Wealth Inequality in America: A Partial Critique

So I’m a little late on this one, but there is a viral video on wealth inequality in the United States going around that compares what a survey of 5000 Americans said they thought wealth inequality should be and then compared that to what it actually is. Well, as many of you know, wealth inequality is substantially larger than most Americans think it is:

Now I should start off by saying I agree with this video in part. Wealth inequality in the United States is too high and it’s getting worse. While proponents of free markets rarely complain about income inequality directly like say Joseph Stiglitz, they do complain a lot about corporate welfare. Tim Carney’s book, The Big Ripoff, is to me the best rundown on the whole bloated mess. And what would corporate welfare probably lead to… well, more income inequality.

That being said, there are problems that should be highlighted. Some of these problems relate to what is considered wealth but the big one is actually a sort of meta-problem with the way that normal people think about inequality. In other words, what people think inequality should be doesn’t make any sense if they actually think about. Why you ask? Well, let me explain:

1. The Big Missing Variable

The big missing variable when discussing income inequality is increased exponentially in terms of it’s importance when discussing wealth inequality. Indeed, it may be startling to think of how simple a variable this is.

Age.

It seems obvious now that you think about it, doesn’t it.

After all, how much money were you making when you were 25 compared to 45. Probably less than half. But when it comes to wealth, oh lord, it’s not even close. The wealth inequality figures discussed in the video make no attempt to control for age. And as a matter of fact, the gap in wealth between the young and the old has been growing.

According to a Pew study, the net wealth of those over 65 between 1989 and 2009 went from $120,000 to $170,000, a 42% increase. For those younger than 35, their wealth actually decreased from $11,500 to $3500, a 68% decrease. And more importantly, $170,000 is 4850% of $3500!

Now remember that these aren’t the same people being measured over time. Perhaps this has something do with people going to college more and thereby 1) starting their career later and 2) having a lot of student debt to pay off. Thereby they’re worth less when they’re young, but more when they’re old. Or perhaps kids these days just don’t know how to save like they’re folks did.

But when you boil it down, people under the age of 44 only possess 11% of the wealth in the United States. That’s an incredible figure if you think about it. And remember, these people are going to get older. They’re going to pay off their student debts, get that big promotion, pay off their house, inherit their parents wealth, etc.

For example, take this thought experiment; say everyone in the country made the same income, but each decade of life they got a promotion. They start at $20,000/year in their 20’s, then they go to $30,000/year in their 30’s, etc. In addition, they save 5% of their income each year and make no return on their savings. Assuming there are as many people in their 70’s as 20’s (which of course there aren’t, but bear with me), this is what the income and wealth inequality would look like:

Or as the video presents it:

And that’s assuming that everyone is equally talented, that every industry is equally as profitable and that everyone has just as good of saving and investment habits. Furthermore, if I put in just a small return, that chart would be skewed even more. At 3% interest, if the person contributes every month, on their 30th birthday they will be worth $11,627. On their 60th, they will be worth $198,486. In that case the bottom 20% is worth only 2.69% and the top is worth 45.6% of the total. And that acts as if everyone in their 20’s is worth over $10,000 when in reality most are worth next to nothing.

Any serious look at wealth inequality, and income inequality for that matter, has to take age into account.

2. Entitlements

OK, our entitlement systems are a little underwater, but ignore that for a second. Payroll taxes are capped at $113,000, so in some ways it acts as a regressive tax. But then again, it’s not supposed to be a tax, it’s a government mandated insurance scheme.

Well, throwing in Medicare and Social Security add a little for the rich, but they do add a substantial amount of wealth to the poor in relative terms. How much more wealth would the poor and middle class have if instead of paying into a government program they were mandated to put that money in a health savings account or IRA or something to that effect? Well, it would be quite a bit. This would smooth out the curve a bit. While it makes sense that the author of the study don’t include entitlements since it’s based on when you need it (Medicare) or how long you live (Social Security), conceptually, we need to take them into account.

So let’s take a shot at it. According to Bankrate.com:

… A male average earner who retired at age 65 in 2010 paid out $345,000 in total Social Security and Medicare taxes, but will receive $417,000 in total lifetime benefits ($464,000 for a woman)… In the case of a household with only one wage earner, the taxes paid out were $345,000, but the benefits received by both parties will be $778,000. For two-earner couples where one earned the average wage and the other earned a low wage ($19,400), tax payout was $500,000, but benefits will be $800,000.

OK, that doesn’t sound particularly sustainable, but if that average person is taking out some $400,000 plus in benefits, couldn’t that be thought of as a form of wealth?

3. Individuals vs. Families

In the video, the narrator describes the survey as separating the American population into “groups.” Groups of what? Well he doesn’t say. Luckily the links in the lowbar did. And you guessed it, it’s family wealth, not individual. Once again I have to clarify this ridiculous error. When family sizes vary in shape and size you simply cannot compare them as if they were the same. As Thomas Sowell has noted:

 Households are of different sizes, they vary over time, they vary from one group to another, they vary from one income level to another. So for example, there are 39 million people in the bottom 20% of households, and 64 million in the top 20%. So you’re saying, yes, 24 million additional people do tend to have more money.

