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July 17, 2004
Raising the Issue: “Two Americas, Two North Carolinas”Posted by Rob Schofield at 2:00 PM Raising the Issue: The “two Americas” theme may or may not be politically correct in 2004, but it embodies an essential truth that the Democrats should keep pounding.
Dear John:
With less than four months to go until election day, it seems clear that the national political debate can really be distilled down to two central issues. Number one, of course, is the war. Number two is the domestic economy—and more specifically, the Bush administration’s inept performance in managing the economy so that the benefits and pain that accompany positive and negative developments are broadly shared. On November 2 a large number of Americans are going to ask themselves Ronald Reagan’s old question from 1980: “Am I better off than I was four years ago?”
If they are honest with themselves, it is clear that the answer must be a resounding “no.” And frankly, they might also answer the same way if they were to look back 20 or 30 years, rather than just four. The truth of the matter is that the George W. Bush years have been mostly about a dramatic acceleration in a series of negative economic trends that have plagued the American economy for the last few decades. Chief among these trends are the stagnation in wages and incomes for low and moderate-income people and the explosive growth of incomes and wealth for people at the top.
What people like Senators Kerry and Edwards are saying with their “two Americas” talk is that it is fundamentally unfair and un-American when such a huge proportion of the growth in our economy is tilted toward comparatively small number of folks doing spectacularly well – especially when millions in the “middle” do not have access to basic necessities like health insurance or decent, affordable housing.
As I argued earlier this year in an issue of NC Policy Brief, the data confirm the two Americas argument. During the last two decades of the 20th century, the after tax incomes of the top 1% of Americans has increased by more than 200%. The after tax incomes of the bottom fifth have increased only 9%. Today in America, the top 1% (about 2.8 million people) own more than the bottom 40% (110 million people) combined. These trends slowed slightly during the Clinton years, but have picked up again under President Bush as, even during the recession, incomes for the wealthy continued to rise. These trends contrast dramatically with the 1950’s and 60’s when the income gaps shrank or held steady.
Now, I know that many observers are uncomfortable with the “two Americas” talk. Some Democrats are concerned that the theme doesn’t poll well in some circles. They may be right. There may be better and more artful ways to say what has to be said. The fact remains, however, that more and more Americans are becoming painfully aware of the fact that they are not sharing in the growing prosperity that is enjoyed by their wealthier fellow citizens. Moreover they know instinctively that this inequity is not the result of “big government” or “high taxes” or “burdensome regulation.” These people know that the democratic institutions of the American government are probably all that stands between them and the transformation of our country into a kind of banana republic on steroids. These people are ready for the basic economic message that Kerry and Edwards are selling. Linkable Entry
Raising the Issue: Edwards’ “Two Americas” Appeal to Envy Won’t SellPosted by John Hood at 2:10 PM The temptations to envy a neighbor’s success and to use coercive means to acquire the earnings or possessions of others are deeply rooted in human nature. There is no question about that. Most of the world’s great religions warn against giving into these temptations, as Jews and Christians are instructed in (depending on your particular denomination) the 8th, 9th and/or 10th Commandments. Obviously, as is the case for others, these teachings are not always rigorously adhered to, though the world would be a better place if they were.
There is nothing really new in John Edwards’ “Two Americas” spiel. Al Gore said in 2000 he’d be for “the power against the powerful.” Various demagogic politicians in American history have promised various “deals” to voters suggesting that government should rectify the economic or social circumstances in which voters find themselves.
Indeed, ambitious politicians have been appealing to voter feelings of disenfranchisement and suspicions about political elites – often in both cases justified – for as long as representative government has existed in one form or another. Moreover, sometimes this kind of grievance politics has been combined, as Edwards does, with populist, redistributionist economic nostrums. During period of severe economic recession or outright depression, as in the 1890s and the 1930s, this message can soak through the constitutional and ideological barriers that America’s founders and early leaders erected against governmental encroachment and result in muddy but significant transformations of politics and government.
