#188 More Equal than you Think

By The Christian Economist | October 12, 2023
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American incomes are 3% more equal today than in 1947.   That was the key data point from former Senator Phil Gramm’s recent speech about his new book, titled The Myth of American Inequality.

Don’t Covet

Just about every discussion that points out inequalities of outcomes is a violation of the tenth commandment against covetousness.  From Thomas Picketty’s books and speeches to Black Lives Matter to President Biden: The message is always rooted in wanting what others have.

That’s why when Sergiy Saydometov and I wrote the book Biblical Economic Policy, one of the ten Biblical Commandments of Economics we found was “Don’t Covet.”  It’s so pervasive in our society.  As I’m recording this podcast, the Union of Auto Workers is out on strike.  Guess what their major talking point is: How rich the executives are.  Who barred a production worker from seeking a C-Suite job?  In fact, companies typically provide tuition assistance for those who desire to move “up” within the company.  If any of the automakers discriminated against a qualified executive, their competitors would snatch her up in a second, seeking competitive advantage over the others.  That’s the beauty of competition.  When you discriminate in a competitive environment, you hurt yourself.

The union toadies also use the phrase “fair shares.”  That’s straight out of Ayn Rand’s book Atlas Shrugged.  She does not use the term in a favorable way.

 

Quintiles

OK, anytime you talk about incomes, you have to use quintiles.  That’s because the Census Bureau reports incomes in five different levels.

Here’s the raw data point that the coveters trot out: The top quintile makes 16.7 times more than the bottom quintile.  But that’s before you count transfers.  A transfer is money that is taken from the folks in the top quintile and given to the bottom quintile.  After transfers, the ratio is 4: 1.  That’s actually a very narrow difference.  I mean really, what would you like it to be?

Another shocking fact from Senator Gramm, “In 2017 the bottom quintile spent TWICE what they earned.  Hold it.  As my friend says, “That don’t pencil out.”  Where did the extra money come from?  Well, people in the top quintile spent 40% less than they earned.  Oh, now it makes sense.  It was transferred from the rich to the poor.

The Census Bureau data does not count 100 federal transfer programs.  It overlooks 2/3 of transfer income.  88% of income to the bottom quintile is not counted.  Now you see why the real ratio is 4:1. There are lies, damned lies, and government statistics.  Oh, Senator Gramm’s speech that I’ve been quoting was sponsored by a think tank called the Institute for Policy Innovation.  It was founded by then speaker of the house Dick Armey, for the expressed purpose of producing reliable data.

 

The Wrong Motivations

Back to those transfers: They instigate the wrong motives in both parties.  When you take money from rich folks, you motivate them to produce less.  When you give money to the poor, you motivate them NOT to produce more.  Production is the key driver of a nation’s wealth.  The more you transfer, the poorer the nation gets.  One of my favorite phrases is “Policies that Promote Production is what separates rich from poor nations.”  Here’s how Winston Churchill said, “You don’t make the poor rich by making the rich poor.”  The Dave Arnott extension of that is: When you make the rich poor, you make the poor, poorer.

Ronald Reagan quipped, “We fought a war on poverty, and poverty won.”  The war on poverty ended up being a war on the economy.  Poverty was reduced by 50% between 1945-1960.  That was BEFORE the war on poverty.  THEN LBJ launched the “war on poverty” and it has not changed significantly since.  The poverty rate without transfers ranges from about 11-16%.  When you count the transfers received by those in poverty, only 2.5% are still qualified as being in poverty.  And, again, a reasonable person wants to ask: What is an acceptable level?  It’s a fallen world.  We’re doing really quite well.  If you’re looking for perfection, you’re on the wrong side of Eden, and you didn’t listen to my podcast just a couple of weeks ago titled Perfection is Found Only in Heaven.

Where is income close to the same?  This is discouraging.  The bottom 60% of households make very close to the same amount, after transfers.  Think about this: At the top of that bottom 60% you typically have a man and wife both working hard.  At the bottom, you have someone not working at all.  When you adjust for the number of people in the household, their incomes are roughly the same.  Listen, people respond to incentives.  Why should the couple at the top of the 60% number work so hard, to have basically the same lifestyle that a person at the bottom has?  Economists call that the marginal difference.  Since the marginal difference is quite small, people are not motivated to work.  That’s why, in the bottom quintile, 36% don’t work.  And the remainder in the lower 60% group is figuring out that working doesn’t pay.

 

The Most Progressive Taxes

The US has the most progressive taxing system in the world.  Yep: More progressive than welfare-dependent societies like Germany and Sweden.  Middle-class Norwegians would much rather pay taxes at the US rate than what they pay in kroners.  That’s because about 57% of Americans pay no income tax at all!  Oh, and that President Trump “tax cut for the rich?”  That increased the number of non-taxpayers even higher.

Here’s what Thomas Sowell has to say about it: “One of the things that drives me crazy are people who talk about tax cuts for the rich. People who want to cut the taxes for the rich are basing their reasoning on the belief that the greater wealth remaining in the hands of the rich will somehow trickle down to others.”  He even wrote a book about it, titled, Trickle Down Theory and Tax Cuts for the Rich.  The trickle-down theory does not exist.  It’s simply a straw man that has been created by muckrakers.

Here’s how Margaret Thatcher expressed the gap between the rich and the poor, “So long as the gap is smaller, they would rather have the poor, poorer.”  She’s making an accurate point: Folks who want to lower inequality are aware that it will make all of us poorer.  And they choose that consequence rather than having everyone richer, but a larger gap.

 

Narrow is the Gate

Matthew 7, 13-14 reads, “Wide is the gate and broad is the road that leads to destruction, and many enter through it.  But small is the gate and narrow the road that leads to life, and only a few find it.”  Sounds pretty discriminatory, doesn’t it?  But that’s the outcome measure.  The input measure, which economists call “opportunity cost” is extremely wide.  Titus 2:11 says “For the grace of God has appeared, bringing salvation for all people.  And 1 Timothy 2:3 reads, “For this is good and acceptable in the sight of God our Savior, who desires all men to be saved and to come to the knowledge of the truth”

You see, God WANTS everyone to be saved, but people make the free will choice not to be.  So this is where our governmental and Christian principles overlap: There is equal opportunity, but unequal outcomes.  I’ve often explained it this way: I’m the Christian Economist.  Christians – or really any religious person – measure the input.  We believe there are specific things we need to believe.  That’s called normative economics.  Economists almost always concentrate on the outcomes.  That’s called positive economics.

This is one of the more searing insights I’ve ever heard on this issue, and of course, it comes from the great Thomas Sowell: “If narrowing income inequality and caring for the poor are competing ideas, how do we choose one over the other?”  For Christians, it’s simple.  We care about the poor, not the gap between rich and poor.

When asked if he was an optimist or a pessimist, Senator Gramm closed with this line, “Nobody ever made money betting against the United States of America.  We’re in trouble, but we’ve been given gifts from heaven before.  Maybe we will again.”

Fear God
Tell the Truth
Earn a Profit

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