Or in other words, the top 20% has almost 60% more people in it than the bottom. Even if there were an equal number of people in the other three “groups” and every individual had the same wealth, the top 20% would have almost 25% of the wealth and the bottom 20% would have barely 15%. When we further take into account that many in the bottom 20% are in prison, single parents, people on welfare, disabled, drug addicts, homeless, etc. it becomes clear that dividing the country into such groups is simplistic at best.

In Other Words…

Now again, even after all that, I do think this is a problem. And I will join liberals in denouncing the major role corporate welfare played in all of this (and I would add, Federal Reserve policy). However, before liberals get too far into their rant about about taxes being too low and regulation being too light, I should note some other possible reasons.

1. Immigration: I believe the impact is relatively small on income inequality (David Card, for example estimates it’s share is only 5% of the increase between 1980 and 2000), I do think it’s effect on wealth inequality is large. Most immigrants, after all, come to the United States relatively poor.

2. Dependency and Welfare: Charles Murray’s new book, Coming Apart, makes the case that the values of the upper class and lower class have diverged, and I do think there’s something to this. Indeed, while in 1960 only 9% of men in the bottom 30% between the ages of 20 and 64 were working. In 2000 it was 30%! In 1996, only 0.286 people in single person households in the lower median worked. It’s hard to increase one’s income, and very hard to increase one’s wealth when you aren’t working. How much has this separation in values played a part? And oh by the way, the decline in marriage probably hasn’t helped either.

3. Technology: I think this is the big one. Charles Murray touches on it a lot as have many others from all across the political spectrum. To use Murray’s example, in the 60’s, someone who was really good at math could become a math teach and make a decent living. Today they could go work for a Quant Fund on Wall Street or maybe for Google and pull seven figures a year. Or take music. Back in the day, musicians wasn’t such a feast or famine gig, because there were no recording devices. So the gigs were how you made a living. Today there’s a bunch of starving artists and a few megastars. And then of course there’s automation and robots and computer algorithms that are making lower end manual labor jobs less necessary, and they’re starting to do a number on service jobs as well.

In other words, the problem is complicated. I do think globalization plays a role (although I think it plays a role in lowering poverty levels around the world too). And of course it should be mentioned too that people have different levels of talent and produce different levels. Those who produce the most should be rewarded. And without some inequality, there’s no incentive, at least no material incentive, to work hard and bring great products and services to the market.

It’s just that inequality is too high. And while that’s still a subjective opinion, I think it rings true for most of us. Just be careful to wade through these statistics before yelling that the sky is falling.

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Swift Reviews: Coming Apart

Coming Apart is the latest book from the highly controversial author, Charles Murray. It is definitely food for thought as well as quite alarming. Murray shows how the upper class and lower class of the United States have diverged in just about everything. He focuses only on white people until the very end to emphasize it’s not a racial problem (in fact, adding race back in hardly makes a difference). While the top and bottom of American society have always been quite different, the trends are pushing them apart into something unprecedented.

The theme, boiled down, is that the “founding virtues” or what Murray believes are the important building blocks of civic society—namely marriage, industriousness, honesty and religiosity—have declined dramatically among the lower class, but have thrived among the upper class. In addition, what’s called social capital (the networks and organizations throughout society), while dissipating throughout society, has plunged in the bottom third. This is not a new discovery, Robert Putnam discussed it at length in Bowling Alone. However Murray has expanded on that by showing the drastic contrast between the classes. He also notes how this trend is compounded by primarily technological forces that have made intelligence much more important. 50 years ago, someone who was really good at math and what not would become a math teacher and get by on a decent salary. Today, they go work for a hedge fund, Google or one of those mysterious quant funds and pull in seven to eight figures a year!

Early on, Murray actually hurts his argument by conceding that “real family income for families in the middle was flat” (pg. 50). In fact, the term “family income” or household income” is highly misleading. As Thomas Sowell has pointed out:

It is an undisputed fact that the average real income… of American households rose by only 6 percent from 1969 to 1996… But it is an equally undisputed fact that the average real income per person in the United States rose by 51% over that very same period. How can both these statistics be true? Because the average number of people per household was declining during those years. (Economic Facts and Fallacies, Pg. 125)

So the only reason the lower and middle classes have a “flat” income is because there are less people in each household working. And yet, the “founding virtues” have still deteriorated.

In one of the most bizarre mysteries of our day, he notes what David Brooks has termed the “bourgeois bohemians.” Namely, very liberal people who live very conservative lifestyles. These are typically the elite of society; those that live in the super zips (zip codes in the 99th percentile of wealth). They get married, stay married, work for a corporation usually, have kids, don’t do drugs, rarely drink and more often than you would think, go to church.

