Monday, August 11, 2014

An idea for the "task force of mayors"...

Here's an excerpt from yesterday's New York Times article Task Force of Mayors Address Income Gap
Income inequality has long existed, but the disproportion is stark when looking at how wealth has been distributed over nearly four decades, said Jim Diffley, an economist at IHS Global Insight, a worldwide information company that prepared the report using census and other data. “The purpose here was really to document the extent of income inequality,” he said.

From 1975 to 2012, the highest-earning 20 percent of households markedly outpaced the lowest-earning 20 percent in America. In 1975, the wealthiest households captured 43.6 percent of the nation’s income, while the poorest had a share of 4.3 percent. In 2012, low-income households saw their share drop to 3.2 percent while the high earners saw their share jump to 51 percent. “From the mayors’ standpoint, is this something we can grow out of or should we come up with policy to ameliorate the problem?” Mr. Diffley asked.

Hmm.... "captured"... Let's change the feel of the above and use "generated" instead:
In 1975, the wealthiest households generated 43.6 percent of the nation's income, while the poorest generated 4.3 percent. In 2012, low-income households generated 3.2 percent while the high earners generated 51 percent.

Make no mistake, there's not some preset quantity of income out there to be "captured", or distributed by some central body. That thought is ludicrous. One generates one's income by providing goods and/or services others produce goods and/or services (to generate income) in order to obtain.

Yes, there are actors in the economy who produce little of value or, worse yet, destroy value and yet get by. Like, for example, politicians and failed bankers. Understand, however, that those actors only get by as a consequence of government intervening into market processes. Bankers would---on occasion over the years---have personally failed were it not for taxpayer-funded bailouts. And politicians... well, with the way they allocate resources, they couldn't even begin to breathe the air of a true market environment.

So, does "the gap" really matter? Think about it. Why would it? Why would we even measure such things, other than out of pure envy or for political gain? What must occur in order for the vast majority of high earners to become high earners? They would have to produce value that exceeds their earnings. Right? I mean, would you pay someone as much or more than what you deem to be the value of his/her services to you? Of course not! You'd only pay for services that you value more than the money you paid.

So what should we measure? Perhaps simply the number of poor folks? And what can a "task force of mayors"---if they're truly interested in helping poor folks---do? For starters, they can lobby against the obviously destructive intrusions into employer/employee contracts. Such as minimum wage laws. Which price a large percentage of uneducated folks entirely out of the workforce---as those folks are too often unequipped to produce value in excess of mandated wage levels.

Sure, in theory, you can tax producers at a higher rate and use the take (what's left after it's sifted through government that is) to pay to educate/train poor folks. But wouldn't it make more sense to allow actual employers to invest directly in the training? The money government would have taken in tax hikes---without minimum wage laws---would be used to bring poor folks directly into the workforce; as employers could pay wages low enough to allow for the expense of training and have it still be a productive experience. How much faster would poor folks learn real skills? And, thus, become truly self sufficient? How much better would the economy be if resources were actually allocated to their most productive use?

Here's Milton Friedman:


  1. […] Marty Mazorra writes wisely about income and wealth inequality. […]

  2. Your Comments Could you explain in a bit more detail how getting rid of minimum wage decreases income inequality or improves the lives of the poor? The fact is policy matters. Increases in inequity are clearly linked to policy changes and the idea that government intervention always increases inequality or reduces economic efficiency is historically untrue. All one has to do is look at map of the countries richest counties to see that those surrounding DC have blossomed to be the richest over this same time period. And that's not just because of more government. It's because of post Reagan government policy that caters to the rich, corporations and the well connected.