Tuesday, January 21, 2014

Redistribution Toward Egalitarianism: Positive and Negative Outcome Scenarios

We are in an era of calls for increased egalitarianism, redistribution from society's haves to its have-nots. The terms vary, for example, "reduce income inequality," "social justice," "close the achievement gap,"  but the meaning is the same: redistribute.

Redistribution already has many manifestations in public policy. For example:
  • A progressive income tax in which the top 5 percent of earners already pay 59 percent of the tax but the call is to additionally "soak the rich."
  • Welfare/food stamps/subsidized housing. There now are 47.4 million people on food stamps, one in six adults.
  •  File "sharing." Producers of music, especially record companies have more money than the pool of illegal downloaders. File "sharing" (stealing) redistributes to lower-income people. Congress, last week, held a hearing to explore legalizing file sharing.
  • Extending unemployment benefits. The pool of taxpayers (predominantly working people) are 'haves" compared with the unemployed, so extending unemployment checks to 99 weeks redistributes more money to lower-income people.
  •  Raising the minimum wage. That redistributes money to the poor not only from the employer but from the customer. Why? When the minimum wage rises, for example, in a fast food restaurant, the employer raises prices. That forces the customers (disproportionately of modest income) to pay for that redistribution to lowest-wage workers. And do remember that the people who end up working in fast-food restaurants didn't end up there at random. Better-paid workers generally, for example, were willing to defer gratification and income by attending college.
  • Disparate impact policies.The current federal government wants to prohibit use, for example, of credit checks or being long-term unemployed as a criterion for employment or apartment rental because it has disparate impact on people of color. As a result, we have the Alice-in-Wonderland reality that people who have good credit and been employed are penalized. Now the Dept of Justice is meeting with leaders from the Society of Industrial and Organizational Psychology to try to replace tests, for example, of reasoning, with tests that won't have disproportionate negative impact on "underrepresented" minorities.
  • No Child Left Behind--the dominant federal education policy--mandates carrots and sticks for dealing with low-achieving kids but none for average and high achievers.  As a result, schools have dumbed down their curriculum, disproportionately benefiting low-income kids and hurting everyone else. More broadly, the U.S. has spent literally trillions of dollars over the past 75 years, starting with Lyndon Johnson's anti-poverty/New Society program yet the racial achievement "gap" is as wide as ever.  In our personal lives, we lament wasting even a few dollars yet we've wasted literally trillions and no one seems unduly exercised. Indeed the call is to spend more to try to close the achievement "gap."
  • Most colleges admit weaker students if they come from low-income households. Also, colleges employ Robin Hood pricing: Overcharge the middle- and upper income people to subsidize the poor. In addition, government financial aid redistributes from the taxpayer to a pool of lower-income people. 
  • Some employers, in part because of government and activists' pressure, use reverse discrimination in hiring and promotion. Indeed a study conducted by Harvard and Tufts researchers found that both whites and blacks believe discrimination against blacks has decreased and whites feel that discrimination against whites is a bigger problem.
  • ObamaCare redistributes the health care pie to the poor from everyone else. The number of doctors, nurses, MRI machines, operating rooms, etc will grow too slowly to accommodate the planned 40 million additional covered people plus 11.7 million illegals when President Obama achieves his promise to legalize them. That will mean 50+ million disproportionately lower-income people with high health care needs will take a larger share of the health care pie but pay little into the system. They will be paid for by employers and, indirectly by employees because their premiums will be raised to compensate for the costs of providing health care to the poor. The already overwhelmed health care system kills 440,000 people a year just in hospitals because of medical errors. The result of adding 50+ million more who pay little will mean that their addition will kill many thousands of people who do pay for health care. That may be the ultimate redistribution. 
  • Legalizing the illegal immigrants. Poor people who sneaked into the U.S. illegally and their families will receive the benefits of US citizens, compliments of the taxpayer.
  • Unrecorded redistributions: Every time we do something good for someone, even if part because they are poor, a woman, or minority, we are redistributing. 
  • Nonprofits' mission is to solicit donations from the haves to redistribute to the have-nots: literacy, food, health, etc, here and worldwide.
  • Indeed, redistribution policies extend beyond the U.S., for example, foreign aid from the U.S. and other developed nations to "developing" nations. Another example: the World Bank and EU pressure successful countries to bail-out unsuccessful ones such as Greece or Rwanda, and for private banks to forgive loans to developing nations. A final example: the worldwide support of the (have-not) Palestinians over the (have) Israelis. The Israelis have contributed more to the world in science, literature, women's rights etc, than any nation in the world, yet it is viewed as equivalent to the Palestinians. Worse, we have a double-standard: We expect Israel to allow Palestinians to have equal rights when their government calls for Israel's extermination while we accept without question the many Muslim countries insisting that only Muslims can escape punishment. We should be rewarding merit more than redistributive egalitarianism.
  • And a catchall: In every industry, nonprofit, and government agency, in recent years the focus has been redistributed from what's best overall for society or for the middle class to how to better serve the have-nots. 
All of this of course is fueled by a media that disproportionately does stories praising redistribution.
As a thought experiment, here I  lay out a positive and a negative scenario of what might occur as a result of our accelerating egalitarianism. Yes. we see headlines lamenting the tiny sliver of people who earn big incomes (like top CEOs) but the middle class is hollowing out as we redistribute ever more to the poor. Even if we tax the rich at 100%, they represent too small a percentage of the population to provide a solid existence for the poor. To do serious redistribution, we must soak not only the rich but the middle class.