If you go outside of San Francisco, Los Angeles, New York and Washington D.C., those who comprise the super zips are about evenly split between conservatives and liberals. And funny enough, while they’re politics are polar opposites, they’re behavior is basically the same. The elite, or top 20% of society, Murray refers to as Belmont. And whether it’s the tree-hugging or gun-toting sort of Belmont, the people generally adhere to the four “founding virtues.”

At the bottom, things are much different. Charles Murray splits the bottom off at the bottom 30% of white Americans, which he calls Fishtown. Let’s take an example from industriousness:

In the 1960 census, about 9 percent of all Fishtown men ages 20-64 were not in the labor force. In the 2000 census, about 30 percent of Fishtown men in the same age range were not in the labor force. (pg. 216)

Indeed, the number of people on disability insurance has increased by a somewhat significant 900% since 1960! And it should be noted that life and work are getting safer, not more dangerous.

With regards to marriage, it is well established that two parent families do the best in the aggregate. Well, in a truly haunting chart on page 167, Murray shows the percentage of children living with both biological parents in Fishtown when the mother is 40 fell from 95% to 35% in from 1960 to 2005. In Belmont, it stayed put at about 90%.

Murray primarily focuses on the crime rate when discussing honesty. The crime rate is down recently, but is still up a lot (at least in Fishtown) since 1960. I think he again shoots himself in the foot here as I’ve heard of several studies showing a decline in honesty. Here’s one from Britain and I believe the same trend is mirrored in the United States. Still, the crime rate is bad enough, especially given how high the American prison population is.

All this shows a decline in social capital, or the connections between individuals through various civic organizations. This is why Murray finds the decline in religiosity troubling. Although this mostly has to do with the secular (not atheist) poor. It may be the lack of belief in a reason to existence provides no incentive to act or a no moral code to follow. Or it may simply be a lack of social and charitable organizations to take the church’s place. 

Murray does give his prescription, which is similar to mine; the government has usurped the civic institutions at the local level and created dependency through its welfare programs. It needs to get out of the way for civic society to reemerge. I should note, this is basically the thesis of Robert  Nisbet’s great book The Quest for Community. The bigger the government, the smaller the individual… and civic institutions for that matter. It is not the supporters of the free market who are atomistic or whatever. It is the supporters of big government who are.

Murray also chastises the upper class for both their non-judgementalism (which, in my judgement, is just a way to say you’re too lazy or scarred to have an opinion) and their unseemliness. I heard of a guy building a house with 5 bedrooms, 8 bathrooms, 3 kitchens, 2 glass elevators and an indoor swimming pool with a retractable roof. No one needs that. It seems that the upper classes have simultaneously lost their judgmentalism and their shame, and it all just drives the classes further apart. Classes that have been fairly fluid in years past, but are becoming more solidified.

Murray’s central argument is that this class-solidification is not economic, as liberals tend to say, but a separation of values and behaviors. I think there’s some truth to both (corporate favoritism and Federal Reserve policies have driven some of the class divide, and part of it is overstated in my opinion), but from the work of Murray and others, as well as working in and near lower end areas and witnessing much of this self-destructive behavior first hand, I have to agree more with Murray.

But as he cautions, this book is not primarily about solutions. Instead it’s the first step, and that is to simply admit we have a problem.

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Welfare State Reform: Unemployment Insurance

For some time now I’ve believed reforming the government is a lost cause since a political organization based on coercion that can divvy up other people’s money and restrict their freedom will almost certainly be corrupt. That being said, I have to admit there have also been improvements throughout history, so why not throw out some ideas?

I recently heard Dennis Prager say something I very much agree with, namely that, “Nothing guarantees more the erosion of character then getting something for nothing.” It’s what my dad always referred to as “the entitlement philosophy.” Indeed, think of the spoiled high school grad who just plays video games in his parents basement instead of getting a job. Or, more controversially, think of welfare dependency.

Hearing that quote got me thinking about unemployment insurance, which certainly has a justificaiton, especially among the ‘living paycheck-to-paycheck’ crowd (although unemployment insurance probably incentivizes such a lifestyle).  But I think it’s often abused, which there is plenty of evidence for. I’ve heard plenty of stories of people intentionally staying out of work, doing interviews with the intention of not getting hired (wearing shorts and a t-shirt to the interview, etc.) and generally trying to milk unemployment. I’ve had people admit that to me and once had a friend of one of my tenants say “my unemployment’s about to run out which means I better start actually looking for a job.” When I fought wildland fires for a summer, I heard the trick was to go on unemployment after the summer because, you know, there are rarely wildland fires in January. Then you get the whole eight or nine month vacation before fighting fires again in the summer. I don’t know how often this happened, but it appeared to be rampant.

