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Posts Tagged ‘Hazlitt’

What ‘Experts’ Miss About Economic Inequality | The Libertarian Institute

Posted by M. C. on October 4, 2020

Of course, that’s not what we have. But instead of advocating for a more free economy to address inequality, the “experts” consulted by USA Today advocate for more state interference that would likely make inequality worse, while ignoring perhaps the largest source of inequality, the Federal Reserve.

https://libertarianinstitute.org/articles/what-experts-miss-about-economic-inequality/

by Bradley Thomas

How can the U.S. reduce economic inequality?

That’s a question USA Today posed to three “policy experts on the left and the right” in this recent article. The responses, while unsurprising, were nevertheless disappointing.

For libertarians, economic inequality itself is not problematic, as long as it is in the context of an unfettered market economy free of government privileges and interference.

Of course, that’s not what we have. But instead of advocating for a more free economy to address inequality, the “experts” consulted by USA Today advocate for more state interference that would likely make inequality worse, while ignoring perhaps the largest source of inequality, the Federal Reserve.

First up is Scott Winship of the American Enterprise Institute, who focuses on income mobility. Winship points out that if every child had equal economic opportunity, then we would see an equal percentage among races of children remaining in the bottom fifth of income when they become adults.

Winship notes that roughly 30% of white children remain in the bottom fifth in adulthood, while the percent for black children exceeds 50%.

Absent from Winship’s observation, however, is the recognition of why this might be the case.

According to Pew Research, 30% of single mothers and their families are living in poverty compared to 8% of married couples and families. In other words, children are nearly four times as likely to be living in poverty in a single mother household compared to a household headed by a married couple. Meanwhile, 58% of black children are living with an unmarried parent, compared to 24% of white children and just 13% of Asian children.

Moreover, the welfare state has facilitated a dramatic rise in single-parent homes. Nationally, since LBJ’s Great Society ratcheted up government welfare programs in the mid-1960s, the rate of unmarried births has tripled.

Single parenthood fueled by the welfare state is an outsized source of inequality, but the welfare state escapes any blame by the “expert” Winship.

To his credit, Winship in his recommendations mentions in passing that “shoring up marriage where it has become an anomaly” would help reduce inequality, but fails to target the welfare state as the major culprit.

His other recommendations include the vague notion of “expanding access to high opportunity neighborhoods,” perhaps a nod to government programs to inject affordable housing projects in middle class suburbs, along with increased government spending on early childhood programs. Encouraging more state involvement in child rearing while ignoring the glaring problem of single parenthood caused in large part by the welfare state sounds like a recipe to exacerbate inequality, not combat it.

Next up is American Compass research director Wells King, who blames growing economic inequality on the fact that the “labor movement has lost power.”

King overlooks basic economic analysis while giving labor unions undeserving credit for boosting worker wages on a broad scale. As Henry Hazlitt wrote, “the blunt truth is that labor unions cannot raise the real wages of all workers.”

As Hazlitt explained, “whenever the unions gain higher wage rates for their own members than free competition would have brought, they can do this only by increasing unemployment,” in that industry, because the above market wage rates decrease employer demand.

As a result, more workers are forced to compete for other nonunionized jobs, and the increased supply of workers in other industries drives down those wages. Therefore, Hazlitt concludes, “All union ‘gains’ (i.e., wage rates above what a competitive free market would have brought) are at the expense of lower wages than otherwise for at least some if not most nonunion workers. The unions cannot raise the average level of real wages; they can at best distort it.”

As Hazlitt explained, King’s calls for a more robust union movement as a means to reduce economic inequality are ill-founded.

Moreover, King’s blinkered focus on unions as being a force for growing worker wages blinds him to a far more potent force driving inequality.

“The steady erosion of unions over the past 50 years has been responsible” for growing inequality, King insists while noting a correlation between declining union membership and growing wealth inequality during that time.

But what else happened fifty years ago that might influence wealth inequality?

Of course it was Nixon’s severing the final ties of the dollar to gold in 1971, which has enabled the Federal Reserve to create fiat money completely unchecked.

