Our listeners know that Johan and I like to argue. Here’s an email chain from this week about income inequality. Our old friend Harvey Multani chips in some of his thoughts too. Check it out!

STEVEN:

Probably the most interesting piece on income inequality I’ve seen from a conservative:

http://www.weeklystandard.com/articles/about-inequality_607779.html?page=1

“The way out is to reject the assumption that government’s purpose is to redress inequalities of income. Inequalities of condition are a fact of life. Some people will always be poorer than others. So too, human altruism will always seek to alleviate the suffering of the destitute. There is a place for reasonable and prudent actions to improve well-being. But that does not mean the entire structure of our polity should be designed to achieve an egalitarian ideal. Such a goal is fantastic, utopian even, and one would think that the trillions of dollars the United States has spent in vain over the last 50 years to promote “equality as a fact and equality as a result” would give the egalitarians pause.”

The majority of conservative commentary about income inequality usually is something about how it doesn’t really exist (it does) or it’s actually good for you.

What I find interesting here is that he says what I think most conservatives really feel: yeah there’s income inequality, and it sucks, but it’s not the government’s job to do anything about it. I feel like you guys might agree with this line of thinking. I don’t.

JOHAN:

Interesting. Definitely agree with the distinction of equality and democracy.

Point 1. We do not live in a pure democracy, nor should we ever strive to

Point 2. Inequality is a good thing, to an extent, without it you have communism

Point 3. Equality is a good thing, to an extent, without it you have rebellion, tyranny, or anarchy by the masses

Point 4. Equality of property rights, freedom of speech, education, and opportunity, are all things that this country stand for and that the government should strive to provide

Result: Point 5. The government has no place providing for the equality of material possessions

It is important that when we talk about equality we break it down into what it really means. Let’s not throw the word around like it always has the same meaning.

A rarely discussed point is that people are compensated based on their level of human capital. Human capital is not equally distributed across our population. A lot that has to do with education, training, and experience, but human capital also relates to work ethic, creativity, and social skills.

Is it unfair for a factory manager with an MBA from Stanford to receive greater pay than a factory worker with a high school degree?

No, equality in pay is not relevant. If we were instead to talk about equity, that is perceived inputs/perceived outputs, we can perhaps argue that the two jobs should be equitable. The result being that the more training, education, experience, and skills you have, the greater your perceived compensation should be.

With this being said should we come down on those with greater human capital? Should we take from those of greater human capital, who have invested greater in themselves, and give to those of lesser human capital? No, we should not.

Now, the only argument that a reasonable person may have is that the factory worker was not given the proper opportunity to succeed or attain human capital, so we should tax those of higher human capital to attempt to bring equality to their opportunity sets. Perhaps, and this is where my strong inclination towards federal funding of education comes in.

In summation, inequality, to an extent is necessary in a capitalist society. It is a byproduct of greater and lesser levels of human capital. Try to raise the “poor’s” human capital as opposed to redistributing the payoffs. Redistribution would only create an inequitable world. For which the outcome is significantly worse as you have less incentive to create, innovate, or achieve. Our progress in society would come to a standstill.

STEVEN:

“Now, the only argument that a reasonable person may have is that the factory worker was not given the proper opportunity to succeed or attain human capital, so we should tax those of higher human capital to attempt to bring equality to their opportunity sets. Perhaps, and this is where my strong inclination towards federal funding of education comes in.”

That was the major caveat you gave. It was so eloquently put that I think it undermines your larger argument. I’m down with the human capital thing. You have a lot of human capital Johan. You have it because of your work ethic, drive, and intelligence. A lot of that is innate. You were born that way. But the fact is, you’re getting a first rate education that you didn’t have to pay for yourself by working or taking on loans or working your way off the streets. And yeah, had you been born in a slum somewhere, your work ethic and intelligence could have propelled you to success. But you know what? The other factors (education, poverty, deterrence from your peers) probably would have kept you down. It’s something worth remembering.

HARVEY:

The real question is not whether equality is a virtue or not.

The real question is whether it is just to use force individually or collectively against others for any reason except self-defense.

If it is, then this is a war of all against all and what anyone is fighting for doesn’t really matter.

If it isn’t, then what people feel about inequality is their own business which they can remedy through philanthropy or entrepreneurship or ignore as they please.

JOHAN:

Steven, I agree with you. We’re saying the same thing. I’m pushing for equality in opportunity and education. My argument (which you either largely ignored or agree with) is that anyone in favor of equality of possessions or compensation is misguided.

HARVEY:

“I’m pushing for equality in opportunity and education.”

Will some be forced to pay for the education of others to remedy this inequality?

JOHAN:

That’s really the key question of the hour, Harvey. I honestly believe that we need government to be a part of the education of our populace, to an extent.

If we are to mandate equal quality education across all social classes, we can’t reasonably expect that the private sector can provide an equal education if catering to both the rich and the poor. Paying less for an education should give you a worse quality education, and the contrary holds true as well.