Congress currently has unemployment benefits set at 99 weeks (although they’re going to faze it down to 73). That is a long, long time! In my state of Missouri all you need to be eligible is the following:

• Lose your job through no fault of your own OR quit for good cause related to the work or the employer.
• Make at least $2,250—at least $1,500 during one of the calendar quarters, and at least $750 during the remainder of the base period—from an insured employer during your base period. (See chart below).
• AND your total base period wages must be at least 1.5 times your highest quarter wages.
• OR you must make at least $19,500 during two of the four base period quarters.

Then to remain eligible:

• You must report all wages earned each week, even if you won’t be paid until later. This includes tips, commissions, bonuses, show-up time, military reserve pay, board, and lodging.
• You must be able and available for work each week. This means you have no illness, injury, or personal circumstances that would keep you from working.
• Refusing an offer of work may result in denial of UI benefits.

That’s not a lot to ask for. And while the unemployment insurance employers pay is effectively a tax on employees too because employers lower wages to compensate for the extra overhead, employees don’t see it and thereby don’t think of it. It presents the illusion of

Source: NCPA.org

getting something for nothing—of cashing an insurance check on a policy you weren’t paying premiums for.

And as people stay out of the labor force longer, it’s hard for many employers to not look at this. How do they know whether the person is just down on their luck or is someone who will try to do the least amount possible to get by? That’s why we’ve heard so much about discrimination against the long term unemployed in the news lately.

One modest reform would be to require that the unemployed engage in community service of some sort to receive benefits. After all, Charlie Rangel and Rahm Emmanuel have both supported either the military draft or universal citizen service, which is basically slavery-lite, whereas this is more of a trade; community service for a monthly stipend.  Furthermore, a package of education could be wrapped into this where people could choose to take part of their compensation to pay for classes at a university or trade school (at a reduced price the government could negotiate). This could help people move away from dying industries to one’s that have more growth potential.

Such service would have to be no more than part time since finding a job can be a job, but it would improve things in several key ways:

1) Increased civil service: Many schools and charities need more volunteers, especially in the inner cities, which could also use help with simple services such as cleaning up and landscaping that can make these areas look more respectable. The crimanoligist broken window theory further implies that a clean and fixed up neighborhood reduces crime. There are thousands of other things such volunteers could do and none of these services would add a penny to the deficit.

2) Maintain Self Esteem: As the Prager quote implies, those who don’t earn their paychecks lose their confidence, integrity and self-respect. I had a discussion with a local charity leader who works in the worst parts of Kansas City who told a story about a lady who had been unemployed for years and years and was always depressed. When she got a job after working with his organization, it “was like she could walk on air!” By continuing to work (or learning new skills perhaps), unemployment recipients would maintain their confidence even if the job search was grueling and disheartening, like it is for many these days.

3) Impetus to Get Back to Work: Perhaps some will ride out the unemployment because they feel they’re still contributing. However, for those that would have preferred to just take a long vacation with an occasional bogus interview thrown in for kicks and giggles, such an option no longer exists. They can refocus on getting back to work and moving forward in their life instead of simply treading water. Even good people need such motivation sometimes. As my dad says “good incentives keep honest people honest.”

4. Reduce the entitlement philosophy: Let’s get rid of the free lunch or at least the free lunch mentality.  Yes, employees pay for unemployment insurance by getting lower wages than they otherwise would have because employers factor this in when hiring. However, employees neither see nor think about this expense, so unemployment benefits come off as just a free ride that people get for being alive. Detaching work from reward, even just conceptually, harms peoples work and moral ethic.

Of course the plan would need to be refined more (and I’m still a bigger fan of downsizing government than reforming it),  but in my judgement, this would be a very positive step in the right direction.

Photo Credit: www.NCPA.org and http://creoleindc.typepad.com

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The Irony of the Ron Paul Newsletters

It’s no secret that Swift Economics has strong libertarian leanings. One would think this would mean both Ryan and I support Ron Paul wholeheartedly. Well, I can’t speak for Ryan, but while I respect Ron Paul and will probably vote for him, I do so with reservations.

The reservations are many fold. For one, to quickly cut spending one trillion dollars will throw the economy back into recession. I think, in the long run, we need that, but I doubt the American people have the stomach for it and I’d hate to see libertarianism blamed for a state-created recession.

A more pressing concern are those pesky, racist newsletters from the 1980’s and 90’s that carry his name. When the story first broke in 2007 I ceased supporting Paul and voted (in protest) for Bob Barr.  Anyways, the story has once again emerged, leading the guy who broke the story, James Kirchick, to ask “why don’t libertarians care about Ron Paul’s bigoted newsletters?”

Well, libertarians have their answers. Ron Paul claims he didn’t write them and didn’t even read them. He almost certainly didn’t write them, but it’s a bigger step to say he didn’t know about them (Reason magazine did an investigation and claimed, in all likelihood, Lew Rockwell—Ron Paul’s friend and former staffer—wrote them, though Rockwell too denies it.)