The 1890s period helped to radicalize both political parties, Populists among the Democrats the Progressives among Dems and Republicans. The Republicans experienced a brief ideological correction in the 1920s, but their continuing economic sins of protectionism and monetary manipulation helped to generate a Great Depression that further transformed both parties and greatly expanded the federal government’s power over our lives. More recently, I would argue, both parties have taken at least half-hearted steps back towards economic sanity, with salutary results. The Reagan Revolution of the 1980s was more like an evolutionary missing link, combining strands of Goldwaterite libertarianism with a dash of Carter-era deregulation and the supply-side critique of misguided Keynesian notions about tax rates and inflation. The result was an economic boom.
The Clinton era of the 1990s showed that Democrats were affected by some of these political and policy trends, as well. Even before the Republican takeover of Congress in 1994, Clinton (and Gore) made laudable efforts to reduce taxes on consumer goods and stock-market returns – I’m referring to quotas and tariffs on foreign trade – and their tax-increase package of 1993, while wrongheaded, kept the top marginal tax rate well below what Reagan cut the rate to in the early 1980s. From 1995 on, Clinton played effective defense against some GOP ideas but signed tax cuts, balanced budgets, and even toyed with the idea of injecting market forces and personal control into Social Security and Medicare, though he characteristically chickened out when push came to shove. On balance, the result was to continue and broaden the economic boom.
The recessions of the early 1990s and early 2000s were too mild to create an opportunity for populist, redistributionist politics to gain further ground, I think, so Republicans should for the most part welcome the Edwards “Two Americas” divisiveness as probably more helpful than harmful to their cause. I see little evidence in polling that most Americans feel trapped, tyrannized, or terrified. Our economy is still vibrant, joblessness is relatively low, upward mobility remains commonplace, and a cornucopia of new products and services is making life better and more enjoyable in ways that aren’t adequately captured in the tendentious reading of data some pessimists offer.
In short, Edwards may bring some important political assets to the national Democratic ticket. But a salable – and factual – message is not one of them.
Linkable Entry
Raising the Issue: On Envy and Class WarfarePosted by Rob Schofield at 2:54 PM I have always been tremendously amused by the conservative argument that proponents of democratic action to check the inequality that almost always accompanies a market economy are selling “envy” and “class warfare.” This is particularly true when such arguments are cloaked in the guise of sober, religious admonitions about not coveting what belongs to one’s neighbor.
The last time I checked, “envy” and it’s close sibling, the pursuit of wealth (for the purpose of acquiring greater physical and material comfort -- and power) than one’s neighbor was the central idea of capitalism. To quote Gordon Gekko, “greed is good.”
Is it the unhealthy application of “envy” or “class warfare” when landless peasants in impoverished Third World countries demand changes to the “free market” that provide for fair distribution of land and resources so that the hereditary oligarchs that rule their countries are forced to play on something akin to a level playing field? To me the answer is an obvious “no.”
A similar truth holds in the present American debate. It’s not Kerry or Edwards or the millions of Americans left behind by our modern economy who are using “envy” or practicing class warfare. If anyone’s doing this, it’s the members of the ruling corporate elite that have made the growth and preservation of their own astounding fortunes the chief priority of the modern economy.
A wonderful explication of the dramatic and unhealthy growth in inequality in modern America can be found in a speech delivered last month by veteran journalist Bill Moyers at the “Inequality Matters Forum.”
According to Moyers, “class warfare” was launched a generation ago by the nation’s financial and business class: “The middle class and working poor are told that what’s happening to them is the consequence of Adam Smith’s “Invisible Hand”. This is a lie. What’s happening to them is the direct consequence of corporate activism, intellectual
propaganda, the rise of a religious orthodoxy that in its hunger for government subsidies has made an idol of power, and a string of political decisions favoring the powerful and the privileged who bought the political system right out from under us.” Linkable Entry
Rob, the sinfulness (or inadvisability, for the seculars out there) of envy has nothing to do with capitalism, the profit motive, or the free market. The Hebrew word used in the Ten Commandments in “hamad,” which in context should be interpreted as meaning “wrongfully desiring and trying to acquire.” In the New Testament, Jesus Christ paraphrases the commandment as “do not defraud.”
I know this isn’t a religious discussion, but it is a moral one, though often advocates of government redistribution resist thinking about it in those terms. That’s the problem with social critics such as Bill Moyers, who exhibit no understanding of the difference between obtaining wealth by entrepreneurial effort, creativity, and hard work or obtaining it by force or fraud. It isn’t class welfare for Bill Gates to become a billionaire by helping to bring to market a product to sell to average folks. If the product solves our problems and makes our lives better, then his remuneration is earned. Warfare involves taking by force what you didn’t earn by lawful means.