That being said, I think there is a moral and social obligation, and you can disagree with me here, to provide an equal opportunity for all. That’s why we are even discussing this in the first place. If we expect society to provide equal education, we must redistribute resources from the rich to the poor, to an extent.

Given that the top 1% of this country already pay 40% of this country’s taxes, I don’t think this will be too much of a problem.

It’s drastic, but I wouldn’t be opposed to getting rid of social security and reinvesting the money in education. Instead of a payroll tax going to old people for them to play bingo and eat cheese noodles, put the money towards educating our youth. Oh yeah, but the youth can’t vote, that’s why we don’t have a system like this.

Make social security the responsibility of the individual. Our current incentive structure in this country tells working Americans that it doesn’t matter how they manage their personal finances during their working years because they will receive social security. It shifts responsibility from the individual to the collective. On the other hand, if you are a young, poor inner city Detroit student, the onus is on the individual and not the collective to take responsibility for his or her future. Now, who do we really believe should bear more individual responsibility? An inner city student or a worker at the prime at his career?

Democracy is a flawed system.

HARVEY:

“We can’t reasonably expect that the private sector can provide an equal education if catering to both the rich and the poor.”

Just like it hasn’t with email, cell phones, cars, clothes, over the counter drugs, etc. If there is one thing we know, it is in fact the government that cannot do these things. The market is exceptional at marketing to different segments.

Also, education and schooling are non synonymous. Schooling is probably the biggest waste of time on the planet and the last thing humanity needs is more young people stuck in a box being lectured by ignorami that ducked out of the real world.

Education is virtually free. In fact, people will pay you for it. Want to learn how to sell? People will pay you. Want to learn how to build useful things? People will pay you. Want to learn history? Go online, you can learn it all for free.
“I think there is a moral and social obligation, and you can disagree with me here, to provide an equal opportunity for all.”

A moral obligation to steal from one group and give to another?
“Given that the top 1% of this country already pay 40% of this country’s taxes, I don’t think this will be too much of a problem.”

Perhaps the issue is that anyone is paying more than 0% taxes. Zero taxes and the issue of who owes who what disappears.
“It’s drastic, but I wouldn’t be opposed to getting rid of social security and reinvesting the money in education. Instead of a payroll tax going to old people for them to play bingo and eat cheese noodles, put the money towards educating our youth. Oh yeah, but the youth can’t vote, that’s why we don’t have a system like this.”

This is the fundamental flaw of democracy: the only way to get elected is by selling favors to pressure groups. Where do you get the resources to transfer? You steal from another group. So the most convincing thieves are the ones that get elected.

It doesn’t matter where the money goes once it is stolen, that it is stolen renders any use a malinvestment by definition since the use decision was not made by voluntary private parties. If private parties would have made the same decision, then there would have been no need to steal in the first place.

STEVEN:

Johan, I didn’t know old people eat “cheese noodles.”

JOHAN:

You learn something new every day Steven. In your case it seems like you learned a couple of things yesterday.

STEVEN:

Oh please, yesterday I was fairly busy and didn’t get the chance to properly respond. I shall do so now:

For most of the post-WW2 era, we have morally tolerated high inequality because we saw it as a component of a great economy. The great economy we so cherished guarantees opportunities to be upwardly mobile, and so we believed great differences between rich and poor are OK as long as our children have a good chance of moving on up.

But in the past 30 years, conservatives have successfully invalidated this core Americanism. The conservative assault on fiscal policy has resulted in increasing inequality and comparatively low social mobility. Well, it has been mobile, but mainly in the wrong direction (about 1/3 of those who grew up in the middle class have no fallen below that standard in adulthood).

Now introduce the recession and cue hard times.

And this is why, when polled, the vast majority of Americans see income inequality is a problem. The debate about taxes is the most crucial component here. The idea behind a progressive tax system (which you can choose to disagree with since it means you pay more) is that it mitigates some of the income inequality. But Republicans have attempted to gradually reduce federal income tax rates. Couple that with the regressive state taxes in many red states and you have even more income inequality.

But don’t worry, because we can fix it. If we return to the slightly higher rates of the Reagan or Clinton years (the rates that existed when the economy was doing better off, mind you) — we can begin to fix things. I say “fix” because I am operating under the assumption that it’s a good thing if low-income people get to keep more of their money to spend on things and generate growth. I’m talking about payroll tax cuts for the middle class, too.

Now to your point about government’s role in mitigating income inequality. Here is where I think it’s difficult for us to reach a middle ground, because I have a fundamentally different view of government than you. I understand what you are saying, but I think government does have a role to play here. I don’t think taxing the rich is akin to “stealing.” It’s just what is equitable. Does the government have a role in reaching equality of material possession? Maybe, maybe not. I think indirectly the government has an implicit role to level the playing field. I know you disagree on that. But if your point is that government does have a role in reaching equality of opportunity, then a progressive tax structure is the best option. Moreover, we need to undo the taxaphobia that has plagued the nation in the past few decades.