Still, Paul has some points going for him. As his conspiracy theorist supporters note, newsletters were like the blogs of the pre-Internet era and thus had little editorial supervision. Furthermore, he was a full-time doctor, which means it’s plausible he wasn’t paying attention. He’s also never said anything remotely like this and even voted to recognize Martin Luther King day as a national holiday (one of the few times he’s voted for something not explicitly authorized by the Constitution) and said consistently that King and Rosa Parks were heroes of his. He also at least claimed he changed his mind on the death penalty partially because it was enforced in a discriminatory manner. Furthermore, a former publisher of the newsletters noted:

Ron Paul didn’t know about those comments, or know they were written under his name until much later when they were brought to his attention. There were several issues that went out with comments that he would not ordinarily make. He was angry when he saw them.

Furthermore, Kirchick is wrong that Paul supporters don’t care (other than the white nationalists who’ve tried to leach onto his campaign despite Paul’s relatively open-border stance). Paul’s campaign fell apart after the newsletters came out in 2007. He got 10% in Iowa, then after the newsletters, then just 7.8% in the libertarian leaning state of New Hampshire. His next “money bomb” which was set on Martin Luther King day prior to the story breaking, raised barely $2 million compared to the almost $7 million pull he had before. The momentum of his campaign vanished after that story.

In my judgement, Paul almost certainly didn’t write them. They sound nothing like him and he’s never said anything like that before or since. But as Reason noted, his allies—namely Lew Rockwell and Murray Rothbard—openly pushed for a strategy of aligning with discontented Southern paleoconservatives and there’s no better way to appeal to that segment than racially charged, inflammatory rhetoric. Paul is very much culpable in this. Which is why I dropped my support for him in 2008.

The irony is, that even if Paul believes these things and is really a David Duke lite in disguise, he’d probably be the best President for minorities, at least among the current field.

I say this because there are two things Paul can do Constitutionally without the permission of Congress. Namely, end the wars abroad and effectively end the War on Drugs.  In his interview with Wolf Blitzer (and many times since) right after the story broke he claimed he would “pardon every nonviolent drug crime.” Here’s the interview:

Regardless of whether his opposition to the war on drugs has anything to do with race, this would be great for all black Americans. As DrugWarFacts.org reports:

The U.S. incarcerates nearly 2.4 million people… No other country in the world incarcerates as many people as the United States. China, a country of 1.3 billion people—about four times as many people as the U.S.¹⁵—is second, incarcerating 1.6 million people.

And:

Black men had an incarceration rate of 4,618 per 100,000 U.S. residents at midyear 2007, down from 4,777 at midyear 2000. For white men, the midyear 2007 incarceration rate was 773 per 100,000 U.S. residents, up from 683 at midyear 2000. The ratio of the incarceration rates of black men to white men declined from 7 to 6 during this period.

A large chunk of these are nonviolent drug crimes. As the legalization effort in Portugal has shown, crime and even drug use went down significantly and there wasn’t a need to set the world record for incarcerations. As DrugWarFacts.org also mentions, “Among African American children, 1.2 million, or about 11 percent, had a parent incarcerated by 2008.” This has hastened the deterioration of the black family even further.

In addition, obviously a war in which thousands of people are killed, many of whom are minorities, can’t be good for black Americans. So ending the wars would also help. I would argue that inflation is a regressive tax and welfare instutionalizes poverty and weakens the family, but we’ll leave those arguments aside for the time being.

It would certainly be nice if Ron Paul could give a more decisive answer about the newsletters and actually name their authors. But given he’s the only one running who would actually end the madness of all these “wars” I think it’s still worth supporting him.

So ironically, even if Ron Paul wrote those newsletters and still believes every word of them, even if he is an angry, bigoted racist, he would still be the best president for black Americans and all other minorities. Constitutionally, he has the power to end the wars abroad and effectively end the war on drugs himself. But good luck if he tried to touch the 1964 Civil Rights Act or the 1965 Voting Rights Act or anything like that. So assuming he’ll do what he says he’ll do, which his record lends no reason to doubt, he’s still the best in the field, even on racial matters.

Photo Credit: Flickr

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The Young Turks: Tools

The Young Turks is a sort of upstart, edgy but politically correct, news-for-young-people type organization that broadcasts itself over the Internet. Aside by apparently naming themselves after a bunch of genocidal maniacs, they like to take on conservative and libertarian personalities for ‘inappropriate’ or ‘crazy’ talk.

In a video that they’ve had YouTube feature for months, Cenk Uygur, the Young Turks go-to guy, blasts John Stossel for his criticism of the Bureau of Indian Affairs in one of the most pathetic critiques I have ever seen:

First of all, you should study your target just un poco before criticizing him. Cenk opines that Stossel believes “the government helping the banks and the bailouts and the trillions of dollars is no big deal at all.” Ummm, no, no and more no. But, I guess if you disagree with the bailouts, that is the only thing you’re allowed to disagree with on the entire planet… everything else is hunky dory.

