{"id":6886,"date":"2014-01-07T10:39:32","date_gmt":"2014-01-07T18:39:32","guid":{"rendered":"http:\/\/victorhanson.com\/wordpress\/?p=6886"},"modified":"2014-01-07T10:40:00","modified_gmt":"2014-01-07T18:40:00","slug":"the-inequality-smokescreen","status":"publish","type":"post","link":"https:\/\/victorhanson.com\/wordpress\/the-inequality-smokescreen\/","title":{"rendered":"The Inequality Smokescreen"},"content":{"rendered":"

by Bruce S. Thornton \/\/\u00a0FrontPage Magazine<\/a>\u00a0<\/em><\/p>\n

Desperate for a diversion from the disasters of Obamacare, the president has conjured up the old leftist \u201cincome inequality\u201d clich\u00e9. His court-pundits complain that \u201cthe richest nation on earth is starting to resemble a banana republic,\u201d according toThe New Republic<\/i>, while Berkeley Professor Robert Reich has thundered against \u201ccasino capitalism,\u201d blaming it for \u201cthe greatest concentration of the nation\u2019s income and wealth at the very top since the Gilded Age of the nineteenth century, with the richest 400 Americans owning as much as the bottom 150 million put together.\u201d Democrats, no doubt cheered by left-over-leftist Bill de Blasio\u2019s election as mayor of New York, and excited by his Occupy Wall Street rants, apparently believe that such class-warfare rhetoric is a political winner. So be prepared for more of the same, and for demands to raise the minimum wage and gouge even more money from the \u201cmillionaires and billionaires.\u201d<\/p>\n

Fretting over income inequality, however, has little to do with economic reality. It\u2019s a statistical sleight-of-hand that counts only \u201cmoney income\u201d and ignores non-cash transfers in order to decry how much more income the top 1% are earning compared to everybody else. In fact, when the value of government transfers such as Medicaid and the Earned Income Tax Credit are included in calculating income,\u00a0income inequality actually declined<\/a>\u00a01.8% between 1993 and 2009. Equally revealing is the fact that in 2005 those in the bottom 20% of earners consumed almost twice their income, again because of the value of non-cash transfers. And that doesn\u2019t count the underground economy, everything from working for cash to more unsavory occupations. That\u2019s why the statistical\u00a0poor enjoy living standards higher<\/a>\u00a0than the average European. And that\u2019s the real point\u2013\u2013not how much the rich have, but how much everybody else does.<\/p>\n

So what is all this hyperventilating about, apart from political demagoguery? Don\u2019t underestimate the sheer ignorance of some people about how free-market capitalism works. They seem to think of wealth in medieval terms, as fixed resources like land, herds, forests, or precious metals that can be divided only so many times, a zero-sum process that requires some to have less for others to have more. Capitalism, of course, creates new wealth that is widely distributed, the riches of one leading to a higher standard of living for many. Microsoft founder Bill Gates is worth $78.5 billion, but his company and related businesses have created 14.7 million jobs globally. For every dollar Microsoft earns, affiliated companies earn $7.79. That\u2019s the genius of capitalism, which allows a few to get rich and in the process make millions of others not necessarily rich, but better off than they were.<\/p>\n

More important than ignorance of kindergarten economics, though, is the radical egalitarianism that has always been the bane of democracies since ancient Athens\u2013\u2013the notion, as Aristotle said, \u201cthat those who are equal in any respect are equal in all respects; because men are equally free, they claim to be absolutely equal.\u201d Genuine equality\u2013\u2013the equality of all under the law, and the equality of opportunity\u2013\u2013will not satisfy the radical egalitarian. He must have equality of result, and since the most obvious and galling sign of inequality is that of property and wealth, he will then demand redistribution of property to move closer to that aim.<\/p>\n

The American Founders understood this nexus of egalitarianism, the unequal distribution of property, and political strife. As James Madison put it, \u201cThe diversity in the faculties of men from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of Government. From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately results: and from the influence of these on the sentiments and views of the respective proprietors, ensues a division of the society into different interests and parties.\u201d<\/p>\n

Notice that Madison assumes that the unequal distribution of ability, hard work, virtue, or even luck, all of which create the inequality of wealth, is an unchanging fact of human nature. As a result, those with more wealth, and those with less, will form different factions that will attempt to dominate the government in order to advance their interests. The Founders were particularly wary of the majority dominating the government and using its power to redistribute the property of the better off, at the same time they understood that the rich would use political power to their advantage. As Gouverneur Morris said during the Constitutional convention, \u201cThe Rich will strive to establish their dominion and enslave the rest. They always did. They always will. The proper security [against] them is to form them into a separate interest. The two forces will then control each other . . . By thus combining and setting apart, the aristocratic interest, the popular interest will be combined [against] it. There will be a mutual check and mutual security.\u201d<\/p>\n

Hence the Constitutional order of checks and balances was created on this foundation of clashing interests in order to keep one faction from tyrannizing over everybody else.<\/p>\n

