Wednesday, December 14, 2011

Is Income Inequality the Problem?

This will probably get me into trouble but it's just too funny to pass up. In the comments to an article on President Obama's speech in Kansas was this terse statement: "Under Teddy Roosevelt we got the Square Deal, while Franklin Roosevelt gave us the New Deal, and now, with Barak Obama we're getting the Raw Deal."

On a more serious note, it is important that we take a look at what the President was saying to us in his speech in Osawatomie, Kansas last week. First he was attempting to make income inequality and the lack of income growth among the middle class, "the central issue of our time." Realizing that we are borrowing 40 cents of every dollar our government spends and that we are facing a 15 trillion dollar deficit, I'm not convinced that income inequality is our most pressing problem.

So, what difference does it make if we say income inequality is our biggest challenge? The simple answer is to look at what is happening in Europe. European societies have for many decades pursued egalitarian policies that are today bringing them to the brink of bankruptcy. If we ignore our deficits in the pursuit of a more "just" society we will end up in the same sorry state. In addition, when we examine the actual income levels of the middle class in Europe, we find that their median family income is much lower than ours. Median income in America is $31,000, in France it is $21,000 and in Greece it is $16,000 (Just google, "median family income in the world"). Thus, while Europe has less income disparity, it also has just plain less income. I would submit that there is a direct connection in these statistics, the pursuit of income equality by government policy results in reduced growth and economic vitality and thus lower family incomes. To be honest, I don't think the American people really want to go there.

For the sake for fairness, we need to dig down into the specifics of what the President was proposing to fix the economic problems we face. In his own words, "The future will be bleaker unless we raise taxes on the wealthy and invest in education, science, and infrastructure." His solution begins with collecting more revenue from a tax increase on the top 1%. But notice, the money will not be used to directly reduce the deficit. It will be used to "invest" in three things that he believes will expand the income opportunities of the middle class.

As we can see from these three "investments," the president certainly has a long term view of things, because the first two elements will take a decade before they make an appreciable difference. In the President's scheme of things, this means an increased emphasis on math, science, and training in green technology within our educational system. If this were the 1960's with a much smaller educational burearacracy and a basic curriculum focused on the three "R's" then maybe we could make these changes, today not so much. Notice, in fact, that the President humself understands this because his vehicle for training in green technology are local community colleges, the least politicized of any of our educational institutions. The very idea of giving more money to the financial black hole that is our educational system makes no sense. We spend too much already with no positive results.

His second investment is in science. With Solyndra, Light-Squared, and Solazyne we are seeing this administration's approach to technological and scientific investment. This kind of crony capitalism is a far cry from the traditional use of government funding for basic research. Research which gave us solid state electronics, the laser, and computer chips by the way. This attempt to fund specific projects and companies has simply not worked, from wind farms in Hawaii and California in the 70's to the latest attempts to fund electric car companies. My fear is that the President has many more Solyndras in store for us, and that they will do very little to acheive the desired goal of job creation and a growing economy.

Finally, he wants to invest in infrastructure. Of the three parts this has the most realistic chance of increasing jobs and even median incomes. Like everything else in our culture, it requires specialized labor. The days of handing an out of work retail clerk a shovel as part of a WPA construction project are long gone. Construction work today is contracted and reqires particular skills and training. Take the Keystone pipeline as an example, it will provide great jobs for experienced pipefitters and welders. I heard recently that the average job will pay $70,000. I don't deny that there will be opportunities for welder's helpers and apprentice pipefitters to get a start in the field, but most of the jobs will be for those with the training and experience required to do the work.

In the end, the President's plan won't do much to grow the middle class or reduce the gap between rich and poor. His approach is part of the progressive nostalgia for the New Deal and the space race of the 60's. We face very different challenges today. We must find a solution for the massive unfunded pension and Medicare liabilities we face at the state and federal level. The President, as our leader, is attempting to change the subject and act as if there is no long term deficit problem and we can operate as if government must plan, tax, and "invest" to solve social problems. Well, we can't.

The recession of 2007 and the subsequent slow recovery we are still experiencing four years later, is part of an economic wake-up call that we really can't afford to ignore. Robert Samuelson wrote an important article today in the Washington Post on the dangers of a bond crisis in the face of our massive deficit spending. Remember, we are in a debt crisis. So the only way to end the crisis is to start getting out of debt. We must not allow the President and his party to change the subject and pursue "business as usual" tax and spend policies, particularly for the sake of an invented problem called "income inequality." I'm really not trying to be partisan in saying this. We are facing the gravest economic downturn of our lifetimes, and we need real solutions not populist hyperbole. There is some real hope for answers, just look at what Canada has done in the last 10 years, Sweden as well. We don't have to just take the word of our favorite pundit, countries of the world have actually cut spending, reduced their debt, and restored their economies, and we can too.

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