One has to wonder whether or not Cenk even understands Stossel’s argument. Does he honestly believe Stossel is making the argument that we are wasting money on the Native Americans? How could anyone not understand that Stossel is saying the money we’re throwing at them is making the problem all the worse? Stossel is quite obviously being sarcastic when he says “helped” and then explains how “help” is what keeps Native Americans on reservations in dependence through government handouts and a lack of property rights. He then gives concrete examples of Native Americans who, without any government “help,”  have thrived. Stossel is making the case that the money we’re giving Native Americans is hurting them.

Regardless of whether you think that’s true or not, is it really that difficult to understand what Stossel is saying? Perhaps Cenk (and others like him, for instance Ed Shultz) are so statist they can’t even comprehend the idea that throwing money at something doesn’t automatically help and can often hurt. Does spoiling your child help him or her succeed in life? It must, since you’re throwing money at the problem. Does giving a dictator in a poor country money which he can use to further oppress his people help that country’s population? Again, it must… at least according to Cenk and the Young Turks.

And the insinuations of racism are just ridiculous. John Stossel clearly states, the United States “stole” the Native Americans’ land. But this isn’t good enough for Cenk Uygur. No, according to him, Stossel brushes over that “only mentioning it for a second or two.” I guess in a five minute segment on contemporary events, Stossel should have spent, I don’t know, at least two of them on the past. A past, I should note, that is littered with abuses by the Bureau of Indian Affairs.

Statists take note. Throwing money at a problem does not necessarily fix said problem. And to oppose money being thrown at said problem does not mean you support the problem itself. All this should be painfully obvious to even the most dimwitted of third graders, but sadly, it’s not. I guess that’s what I’m here for.

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Ed Shultz: Tool

Ed Shultz is one of those standard liberal tools;  not the kind that are skepitcal of Democrats and weary of government power such as Glenn Greenwald or Thaddeus Russell. No, instead he’s the type who regurgitate the talking points of the DNC as if that passes for analysis. He fits in with others such as Keith Olbermann and Rachel Maddow as the Sean Hannity’s and Rush Limbaugh’s of the left.

I will defend this position by breaking down a particularly pathetic bit he had a few weeks ago when he called the African American economist Walter Williams a “psycho” for claiming the welfare state had destroyed the black family:

I won’t impugn Ed Shultz’ motives and instead simply assume he doesn’t understand English. Here’s what Walter Williams said:

The welfare state has done to black Americans what slavery could not of done, what the harshest Jim Crow laws and racism could not have done; namely break up the black family.

Shultz replies that Williams “should no better than to compare slavery and welfare.” But as you can see, Williams does not compare the two. He simply notes that as evil as slavery was (and Jim Crow) it didn’t break up the black family. The same cannot be said about welfare. If you take the full interview and not the hacked up/Media Matters/Michael Moore propaganda put forth by Shultz, Williams elaborates:

Historically, from the 1870’s up until about the 1940’s, depending on the city, 75-90% of black kids lived in two parent families. [The] illegitimacy rate is 70% among blacks, whereas that is unprecedented in our history.

Shultz states “welfare helps people meet their basic needs while they lift themselves up and get back on their feet.” Of course, this is simply an assertion and an assertion made without evidence can (and should) be disregarded without evidence. Welfare makes a breadwinner or co-breadwinner superfluous and thereby incentivizes family breakdown. It incentivizes failure and punishes success, even small successes such as getting a job (wave the welfare checks goodbye). Indeed, poverty rates were falling about a percentage point per year from 1950 to 1965. Then the War on Poverty began. It continued to fall until about 1970, when the programs were fully funded. At that point the rate was about 12%, and it’s been within a percentage point or two of that ever since:

Sure, correlation doesn’t equal causation. And there are arguments in favor of welfare. Perhaps the dependency problem is overstated. But what would the supporters of welfare be saying if the results were the opposite? Maybe they would actually say something resembling a rational argument instead of the baseless, unsupported ad hominems of clowns such as Ed Shultz.*

Photo Credit: Daniel J Mitchell and EZCool

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*Yes, I know I’m using ad hominems too, but unlike Shultz, my insults follow my argument instead of replacing it.

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$37 Billion in Benefits (Personal Income) To Run Out This Year

The federal government provided about twenty percent of Americans’ personal income last year through channels such as jobless benefits, food stamps, Social Security, and disability. As the New York Times stated:

Close to $2 of every $10 that went into Americans’ wallets last year were payments like jobless benefits, food stamps, Social Security and disability, according to an analysis by Moody’s Analytics. In states hit hard by the downturn, like Arizona, Florida, Michigan and Ohio, residents derived even more of their income from the government.

Moody’s estimates that $37 billion of various benefits are set to run out this year. Let’s all hope the job market bounces back by 2012, because there will be a $37 billion hole in spending to account for with this alone. While $37 billion is a very small percentage of US GDP, any decreases in personal spending are unwelcome to the 18.4% of underemployed workers.