As demonstrated in multiple charts at the website WTFhappenedin1971, there is a clear divergence in incomes between high and low earners beginning sharply in 1971.

According to this 2018 Mises.org article, the base (M1) money supply ballooned by an incredible 17 times, with more than $3.2 trillion being created from 1971 to 2018. And it’s only getting worse, with another 33% increase in the first 7 months of 2020 alone.

Why does Fed money printing increase economic inequality?

In short, the rich receive a significant share of their income from investments, while the middle class primarily relies on their income from labor, and the poor a combination of labor income and government welfare payments.

When the Fed creates new fiat money out of thin air, it isn’t distributed evenly throughout the economy. Instead, it is inserted at specific points, typically via credit to business investors. As the Fed inflates a bubble, speculation with the new money also increases—which inflates the stock market, benefitting the investor class.

Meanwhile, the fiat money creation creates price inflation that permeates over time throughout the economy. Some of the more highly skilled in the middle class may receive salary increases to keep up with the inflation, while many of the lower-skilled middle class will struggle to keep up with rising prices.

Meanwhile, the poor, who lack the bargaining power to raise their wages to keep pace with inflation, and otherwise rely on relatively fixed incomes, fall further behind.

The failure of King to recognize the Fed’s major role in growing inequality undercuts any credibility his recommendations should be given.

Lastly is Economic Policy Institute research director Josh Bevins who incredibly calls for more money printing to help reduce economic inequality.

“Policymakers should re-target genuine full employment (the Fed is making good steps in this direction)” Bevins implores. How this supposed “expert” believes more asset bubble inflating money creation will reduce economic inequality goes without explanation.

Bevins further calls for a “substantially increased” federal minimum wage, without acknowledging that pricing low-skilled workers out of the workforce and eliminating their first rung on the career ladder will reduce the ability for low-income people to increase their earning power and narrow economic inequality.

More generous unemployment benefits is another of Bevins’ recommendations. But increasing the incentive to not work will result in more people, especially those already on the margins of employment, staying out of the workforce for longer periods of time—a great recipe to stymie the steady career track needed to climb out of low-income status.

How disappointing that a national publication like USA Today can do no better than “experts” who recommend government interventions that would end up increasing, rather than shrinking, economic inequality.

Bradley Thomas is creator of the website Erasethestate.com and author of the book “Tweeting Liberty: Libertarian Tweets to Smash Statists and Socialists.” He is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics. Follow him on twitter @erasestate.

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The World’s Least-Free Countries Reveal Just How Much “Socialism Sucks” | Mises Wire

Posted by M. C. on October 15, 2019

https://mises.org/wire/worlds-least-free-countries-reveal-just-how-much-socialism-sucks?utm_source=Mises+Institute+Subscriptions&utm_campaign=b832e6eb69-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-b832e6eb69-228343965

[Socialism Sucks: Two Economists Drink Their Way Through the Unfree World. By Robert Lawson and Benjamin Powell.  Regnery Publishing, 2019. 192 pages.]

Robert Lawson and Benjamin Powell are well-known free market economists, and they do not look with favor on a disturbing trend among American young people. “In the spring of 2016,” they tell us, “a Harvard survey found that a third of eighteen-to twenty-nine year olds supported socialism. Another survey, from the Victims of Communism Memorial Foundation, reported that millennials supported socialism over any other economic system.” (p.8)

Unfortunately, the young people in question have little idea of the nature of socialism. Lawson and Powell would like to remedy this situation, but they confront a problem. Ordinarily, one would urge students to read Hazlitt’s Economics in One Lesson, Mises’s “Economic Calculation in the Socialist Commonwealth,” and similar classic works, in order to understand the basic facts about the free market and socialism, but the millennials are unlikely to do so. One must attract their attention. What can be done?

Lawson and Powell have had the happy idea of presenting elementary economics in a humorous way that will appeal to those “turned off” by serious and sober scholarship. In the latter adjective lies the key to their approach. Both of the authors enjoy drinking beer, and they travel around the world to various socialist countries in pursuit of their beloved beverage, making incisive comments about the economy of each country as they do so. They write in a salty style that will make millennials laugh, though some readers will find it jarring.