Immigration, differential birth rates, the Democrats' superior ground game and Internet marketing, and making Puerto Rico and D.C. the 51st and 52nd states, will result in an ever more Democratic-party-run government, resulting in ever more redistribution. Within about 20 years, except for the tiniest sliver of the ultra-wealthy, most people will be living at about 200% of the poverty line, approximately $45,000 in today's dollars for a family of four. People will thus afford only basic food, clothing, shelter, education, and health care. As a result, whole industries, for example, car manufacturers, will not be able to survive because few could afford a new car. As a result, government will nationalize it, making only tiny utilitarian vehicles, which could be sold new for under $10,000 like the Tata Nano. The shutting down of industries producing non-essentials will cause an even greater shortage of jobs, and the egalitarian ethos will result in government passing a 20-hour maximum workweek.

A positive scenario
The deemphasis on material acquisition will result in people living more rewarding lives, finding pleasure in creative expression, relationships, and life's simple pleasures: nature, beauty, sex, etc. The more egalitarian society will reduce competition and increase cooperation among people, reducing stress and increasing a communal sense of purpose. The small percentage of entrepreneurial types will start small businesses, mainly simple service businesses: repairing, garden preparation, artistic performance, etc.  While health care won't be as good, the lower stress lifestyle will result in less need for elaborate health care and people will come to accept dying without high-tech intervention. The more cooperative, less materialistic society, with most people being of relative equal financial condition, will result in less violence. Life will resemble that on an Israeli kibbutz.

A negative scenario
The lack of financial incentive will make most people work minimally. That will cause the food and service shortages that existed in the Communist Soviet Union, Eastern Europe and exist today in Cuba and socialist countries such as Venezuela and Bolivia.  Single-payer health care will be adopted but lead to lack-of-access and vastly increased deficits as is occurring even in countries liberals like to point to as models: Sweden, Canada, and Great Britain. As is often the case with welfare recipients, an egalitarian society will cause an increase in entitlement and frustration with shortages and, in turn, an increase in drug abuse to anesthetize the pain and in violent social upheaval as has occurred in recent years in, for example, the thousands of car torchings in socialist France. For example, gangs will flash-mob-invade the homes of people who have more than they do and rob them empty. Life in the U.S. will become more like life in a "developing" nation.

Which scenario do you think is more likely?


Anonymous said...

Income inequality, like intelligence inequality, is a positive. If we did not have geniuses, individuals light-years brighter than the rest of us, we would not have had the great technological and medical advances that have increased most human life expectancy three-fold. Similarly, without extraordinarily wealthy individuals to fund these developments we would still be in the dark ages.

Michael R. Edelstein

Dave said...

Dr. Edelstein,

But at what point does income inequality undermine social cohesion?


I think a utilitarian vehicle is exactly what we need.

Consider the Trabant

Capable of achieving more than 30 miles per gallon.

Fully independent suspension.

Unit-body construction.

Simple enough for the average man and woman to carry out most repairs.

Crash test performance bettered many West German cars of the 1980s.

Made of Duroplast (recycled materials).

Average lifespan of 28 years.

What is there not to like?

Maria Lopez said...

I'm not sure most lifespan increasing developments required extraordinary wealth to fund.

Antibiotics -- desktop experiments
Sewers -- often publically funded and regulated.
Vaccination -- no extraordinary money needed

I do think that technological achievements such as cars and railroads were often funded by rich folks hoping to profit from their investments, however funding such things may not require a continued increase in inequality.

Also people who worry about inequality aren't getting up everyday thinking Elon Musk should die. Huge fortunes do not bother them so much as the fact that jobs that jobs that used to allow a man to purchase a house and support a family no longer do so.

Also I'm not sure that many inventors were in fact geniuses. Newton, John von Neumann, and Carl Gauss certainly were, but much of technology was, I believe, invented by the merely smart. Ford and Edison were not dumb by any means but they may not have been light-years brighter than the rest of us.

Finally, I think the emphasis on intelligence in STEM trivializes it in an odd way. While some bright people are needed in technology and medicine, I'm not sure we can get by with dumb lawyers and legislators. Is it better to have the smartest people in the country writing code or better to have them figuring out how to run the country?