Obviously, this harping on income inequality is just another example of how progressivism has discarded the philosophical foundations of the Constitution. Rejecting the unequal distribution of ability and virtue among people that Madison recognized, the Progressives under Woodrow Wilson believed that unjust social and economic institutions accounted for inequality of income, and they wanted to increase the power of the state to correct this injustice. Thus early in the 20th<\/sup>\u00a0century Progressives pursued what in 1918 economist E.R.A. Seligman called \u201cfiscal justice\u201d by successfully pushing for the Income Tax. Seligman was commenting on the 1917 Tax Act, which lowered exemptions and raised rates. This increase came a year after the 1916 Revenue Act, which had nearly doubled the 7% top rate established 3 years earlier by the Sixteenth Amendment, and created an inheritance tax. The\u00a0New Republic\u00a0<\/i>called this expansion \u201ca powerful equalitarian attack upon swollen incomes.\u201d Since then the income tax has become the ever-expanding revenue stream for achieving the progressive aim to \u201cpass the prosperity around,\u201d as Albert Beveridge said at the 1912 Progressive Party presidential nominating convention. A hundred years on, the progressive Democrats are still attempting to use federal taxing power to defy human nature, the free market, and the Constitution in order to mount an \u201cequalitarian attack on swollen incomes\u201d and to \u201cspread the wealth around,\u201d as Obama famously said.<\/p>\n

The rhetoric of class warfare, however, exploits a more unsavory dimension of democratic man\u2019s desire for absolute equality, one noticed by Alexis de Tocqueville in\u00a0Democracy in America<\/i>. \u201cIt cannot be denied,\u201d Tocqueville wrote, \u201cthat democratic institutions strongly tend to promote the feeling of envy in the human heart; not so much because they afford to everyone the means of rising to the same level as others as because those means perpetually disappoint the persons who employ them. Democratic institutions awaken and foster a passion for equality which they can never entirely satisfy.\u201d Equality of opportunity means the chance to rise as high as one\u2019s talents, virtues, and hard work can take him. Too often those who fail will refuse to accept their lack of these qualities and blame those who possess them, and in the \u201cacrimony of disappointment,\u201d Tocqueville writes, find \u201csuperiority, how legitimate it may be\u201d to be \u201cirksome in [their] sight.\u201d<\/p>\n

This envy and resentment is readily fostered and exploited by politicians seeking support for increasing spending on welfare and entitlements in order to maintain their own power and increase that of the state. Meanwhile, welfare destroys the virtues and habits necessary for success, while punitive taxation, deficit spending, bloated government, and intrusive regulation all hurt economic growth and reduce opportunities for those who do want to better themselves.<\/p>\n

Obviously, modern \u201cincome inequality\u201d rhetoric is a political smokescreen, which explains its inconsistencies. We do not hear Obama and the Democrats decrying the bloated incomes of progressive actors, television talk-show hosts, rap moguls, or sports stars. Their demonization of Wall Street doesn\u2019t stop them from accepting campaign contributions from investment bankers or working for Goldman Sachs after leaving government. Worse yet, they are completely indifferent to the assault on the Constitutional order this rhetoric represents, or the divisiveness sown among the citizens by stirring up destructive passions like envy and resentment. All they care about is keeping their own power and privilege no matter what the social and economic costs.<\/p>\n","protected":false},"excerpt":{"rendered":"