It is also pretty astounding that the government currently provides twenty percent of personal income. This kind of reliance on government, or frankly anything close to it, cannot end well in the long run. For the time being, Americans should be counting their lucky stars for Europe. US bonds are still viewed as safe while the comparatively less productive, larger welfare states of Europe are mired in the same after effects of the financial crisis. Both the US and the Eurozone have this in common: debt up to their eyeballs, expansive monetary policy, and a fiat currency.

Photo Credit: Cornell University

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The Senate Race Loss of Peter Schiff

A small part of me died in Connecticut this week.

Peter Schiff just lost the Republican nod for US Senator in Connecticut. If someone ever embodied the antithesis to the nation’s current economic approach, it is Schiff. While the Constitution is chewed up and spit out on a daily basis, Schiff would of adhered to it. While corporatism, bailouts, welfare, and entitlements rule the day, Schiff would have called for an actual profit and loss system with personal accountability. Schiff saw the economic crisis coming for years. He understands markets, bubbles, and efficiency. He would have been another strong voice to audit the Federal Reserve and demand transparency. Schiff was prepared to advocate tough decisions which would be in the country’s long-term best interest.

I don’t have knowledge of the demographics in Connecticut, but I was very disappointed to see this outcome. The people nominated Linda McMahon, wife of World Wide Entertainment (WWE) founder Vince McMahon. A wrestling mogul with no where near the financial and economic chops of Schiff, McMahon is now the Republican nominee for US Senator in Connecticut.

It is quite unfortunate. We will need many new leaders, with new ideas, if we are to restore the economy back to health and prosperity. Or we can just keep tying our wagon to the secretive Federal Reserve, Treasury, Fannie Mae and Freddie Mac, one-party system policies, and the banksters on Wall Street. It continues to work out so well. Our only hope is to get new, competent leaders that will represent the people and what they want: economic freedom. You can’t tell me 51% of this country doesn’t want the government to largely leave them alone. The majority of us are even more than willing to pay some taxes for basic services. We just want a little more freedom, some transparency, no cronyism, no bailouts, and no burdensome federal spending. If you’re someone who is happy with how things are, try getting harassed by the IRS, obtaining some swimming pool permits, or looking at the financial health of our country. We need change. But alas, democracy has its limitations.

I don’t mean to attack Linda McMahon. She may be elected and she may do a good job. I don’t rightly know. But I do know she’s no Peter Schiff.

Maybe Peter Schiff will be back in a future race. I sure hope so. But if the trend of nominating folks who really don’t bring anything new to the table continues, that is concerning.

And I leave you with a tweet from @submergingmkt:

“But as the all-powerful bankster lobby says, ‘A rolling loan gathers no loss.'”

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Should the New Health Care Plan Cover Birth Control?

The welfare state is ratcheting up. Can we afford not to provide publicly funded contraception?

Birth control is a hot button issue. It’s availability to the masses is more than a political matter; it has far-reaching economic consequences in a welfare state. When it comes to government-financed contraception, people land all over the map. So, should the new health care plan cover birth control?

Posing the question isn’t just for kicks. There is a movement gaining steam to provide free birth control as part of the Affordable Health Care Act. The White House issued new rules as a part of health care reform requiring health insurance companies to provide access to routine preventative care at no cost to members. That means no co-pays regardless of where your insurance comes from: employers, the government, or individual policies. Now women’s health advocate groups, including Planned Parenthood, and even some employer groups believe contraception should be added to the list and deemed preventative care.

The Department of Health and Human Services, led by pro-choice Obama appointee Kathleen Sebelius, will spend the next 6 to 18 months researching women’s health before determining specific guidelines for women’s “preventive health care.”

It’s clear that most sexually active women would love to have “free” birth control as long as they can. I’ll throw up the quotes around free one time, as long as we remember that nothing which comes from the government is free. It costs taxpayers and has opportunity costs beyond that. For you girls and women in Planned Parenthood, this just means your parents, grandparents, teachers, bosses, co-workers, friends, and neighbors are paying for your contraception. If economics can teach us anything, always be cautious with the word free.

Currently, public initiatives offer free, or heavily subsidized, birth control in some states through organizations like Planned Parenthood. With most state budgets in the tank, these options may not be there forever. Some religious groups scoff at the idea of publicly-funded birth control as it flies in the face of their spiritual beliefs; and more seriously, public financing for abortion. We can save abortion for another day, however, it’s safe to say you won’t find too many public health experts on the platform that distributing birth control is a bad idea.

