inequality Archives — Laissez FaireLaissez Faire

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From the Jawa Report:

Middle School Principal Cancels ‘Honors Night’ Because It Might Upset Students Who Didn’t Make The Grades

A Massachusetts principal has been criticized for canceling his school’s Honors Night, saying it could be ‘devastating’ to the students who worked hard, but fell short of the grades.

. . .

But, apparently, it’s okay to devastate the kids who worked hard and achieved academic honors. . .

Yaron covers a lot of ground on a recent interview with Mike Rosen.

To the extent a country is free, lifting yourself out of poverty and into prosperity is a matter of your thinking and your actions. Walter Hudson expands on that theme, offering up five ideas that are critical for escaping poverty. Here’s one of them.

5) Understand Value and How to Create It

In spite of the descending order, these ideas are presented from the most foundational. If readers do not understand value and how to create it, the rest of this list will do them little good.

Let’s be honest. Upward mobility is a euphemism for making more money. There is no shame in that, and we shouldn’t gloss it over. Contrary to the cliché, money can buy happiness. While maintenance of long-term happiness requires more than money, try staying happy without it.

Consider why money is essential to happiness. All living things act to stay alive and improve life’s quality, to survive and thrive. That which we act to obtain and keep is the essence of value. Plants value sunlight, minerals, carbon dioxide, and water. They act, albeit slowly, to obtain those values. Animals likewise seek after the necessities and comforts of life. Man, the rational animal, is unique in his ability to transcend instinct and conceive of new values which did not previously exist. A sharper, lighter spear; a stronger, tighter basket; a way to harness fire or travel over water — such inventions and innovations are values which build upon one another to enable a quality of life theretofore unimaginable.

Since none of us are born innately aware of how to produce the many conceived values enhancing our lives, we come to benefit from them through trade. Can’t make a spear to save your life, but crank out gathering baskets by the dozen? You’ve got a trade. Money is our medium of exchange, something easily portable and generally expected to hold its value. In short, money is the stand-in for any conceivable value we may obtain through trade.

Understanding this helps us dispense with the sophomoric notion that money is the root of all evil, or that we ought to shy away from accumulating it or apologize for having it. It is through the production of value that we “make money.” Dad was right when he said it doesn’t grow on trees. Nevertheless, it can grow if properly cultivated. By identifying what value we are adept at creating, we position ourselves to take the first step toward rising from poverty, earning an income.

Granted, if you are poor, it may be that the value you are capable of producing does not command much in the market. Even so, the most menial of productive tasks can be the seed from which upward mobility springs, provided you embrace the rest of our presented ideas.

Read the whole thing here.

Nobel Prize-winning economist Joseph Stiglitz has been beating the “income inequality” drum for some time now. So have many others on the left, of course, but Stiglitz’s argument is unique: inequality is not simply a moral problem, in his view, but an economic one. As he put it in a recent New York Times blog post:

Politicians typically talk about rising inequality and the sluggish recovery as separate phenomena, when they are in fact intertwined. Inequality stifles, restrains and holds back our growth.

In other words, even those who don’t regard inequality is a moral issue—count me among them—should oppose inequality because it’s making everyone worse off economically.

What’s Stiglitz’s argument? He supports his claim with four reasons:

1. First, “the middle class is too weak to support the consumer spending that has historically driven our economic growth.”
2. “Second, the hollowing out of the middle class since the 1970s, a phenomenon interrupted only briefly in the 1990s, means that they are unable to invest in their future, by educating themselves and their children and by starting or improving businesses.”
3. “Third, the weakness of the middle class is holding back tax receipts, especially because those at the top are so adroit in avoiding taxes and in getting Washington to give them tax breaks.”
4. “Fourth, inequality is associated with more frequent and more severe boom-and-bust cycles that make our economy more volatile and vulnerable.”

Now set aside the last point. Stiglitz doesn’t offer any support for the causal role of inequality in boom-and-bust severity. He merely asserts that “it is no coincidence that the 1920s—the last time inequality of income and wealth in the United States was so high—ended with the Great Crash and the Depression,” while conceding that “inequality did not directly cause the [2008] crisis.” (It is true that financial crises are associated with a rise in inequality, but it is an effect of government policies, not a cause contributed by the market.)

That said, notice anything funny about the first three reasons? None of them has anything to do with “inequality.” They are all about the (alleged) weakness of the middle class.

We can argue about the details of what’s actually happened to the middle class (the evidence I’ve seen indicates that, to the extent it has been “hollowed out,” it’s because many Americans have moved up the economic ladder). And we can also argue about the causes of any economic stagnation (I would attribute it to a lack of economic freedom).

But the one thing that’s 100% clear is that Stiglitz is conflating economic stagnation with inequality. Sure, he could argue that the same forces that are causing recent inequality are preventing a recovery. But that is very different from arguing that inequality itself—the sheer disparity of U.S. incomes—is “holding back the recovery.”

Inequality can increase (1) because those with lower incomes are stagnating, or (2) because they are prospering, but at a slower rate than people with higher incomes. By treating (1) as an “inequality” problem, Stiglitz is implying that inequality per se is a problem. He’s denying the possibility of (2).

But that makes no economic sense and it doesn’t mesh with history. I haven’t studied the matter in depth, but my understanding is that during almost every era in American history, economic growth at the highest levels has outpaced economic growth by people with lower incomes. (If anyone has the relevant stats at hand, please let me know.)

Getting Americans worried about income inequality is hard. Most of us are not envious of others’ success. To sell its egalitarian agenda, the left needs to appeal to our desire for prosperity. That explains Stiglitz’s approach. But the approach—and the motive behind it—are unjustifiable.