by Bruce S. Thornton \/\/\u00a0FrontPage Magazine\u00a0 Desperate for a diversion from the disasters of Obamacare, the president has conjured up the old leftist \u201cincome inequality\u201d clich\u00e9. His court-pundits complain that \u201cthe richest nation on earth is starting to resemble a banana republic,\u201d according toThe New Republic, while Berkeley Professor Robert Reich has thundered against \u201ccasino […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_newsletter_tier_id":0,"footnotes":"","jetpack_publicize_message":"","jetpack_is_tweetstorm":false,"jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false}}},"categories":[22,120,619],"tags":[343,342,1034,165,624,916,570],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p466Sb-1N4","jetpack_likes_enabled":true,"jetpack-related-posts":[{"id":2534,"url":"https:\/\/victorhanson.com\/wordpress\/its-the-philosophy-stupid\/","url_meta":{"origin":6886,"position":0},"title":"It’s the Philosophy, Stupid","author":"victorhanson","date":"July 15, 2011","format":false,"excerpt":"by Bruce S. Thornton Advancing a Free Society The Democrats\u2019 position in the negotiations to raise the debt limit and deal with runaway government debt can be summarized in one mantric phrase: the rich must \u201cpay their fair share\u201d in taxes. White House communications director Dan Pfeiffer, for example, said\u2026","rel":"","context":"In "Bruce S. Thornton"","block_context":{"text":"Bruce S. Thornton","link":"https:\/\/victorhanson.com\/wordpress\/ahref=\/index.php\/categories\/angry-reader\/categorylink\/a\/our-contributors\/bruce-s-thornton\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1960,"url":"https:\/\/victorhanson.com\/wordpress\/wall-streets-disgruntles-utopians\/","url_meta":{"origin":6886,"position":1},"title":"Wall Street’s Disgruntles Utopians","author":"victorhanson","date":"October 11, 2011","format":false,"excerpt":"by Bruce S. Thornton FrontPage Magazine The Occupy Wall Street protesters are looking more and more like the shock troops of the Democratic Party\u2019s electoral tactic of class warfare. Responding to a question about the protesters, the President gave an oblique endorsement when he said, \u201cThe American people understand that\u2026","rel":"","context":"In "Bruce S. Thornton"","block_context":{"text":"Bruce S. Thornton","link":"https:\/\/victorhanson.com\/wordpress\/ahref=\/index.php\/categories\/angry-reader\/categorylink\/a\/our-contributors\/bruce-s-thornton\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":7968,"url":"https:\/\/victorhanson.com\/wordpress\/janet-yellen-shills-for-the-democrats\/","url_meta":{"origin":6886,"position":2},"title":"Janet Yellen Shills for the Democrats","author":"victorhanson","date":"October 31, 2014","format":false,"excerpt":"by Bruce Thornton \/\/ FrontPage Magazine At a conference last week, Federal Reserve Chairman Janet Yellen recycled a shopworn Democrat talking point about the supposed crisis of income inequality and stalled economic mobility. \u201cThe extent and continuing increase in inequality in the United States greatly concerns me,\u201d Yellen said, going\u2026","rel":"","context":"In "Our Contributors"","block_context":{"text":"Our Contributors","link":"https:\/\/victorhanson.com\/wordpress\/ahref=\/index.php\/categories\/angry-reader\/categorylink\/a\/our-contributors\/"},"img":{"alt_text":"Photo via FrontPage Magazine","src":"https:\/\/i0.wp.com\/victorhanson.com\/wordpress\/wp-content\/uploads\/2014\/10\/janet-yellen-450x337.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":7251,"url":"https:\/\/victorhanson.com\/wordpress\/the-progressive-paradigms-lost\/","url_meta":{"origin":6886,"position":3},"title":"The Progressive Paradigms Lost","author":"victorhanson","date":"April 25, 2014","format":false,"excerpt":"by Bruce S. Thornton \/\/\u00a0FrontPage Magazine\u00a0 The progressive mind functions in terms of fossilized paradigms into which every crisis and problem are fitted, no matter how many qualifying or contradictory facts are left behind. These paradigms are part of a worldview, a picture of human existence that gives it coherence\u2026","rel":"","context":"In "Bruce S. Thornton"","block_context":{"text":"Bruce S. Thornton","link":"https:\/\/victorhanson.com\/wordpress\/ahref=\/index.php\/categories\/angry-reader\/categorylink\/a\/our-contributors\/bruce-s-thornton\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1661,"url":"https:\/\/victorhanson.com\/wordpress\/blame-our-failing-schools-for-occupy-wall-street\/","url_meta":{"origin":6886,"position":4},"title":"Blame Our Failing Schools for Occupy Wall Street","author":"victorhanson","date":"November 2, 2011","format":false,"excerpt":"by Bruce S. Thornton FrontPage Magazine Having taught in a state university for thirty years, I\u2019m not surprised by the ignorance on display among the Occupy Wall Street protestors. From kindergarten to university, for decades our schools have abandoned the teaching of basic facts and foundational thinking skills, and replaced\u2026","rel":"","context":"In "Education"","block_context":{"text":"Education","link":"https:\/\/victorhanson.com\/wordpress\/ahref=\/index.php\/categories\/angry-reader\/categorylink\/a\/education\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1051,"url":"https:\/\/victorhanson.com\/wordpress\/how-marxism-killed-keystone\/","url_meta":{"origin":6886,"position":5},"title":"How Marxism Killed Keystone","author":"victorhanson","date":"January 24, 2012","format":false,"excerpt":"by Bruce S. Thornton FrontPage Magazine The global warming apocalypse and its Elmer Gantry, Al Gore, may have faded from public view lately, but that old-time green religion is still making mischief. President Obama has just delayed until after November\u2019s election a decision on the Canadian Keystone XL pipeline. This\u2026","rel":"","context":"In "Energy"","block_context":{"text":"Energy","link":"https:\/\/victorhanson.com\/wordpress\/ahref=\/index.php\/categories\/angry-reader\/categorylink\/a\/energy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/victorhanson.com\/wordpress\/wp-json\/wp\/v2\/posts\/6886"}],"collection":[{"href":"https:\/\/victorhanson.com\/wordpress\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/victorhanson.com\/wordpress\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/victorhanson.com\/wordpress\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/victorhanson.com\/wordpress\/wp-json\/wp\/v2\/comments?post=6886"}],"version-history":[{"count":2,"href":"https:\/\/victorhanson.com\/wordpress\/wp-json\/wp\/v2\/posts\/6886\/revisions"}],"predecessor-version":[{"id":6888,"href":"https:\/\/victorhanson.com\/wordpress\/wp-json\/wp\/v2\/posts\/6886\/revisions\/6888"}],"wp:attachment":[{"href":"https:\/\/victorhanson.com\/wordpress\/wp-json\/wp\/v2\/media?parent=6886"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/victorhanson.com\/wordpress\/wp-json\/wp\/v2\/categories?post=6886"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/victorhanson.com\/wordpress\/wp-json\/wp\/v2\/tags?post=6886"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}