Rex said...

Which is more likely?

Probably a mix of the two you mentioned...Gotta say this article was pretty depressing, but there was a lot of truth in it...

I am wondering what would happen to some of your predictions if the US switches to a single-payer healthcare system and totally abolishes healthcare entitlement programs like Medicare and Medicaid. Not sure if the medical industrial complex would ever let that happen, but if it got to the point that our national security were threatened...then I might be able to see it happening. I think a single-payer system would undoubtedly cut down on both costs and quality to some extent. I do not agree with your prediction of a 20-hour maximum workweek...the Protestant work ethic is too strongly embedded in our culture...on the contrary, I think work hours will increase on average in many industries, particularly those that are less regulated...

Marty Nemko said...

Rex, do see the links re single-payer that are in the article. Alas, even in Sweden, Canada, and Great Britain, which are held up as models of health care, their single-payer system is both broke and not providing even borderline acceptable access.

Dave said...

But the British have the option of going private. They don't have to use the National Health if they don't want to.

In Britain, I got free medical and dental care and was impressed. I loved sitting in the dentist's chair and not getting sales pitches for more x-rays and teeth whitening procedures. X-rays and a cleaning in the US will run hundreds of dollars. I know somebody who paid $900 for a crown. I paid $900 for a used car! For heaven's sake.

Dave said...

Heck, during my time in the West Midlands, two new hospitals were built - one in Coventry, one in Birmingham. The University of Warwick and the University of Leicester started their own medical schools. These developments took place in the first decade of the 21st century. So there are now three (3) government-funded medical schools in the Midlands - Birmingham, Warwick, Leicester - all within 30 miles of each other, on that dinky little island.

And what are we doing? Closing hospitals.

Rex said...

Thanks for those links. I lean libertarian. I think the ideal would be to have an all-private healthcare system with no government involvement whatsoever. Having said that, I really don't see such a system ever happening. If anything, we are going towards a single-payer system, and I actually think this would be better for the country overall than what we have now, this bizarre mix of public and private. A basic rule in economics is that putting public money in a private system (what we have) always drives up prices. The fact is that emergency treatments in the UK are very good. If you get in an accident/trauma, etc. you will be taken care of immediately. The other stuff not so much, but they do have private docs in the UK if you can afford them.

Dave said...


I don't think most people will be able to afford many basic goods and services, health insurance being one of them.

We are witnessing an ever-increasing number of workers hired under an 'at will' employment scheme, which is why I think the masses will soon mind every penny that leaves their pockets. Mouths full of rotten and missing teeth may be a common sight in the future.

Anonymous said...

Wonder if you got my first comment with this link?
Looks like even a modest "redistribution of wealth" (is that what we're really doing if the minimum wage is increased to a living wage? Paying people what they earn, not what the corporation feels it can eke out in order to increase its profits) can actually save us, the taxpayers, some money. It does not pay to be short-sighted when considering social services and benefits to society. Take a look.


Rex said...

Anonymous, thanks for that article. I do think that early childhood interventions give a lot of bang for the buck. Giving poor children quality education, healthcare, food, etc. is probably one of the best uses of taxpayer money I can think of, and it reaps huge dividends down the line. That said, I think Marty is right about the minimum wage. Looking at the economy as a whole, it will force some businesses to close and it may increase hiring of illegals as well. The relatively modest sums we would have to invest in early childhood "welfare" for the poor pales in comparison to entitlement spending, which as Marty pointed out, makes Americans unemployable except for a select few.

Marty Nemko said...

Head Start has only minimal positive effects, a trivial effect given that it costs the taxpayer $8 billion a year: http://www.foxnews.com/opinion/2013/01/14/head-start-sad-and-costly-secret-what-washington-doesnt-want-to-know/ It's certainly far from being a key part of The Answer.

Rex said...

Didn't know that about Head Start...shame. Still, maybe government is not the best administrator of such programs...or maybe that particular program just isn't run well...but it seems to me that it's easier to instill good habits in children than in adults. Particularly regarding nutrition education. Long term, that's important.

Marty Nemko said...

Rex, it is telling but not surprising that you didn't know that the metaevaluations of Head Start showed little or no benefit over the long term. The Obama Administration hid the data, even though it originally commissioned the metaevaluation, hoping it would provide evidence for his contention that only if we provided enough money early enough in education, we could close the achievement gap.

And THE most memorable moment in hosting my NPR-San Francisco radio show was when perhaps America's most prominent liberal pundit Robert Reich was on my show. I asked him, "If you were emperor of the US, what would be your first edict?" He said, "Expand Head Start." When I then cited the above study, he said, "You're wrong." Then, OFF THE AIR, when I said I was sure about the data, he said, "Marty, I'm sorry I lied but I have to give people hope." That's the God's honest truth.

Dave said...

At least the children are read to. The typical American home is an intellectual wasteland.