For the young, “socialism” means no more than vague ideas about “fairness”, but, the authors note, the term has a precise meaning: “To separate the state from socialism in any large society is like trying to separate private property from capitalism. It can’t be done. I’ll say it once more for the people in the back: socialism, in practice, means that the state owns and controls the means of production.” (p.128) No country is completely socialist, but some are more socialist than others. How can the degree of socialism be evaluated? Lawson has, along with James Gwartney, produced an annual economic freedom index for the Fraser Institute, which the authors use to answer this question, sometimes with surprising results.

Many professed socialists look to Sweden for inspiration, but according to the freedom index, “Sweden gets a 7.54 rating, which is good enough for twenty-seventh place out of the 159 countries in the study. . .Bottom line: Sweden is a prosperous, mostly capitalist country.” (pp.10-11)…

If some people admire Sweden, few except fanatics have good words for the economy of Cuba. Nevertheless, must we not recognize the wonders accomplished by the Cuban socialized medicine? We must give the devil his due. Lawson and Powell are not convinced. “Official Cuban health statistics are impressive. . .Yet, we also know that the hospitals most Cubans use are so poorly equipped that people often have to bring their own sheets. What gives? The silence [on the streets} is part of the answer. The lack of automobiles means a lack of traffic fatalities. Since automobile accidents are a leading cause of death among younger people, the lack of automobiles has a disproportionate impact on life expectancy statistics for reasons that have nothing to do with health care. The low rate of infant mortality is a product of data manipulation.” (p.53)

Why has Cuban socialism, like all other centralized socialist economies, failed? The authors present with great clarity the essential point: “’[A]lmost a hundred years ago, the Austrian economist Ludwig von Mises explained that socialism, even if run by benevolent despots and populated with workers willing to work for the common good, could still not match capitalism’s performance. Socialism requires abolishing private property in the means of production. But private property is necessary to have the free exchange of labor, capital, and goods that establish proper prices. Without proper prices, socialist planners could not know which consumer goods were needed or how best to produce them. . .Socialism also gives tremendous power to government officials and bureaucrats who are the system’s planners—and with that power comes corruption, abuse, and tyranny.” (p.37)

Socialist tyrants were the greatest mass murderers in history, and the young must be apprised of this melancholy fact. “Stalin ranks just behind Mao as history’s second greatest mass murderer, with Hitler coming in third—and all three dictators were, of course, committed socialists of one sort or another.” (p.115)…

It is not only the drug war, but the war on terror as well, that ought to be condemned, and here once more, the many millennials who protested against the war are in the right. “We feel the same about the war on terror. The wars and violence associated with it in the Middle East are a major reason for Europe’s immigration wave. . .advocates for capitalism can be against war precisely because war undermine capitalist institutions and freedoms.. . .Chris Coyne wrote a book entitled After War: The Political Economy of Exporting Democracy, in which he shows that when the U.S. engages in foreign intervention, it rarely creates the kind of lasting institutional change that supports what some might call a ‘neoliberal’ society. Economist Robert Higgs’s classic book, Crisis and Leviathan, shows how crises in the United States, especially wars, have led to expanded government at the expense of markets. Chris’s latest book, Tyranny Come Hone: The Domestic Fate of U.S. Militarism, co-authored with another friend of ours, Abby Hall, has shown how U.S. military interventions abroad ‘boomerang’ back to the United States in ways that decrease our freedoms at home. See, anti-war isn’t a uniquely leftist position. Capitalists should be anti-war too.” (pp.136-137. I regret the use of “neoliberal” as a term of praise and the solecism “advocates for.”)

I confess that I approached the authors’ project of a drinking tour of the socialist countries with skepticism. Would it be more than ajeu d’esprit? Reading the book has laid my skepticism to rest. Socialism Sucks has the potential to do great good, if it gets into the right hands, and its impressive sales suggest that it will do so.

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Sean Penn

The Dumb and Dumber of economics

 

 

 

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