I’ll agree with you somewhat on the landless-peasant example. Landlords had often obtained their property through seizures, land grants from tyrants, and just out-and-out fraud and villainy. Similarly, some “robber barons” of the 19th century really were robbers, like those who profited from government railroad subsidies. But most were not, and are not.
Let’s talk about the politics for a moment. You and I are both examples of deviation from the norm in politics. That is, our views are more-or-less systematic and consistent, though of course mutually inconsistent on this subject. Most Americans hold a mixture of views about issues such as wealth, the economy, and government policy. The mixture can be hard to summarize. The polling expert Karlyn Bowman once put it this way: “Americans don’t resent the rich nor do they particularly admire them.” Here are some poll findings worth pondering:
• 60 percent say “I am better off than my parents were at the same time in their lives,” vs. 25 percent who say about the same and only 13 percent who say worse off. About two-thirds also say their children will be better off than they are, only 6 percent say their children will be worse off (Gallup, 2003).
• 70 percent of Americans say it is still possible to start out poor in this country, work hard, and become rich (CBS News/NYT, 2003).
• Only 13 percent say the American Dream “is not really alive” today (Roper, 2000).
And, yes, I still stand by the column I wrote back in February to which you responded with your Policy Brief. My points remain salient. And you remain saddled with the need to advance a depressing proposition about the lives of average Americans that conflicts with what they themselves experience and believe.
Linkable Entry
Raising the Issue: Promoting “Envy” or Simple Fairness?Posted by Rob Schofield at 3:50 PM Okay John, let me get this straight. “envy” really means “wrongfully desiring and trying to acquire.” I guess I’ll buy that. Where I lose you is when you make the remarkable philosophical leap to the conclusion that the enormous wealth controlled by America’s economic elite is all the byproduct of entrepreneurial effort, hard work and creativity and therefore wholly proper and not in any way “wrongful.”
While this argument is not entirely without merit – I see no problem with a system that richly rewards geniuses like Gates – you can’t be seriously arguing that all members of the nation’s moneyed class are creative, hard working entrepreneurs. To the contrary, a huge proportion are, in effect, modern aristocrats who did nothing to earn the fabulous wealth that they enjoy beyond surviving childbirth. In a similar vein, millions of Americans who do work hard and exhibit enormous creativity remain mired in the economic doldrums because the system is rigged to favor those with wealth and power.
To me, this trend is in direct contravention of the early American ideal that each person should rise or fall largely as a result of his or her own intelligence and drive and not as a result of inherited wealth. Wasn’t the idea of the revolution to get rid of a permanent aristocratic class? To this end, wouldn’t it make sense to reinstate larger and stronger inheritance taxes that prevent the accumulation of vast sums of inherited wealth?
As for the polling data you cite, I do not quarrel with your conclusion that Americans remain a largely optimistic bunch. It is one of our greatest strengths. It is that very optimism to which Kerry and Edwards are attempting to tap in. I believe they want Americans to realize that we have the ability to collectively and intentionally impact the economic environment in which we live. Rather than being pessimistic slaves to an “invisible hand” that we cannot see or control, we have the capacity to harness that “hand” and make it work for a much greater proportion of the population than is currently benefiting. Linkable Entry
No, I’m not going to buy your recasting of the “Two Americas” dichotomy as having to do with inherited, and thus presumably unearned, wealth. For one thing, focusing on those who inherit as somehow lacking the right to that wealth is to put the emphasis in the wrong place. What is dispositive is the right of he or she who creates wealth to decide how to distribute it, including to heirs.
Second, differences between “the wealthy” and “the rest of us” have little to do with inheritance. Most people who are wealthy today did not inherit that wealth. And plenty of people who inherit wealth don’t manage to maintain it, leaving their children with little and inspiring the old notion of “shirtsleeves to shirtsleeves in three generations.”
Walter Williams from George Mason University attached some numbers to this a while back. Only 20 percent of American millionaires at a particular point in time inherited their wealth. Another way to look at it is that only about 8 percent of the wealth held by the top 5 percent of households was inherited.
