can take a vote potentially, and throw you out. It’s not clear whether we’re doing the moral thing or not.
I can give you other circumstances where I think other factors come into play besides simply freedom, despite the fact that I would strongly agree with you that we’ve stepped way over the line on what freedom we will want to allow to be deprived. We don’t have to take it anywhere near as far as we take it in terms of taxation. The only reason we’ve taken it that far is because the democrats are determined to buy votes, and they keep winning elections, because it’s a powerful, powerful force.
Winston Churchill said that democracy is the worst form of government, except for all the others. And this is precisely the reason why, because there is tyranny of the majority over the minority, and the investors are in a huge minority. There’s always going to be a majority of consumers that say, let’s go take their money and consume it.
We’re going to have less investment, less growth, less prosperity. I’m willing to concede the left’s arguments about morality and what the responsibilities of talented people are. It’s a more powerful ground to stand on to say, “Okay, I’ll accept that. I don’t agree with it 100%. But I’ll take it for the sake of argument, and now what do I need to do to make the middle class as successful as I possibly can make them? I just want policies that optimize them.”
People think that we’re taxing the rich and giving it to the poor, and that it’s not costing them any money, when in fact it is costing them a lot of money, because they are de-motivating the creation of the $5 in order to get a nickel of the dollar to redistribute. The nickel just isn’t where the leverage is particularly when you’re taking 50% of the money away already. Another nickel isn’t going to make the middle class richer. America’s middle class enjoys incomes that are 30% higher as a result of our policies versus Europes over a long period of time.
Bob Zadek: In our founding documents, the declaration, the Constitution, and the Bill of Rights, if you want to separate the Bill of Rights from the Constitution, there is not one syllable that I am aware of where government is empowered or tasked with the job of having people’s quality of life improve. That has been since the founding, the job of the individual, not the job of government. Government’s job is to make sure that nobody else interferes improperly with fulfilling your potential. I hope to heaven that everybody recognizes this duty, but I never want to compel it. Compulsory morality is not morality. It’s simply the absence of freedom. How can our audience follow your writing?
Ed Conard: EdwardConard.com. I just had a chapter that came out in an Oxford University Press textbook, called the Economics of Inequality in High Wage Economies, and you can get a free copy of the chapter on my website, if you’d like to read it. That’s my latest thinking. The Upside of Inequality sitting up here is that my bookshelf talks a lot about morality and libertarianism and where we agree and disagree, and how to make the middle class as successful as it can be.
Originally published at http://bobzadek.com on January 31, 2021.