One such religious voice chimed into this debate. Deirdre McQuade, the spokeswoman for the United States Conference of Catholic Bishops, stated, “Fertility is not a disease to be cured, and the government should not treat it as that.” So presumably, Mrs. McQuade is against publicly-funded birth control. With closer examination of the Catholic Bishops website, one reads that “natural family planning” is the term for their method of choice. This means husbands and wives engaging in intercourse during the least fertile points of a woman’s cycle, without contraception of any kind. Fair enough Catholic Bishops, but this is where things get dicey. We live in a country of socialized costs, with welfare rolls, bailouts, public retirement funds, and public health insurance funds. The scope of our welfare state is only growing with new government initiatives, expansion of old ones, and a growing (and aging) population. Our regulated capitalism/socialism experiment has tipped further in the socialism direction. Add in a broke or bankrupt society at local, state, federal, and consumer levels, and we have a problem brewing here.

The religious ideals of Mrs. McQuade unfortunately do not mesh with the reality of the current economic and political climate. The day health care was socialized was the day I now had a financial stake in my neighbor’s lifestyle choices. Maybe I should be inspecting the neighbor’s trash for fast food wrappers, and if necessary, picketing their front lawn for nutritional change. I’ll be forking over the dough for their future diabetes and triple bypass anyway, so there are certainly worse things I could spend my time doing (watching 16 and Pregnant comes to mind).

When 13 to 25-year-old females have children, what is the impact to the welfare system? A lot of estimates are out there from places like the Bureau of Labor Statistics (BLS) National Longitudinal Studies to individual groups. What I think we can all agree on is that the impact isn’t good. While fertility is not a disease, public bankruptcy is. This is why I would advocate public distribution of contraception, and for girls up through the age of 25…at least. Now, I would also advocate for a welfare state a fraction of its current size and future trajectory. But as long as we’re all on the hook for one another’s poor decisions, we must spend money up front to prevent sizable cost anchors in the future. As public utility goes, planned pregnancies have been shown to be healthier for both the mom and baby. As far as religious beliefs are concerned, I’m sure that abstinence is the solution offered for unwanted pregnancy among unmarried couples. While a perfectly fine belief for a private individual, family or organization to have, it’s not a realistic public initiative. Even if it were possible, I don’t know that I want to live in a world where all unmarried people aren’t having sex. Tension would be at all-time highs. Further, natural family planning between married couples ignores the fact that humans have premarital sex. As long as we’re a welfare state, we can’t ignore facts.

The National Business Group on Health commissioned Price Waterhouse Coopers to study the estimated cost to health plans of providing preventive family planning services. The study determined that the cost is about $40 per member annually. These are, of course, private plans looked at in the study. However, if you wanted to tax me $40 extra each year to help prevent many, many pregnancies, I’m all in.

In principal I believe people should shell out their own cash to practice safe sex. The financial consequences of not doing so should also be shouldered by the individual alone. But my beliefs (wishes) don’t really hold water in real life. Some people are literally too embarrassed to go and buy condoms in a store from a stranger; while, simultaneously, unwilling to be abstinent. I guess playing baby roulette is more fun. Some people tend to rely on others when they should rely on themselves. People act recklessly at times, too, no more so when under the influence. And, shockingly, sexually active teenagers tend not to be reliable either.

So the government should pay for birth control, and for the right reasons; not because women have to shell out loads of cash over the course of their lives. According to MSNBC, the average woman spends “roughly 5 years trying to get pregnant or being pregnant.” Compare that to the roughly 30 years she spends trying not to have babies. If women want to have sex while not having children or contracting diseases, they should be expected to pay for it themselves. Men should also have the same expectation for personal responsibility, although the pregnancy thing isn’t quite parallel. At least that’s what I’ve gathered. Even though we should be responsible as individuals, some of us inevitably won’t, and all of us will pay for it in the current entitlement/welfare framework.

Religious groups should not get in the way of government-financed birth control. If they do, then they can take over the welfare rolls, which consequently, is a core mission for some of them anyways (taking care of the downtrodden).

To tie a bow on this, the government should finance birth control; not because we are our brother’s keeper, but only as a result of engaging in entitlement programs to the degree we do. In other words, government should finance birth control, not because we are our brother’s keeper, but only as a result of engaging in entitlement programs to be our brother’s keeper. When it comes to publicly funding contraception, we can’t afford not to.

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Milton Friedman on How the Government Creates Incentives for Immoral Behavior

It is a law of economics that people respond to incentives, that’s just how it is, no way around it. Unfortunately, politicians like to ignore this little fact. When our government creates a reason to do something that we would find either unethical or unwise, typically unethical and unwise behavior will increase. And again, unfortunately, they have a bad habit of doing this.

Thus, when the government criminalizes non-crimes it creates a black market like they have with the War on Drugs. All of a sudden you have a drug dealing/gang problem. Or when the government significantly reduces the punishment for real crimes such as murder and rape, crime rates skyrocket, like they did after 1960 (although it has fortunately come down since). When the government creates incentives for out-of-wedlock births, such as not offering welfare to intact families, out-of-wedlock births will rise sharply (up to over 40% today as compared to less than 10% in 1960).

Of course those explanations don’t explain these trends completely, there are many other factors involved as well. But needless to say, the government has been in the business of creating bad incentives for a long time. Renowned economist Milton Friedman elaborates:

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