While we are at it, what is “wealthy”? According to a 2003 Gallup poll, the median income at which poll respondents said they would “consider [themselves] rich” was $120,000. That could certainly reflect the earnings of two professionals mid-way or farther along in their careers, having investing substantial time and money in gaining an education and developing their expertise.
Look, there are debutantes and Paris Hilton-type nightmares that you could offer up as counterexamples. And there are certainly wealthy crooks — as with envy, the temptation to steal is oft-warned against and oft-surrendered to. But in the main, income differences in the U.S. reflect differences in family structure, in education and skills, and in personal choices. They do not mostly reflect the “lottery of life,” as some put it, other than issues regarding educational access that I do indeed favor public policies to address (although you and I have disagreed about their potential effectiveness).
The life’s lottery argument really is a pessimistic viewpoint, and one at odds with economic reality. Linkable Entry
Raising the Issue: Finding the Right BalancePosted by Rob Schofield at 5:15 PM This will be my final word for today – maybe we can revisit this topic.
My point in raising the issue of the inherited wealth was not to imply that the vast economic divide in America is simply a matter of the idle rich vs. the rest of us. Obviously, there is a continuum amongst the wealthy elite in which some folks are more deserving than others.
Some wealth is inherited. Some wealth has been reaped by the owners of giant conglomerates from the “hard work and entrepreneurship” that is involved in lobbying for no-bid government contracts. A good deal of wealth has resulted from the simple act of inventing a better mousetrap. The point is that all wealth is in some part a function of a system of rules enacted by government -- ideally, a system that promotes fairness and efficiency.
Thus, while we need a system that promotes hard work and initiative, we should never underestimate the creativity of humans in figuring out new ways to evade the rules and game the system to their own advantage. As I think I’ve said before in one of these debates, the trick is to find the right balance between complete Darwinian, economic anarchy that promotes great wealth and great inequality and socialist stagnation that promotes equity, but discourages the creation of wealth.
The balance between these two competing forces has long ebbed and flowed in the west and is today flowing noticeably in the direction of the economic Darwinians. It is this trend that the Kerry/Edwards “two Americas” rhetoric is attempting to address. Linkable Entry
How dare you go and starting talking about striking a balance between Darwinian economic anarchy and smothering socialism! Why can’t you just pick a side? Didn’t you know that extremism in the defense of liberty is not a vice, and moderation in the pursuit of virtue is not a virtue?
I jest, of course. This has never been the choice. Free-market capitalism is not synonymous with social Darwinism or anarchy. It requires a clear set of rules forbidding the use of force or fraud to get what you want, and a well-structured and effective set of government institutions to enforce these rules. Far from being about “the survival of the fittest,” capitalism is about rewarding those who address the stated needs of their fellow human beings. The more valuable work you do within a market, the more “chits” proving the value of your service — that is, the more money — you can obtain.
Now, I’m not suggesting that markets define all human interactions, or even the most important ones. Free societies contains lots of other important institutions — including families, churches, neighborhoods, and governments — that are not always based on voluntary, profit-seeking exchange. You’re setting up a straw man when you suggest that if I resist John Edwards’ siren song about envy and taking other people’s money, that I must turn a blind eye towards the suffering of others. Profit-seeking companies primarily address such a problem by finding innovative ways to develop and sell new products, employ new people, and provide return to investment for those (including pensioners) who own their stock. Charities address the problem differently. So do houses of faith. So do families.
The problem with the “Two Americas” argument is that it presupposes not the existence of some ill-gotten gains among the wealthy — again, that’s just part of human nature — but instead that most or all such wealth consists of ill-gotten gains, thus the government should “fix” the problem by higher taxes or intrusive regulations. When we find corporate miscreants that used fraud to make their millions, or scammed taxpayers with no-bid contracts, then let’s go after them. But why jack up taxes on the productive and entrepreneurial, why distort labor markets and kill jobs through minimum wages, why chase employers out of the health-insurance market through mandates as a response?
The policies don’t jibe with the real problems. Punishment should not only fit the crime, but fit the criminal. Business success, personal success, wealth-creation — none of these is a criminal act. Yet. Linkable Entry
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