JOHAN:

I refuse to respond to this email at great length because of what’s already been said. You are confusing income equality and equality of opportunity. The two are not one and the same and should not be treated as such. Go back to my human capital argument to see why you are wrong about taxation for the sake of income equality.

You still don’t address my social security proposal or how we can provide equality of opportunity in this country. I’m sick and tired of liberals equating of perceived injustice and arguing that we need higher taxation.

STEVEN:
I’ll humor you and address what you said before. Though, your entire argument about human capital is based on a non sequitur.

Let’s break down exactly what you said:

“A rarely discussed point is that people are compensated based on their level of human capital.”

OK, I don’t think is really “rarely discussed.” It’s not a radical idea to say there is a positive correlation between skills and income. But fine, I’m with you.

“Human capital is not equally distributed across our population.”

Right, how could it be, with some having access to greater opportunity, as you mention.


A lot that has to do with education, training, and experience, but human capital also relates to work ethic, creativity, and social skills.”

Education, training, experience – all things you get from increased opportunity, which you agree with. Work ethic, creativity, and social skills – you’re implicitly making the argument that these three things are just naturally innate. Well, I have a more cynical view and think your particular upbringing might have plenty to do with things like “creativity” (i.e. if you grow up in a more privileged environment where creativity is cultivated, you might end up being what we would call a more “creative” adult. On the other hand, a perfectly “creative” person in a low-income environment might have to shed that mask in order to make ends meet).

OK, to sum up your point: People get paid more because of their skills. Most of their skills have to do with level of education, which is a function of income/wealth, so government’s job is make education more equitable, not merely distribute material possessions after the fact. Let me know if that is not a fair assessment of your argument (it is).

Now for my response. Your argument is based upon a non sequitor because equality of opportunity and equality of wealth cannot be so easily separated. You’re intention is noble: boost the poor kid’s human capital so he can then earn more money. But you’re cavalier about the details. If the poor kid’s family wasn’t poor, and he was “creative” as you put it, they could send him to Stanford and he’d be more competitive in the labor market. But they can’t afford it. My argument about the American dream is relevant here, so don’t be so quick to cast it aside. The reason people are more up in arms about income inequality now is because they feel like their children can’t be upwardly mobile. At the same time, they see the top 1% getting vastly richer. To your point on education – great, yeah, let’s try to get people to have more human capital. But don’t act like this is independent of wealth. Why can’t we do both in conjunction? Why can’t we revamp education to give America’s children a better innovative skill set while also helping their parents out financially so they can have a full breakfast before the leave for school? Was the tax rate in the 90s “stealing” from the rich? Why is it so inconceivable to you now to return to that rate? We were doing better off then. It’s pure conservative taxaphobia, and it’s rooted more in hyperbolic language than facts or history.

You always act like I don’t “understand” your argument because of some liberal aversion to capitalism. I hear what you’re saying, and I’m all for capitalism (it’s not an exclusively conservative ideal, you know). I just think that the answer isn’t as easy as you make it out to be. Your separation of opportunity and wealth is too tidy. It’s just not real.

And to your point on Social Security. It’s interesting but inconceivable, as I think you already know. I think you’d feel differently if you worked all your life paycheck to paycheck, paying into the system, and then retired. You might feel like the government helping you out in the twilight of your life is warranted. You might not feel like it’s really “help,” but rather just them paying you back. After all, you spent your entire adult life being a good American: working, paying your taxes, buying stuff around Christmastime, and voting. Maybe if you took a walk in those shoes you wouldn’t feel like people who live off Social Security are “lazy,” but rather that they are “entitled” to the system they paid into their entire life so they could enjoy some time before they die.

But yeah, sure, you can be the Secretary of Education in my administration.

HARVEY:

“If we return to the slightly higher rates of the Reagan or Clinton years (the rates that existed when the economy was doing better off, mind you) — we can begin to fix things.”

Correlation equals causality?
“Moreover, we need to undo the taxaphobia that has plagued the nation in the past few decades.”

If I steal your television, is this theft? If 5 of my friends get together and we vote to steal your television, is this theft? If 5000 of us get together and vote to steal your television, sell it, give 10 percent of the procedes to charity, and keep 90 percent of the loot, is this theft?

At what point does unjust theft become just taxation?

STEVEN:

I’ll concede that our economy wasn’t successful because of higher tax rates in the 90s, but it certainly debunks the claim that higher tax rates will somehow destroy us now, or that higher tax rates is somehow a new form of “stealing” when we’ve already had those rates in the past and the rich were still doing well.

And I like your libertarian thought experiment. It’s interesting. But Harvey, at the end of the day, most people would agree that taxes are what you pay as a price for living in our society. I love arguing about what the actual rate should be, but you lose me when you implicitly make the claim that taxes should not exist because they are “theft.”