redistribution

Capitalism and Morality: Walter Williams vs. Pope Francis

The biggest mistake of well-meaning leftists is that they place too much value on good intentions and don’t seem to care nearly as much about good results.

Pope Francis is an example of this unfortunate tendency. His concern for the poor presumably is genuine, but he puts ideology above evidence when he argues against capitalism and in favor of coercive government.

Here are some passages from a CNN report on the Pope’s bias.

Pope Francis makes his first official visit to the United States this week. There’s a lot of angst about what he might say, especially when he addresses Congress Thursday morning. …He’ll probably discuss American capitalism’s flaws, a theme he has hit on since the 1990s. Pope Francis wrote a book in 1998 with an entire chapter focused on “the limits of capitalism.” …Francis argued that…capitalism lacks morals and promotes selfish behavior. …He has been especially critical of how capitalism has increased inequality… He’s tweeted: “inequality is the root of all evil.” …he’s a major critic of greed and excessive wealth. …”Capitalism has been the cause of many sufferings…”

Wow, I almost don’t know how to respond. So many bad ideas crammed in so few words.

IMF Proposes to Sabotage China’s Economy

For the people of China, there’s good news and bad news.

The good news, as illustrated by the chart below, is that economic freedom has increased dramatically since 1980. This liberalization has lifted hundreds of millions from abject poverty.

 

The bad news is that China still has a long way to go if it wants to become a rich, market-oriented nation. Notwithstanding big gains since 1980, it still ranks in the lower-third of nations for economic freedom.

Yes, there’s been impressive growth, but it started from a very low level. As a result, per-capita economic output is still just a fraction of American levels.

So let’s examine what’s needed to boost Chinese prosperity.

Another Defective IMF study on Inequality and Redistribution

IMF Warns on the Dangers of Inequality,” screams the headline of a story by Ian Talley in the Wall Street Journal. The IMF – which Talley dubs “the world’s top economic institution”– is said to be “warning that rising income inequality is weighing on global economic growth and fueling political instability.” 

This has been a familiar chorus from the White House/IMF songbook since late 2011, when President Obama’s Special Assistant David Lipton became Deputy Managing Director of the IMF.  It echoes a December 2012 New York Times piece, “Income Inequality May Take Toll on Growth,” and a January 14, Financial Times feature, “IMF warns on threat of income inequality.”  This isn’t news.

Talley writes, “The IMF … says advanced and developing economies need to raise more revenues through taxes, focusing on progressive taxation that moves more of the burden for social security, health care and other state benefits to the high-income earners.” That isn’t news either.  The IMF has an ugly history of advising countries to raise tax rates, with disastrous results.  The inequality crusade is just a new pretext for old mistakes.

Obama’s New Budget: Burden of Government Spending Rises More than Twice as Fast as Inflation

The President’s new budget has been unveiled.

There are lots of provisions that deserve detailed attention, but I always look first at the overall trends. Most specifically, I want to see what’s happening with the burden of government spending.

And you probably won’t be surprised to see that Obama isn’t imposing any fiscal restraint. He wants spending to increase more than twice as fast as needed to keep pace with inflation.

Obama 2015 Budget Growth

What makes these numbers so disappointing is that we learned last month that even a modest bit of spending discipline is all that’s needed to balance the budget.

By the way, you probably won’t be surprised to learn that the President also wants a $651 billion net tax hike.

That’s in addition to the big fiscal cliff tax hike from early last and the (thankfully small) tax increase in the Ryan-Murray budget that was approved late last year.

P.S. Since we’re talking about government spending, I may as well add some more bad news.

Likely Sources of Obama’s Misconceptions about Income Mobility

President Obama has been expressing inordinate alarm about differences between income groups, and about mobility between such groups over time.   “The combined trends of increased inequality and decreasing mobility,” he says, “pose a fundamental threat to the American Dream, our way of life, and what we stand for.”  

A fundamental limitation of annual income distribution figures is that income in any given year may not be at all typical of a family’s normal or lifetime income.  Job loss or illness can push one year’s income well below normal, for example, and asset sales can produce one-time windfalls. People are commonly much poorer when young than they are by middle age, after accumulating experience and savings. For such reasons, the President’s strong opinions about “decreasing mobility” could be important, if true.

We need to separate two concepts of mobility. One is intergenerational mobility – whether “a child born into poverty … may never be able to escape that poverty,” as the President put it. Another involves intertemporal mobility – whether starting with a low wage at your first job supposedly impedes moving up the ladder of opportunity.

The President’s opinion that intergenerational mobility has declined was rigorously debunked by Raj Chetty, Emmanuel Saez and others.  As for inequality and mobility being related, they also found that, “the top 1 percent share is uncorrelated with upward mobility [p. 40].” Moreover, “The fraction of children living in single-parent households is the strongest correlate of upward income mobility among all the variables we explored [p.45].”  Since other countries have fewer single-parent households, this is just one reason for being wary of facile international comparisons.

Intertemporal mobility is not about links between parents and children, but about the ease with which individuals move from a lower to a higher income group, and vice-versa.  Are we stuck with the same paycheck we had just after leaving school, or can we move up with effort, experience, learning and saving?  Did having a big gain in the stock market in 2007 ensure that would happen again in 2008-2009?

The Federal Reserve Board’s Survey of Consumer Finances (SCF) tracks income mobility of the same families over time.  It turns out that mobility is surprisingly hectic even over short periods.

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