Saturday, April 4, 2009

Capitalism is the worst...

The following post is a response to an article by Paul Krugman of the New York Times, which explores economic inequality in the United States. While he attempts to look at the "big picture" causes of this trend toward economic disparity, his conclusions are self-deluding at best. I have included excerpts from Krugman's article throughout, but lest you think that I am taking it out of context, please feel free to read it before you proceed to read my post.

This was indeed an interesting read, and I would like to take some time to analyze this piece. Krugman seems to know beyond any reasonable doubt in his mind that he not only knows the cause of economic inequality, but the cure as well. Let’s take this one piece at a time and see if we can’t find some holes in his argument.

During the introduction of the tracking chart in this article, Krugman makes the following statement:

“The chart shows the share of the richest 10 percent of the American population in total income – an indicator that closely tracks many other measures of economic inequality – over the past 90 years, as estimated by the economists Thomas Piketty and Emmanuel Saez.”

I had to wonder who these economists were that he cited, since the source of information is always relevant to an argument. Had he cited Bill Maher or Rush Limbaugh, I’m sure we would have raised an eyebrow. Even using Robert Nozick or John Rawls, would have been cause for pause given the fact that his article is centered on economics and policy. The problem is that no one has ever heard of Piketty or Saez, so for most people it just reads, “Economist X and Y.”

A quick google search reveals that Piketty has actually written several books on economics, or more precisely, on economic inequality and redistributive policy. Here are a few titles he penned:

Unequal Democracy: The political Economy of the New Gilded Age
Rogue Economics: Capitalism’s New Reality
Social Mobility and Redistributive Politics

And the list goes on.
In the introduction of his book, The Economics of Rising Inequality, Piketty writes, “Capital market imperfections make inequalities more persistent, this phenomenon may lead to multiple steady states. A high inequality society will remain so precisely because it redistributes less.”

Okay, I can live with Krugman sighting a socialist since I’m sure his second source is on the other side of the political spectrum. Let’s see... Saez is a professor of economics at UC Berkeley, so I’m sure he’s to the right of Piketty. Here is a little excerpt from an article they wrote together called, Response by Thomas Piketty and Emmanuel Saez to: The Top 1% . . . of What? By ALAN REYNOLDS:

“The reduction in taxes at the top since 2001 has mechanically exacerbated the discrepancy in disposable income between the rich and the rest of us. Thus, it is obvious that the progressive income tax should be the central element of the debate when thinking about what to do about the increase in inequality. Even conservatives like Alan Reynolds would agree and that is why they prefer to dismiss the facts about growing income inequality rather than face the debate on income tax progressivity at a time of growing economic disparity.”

Okay, so maybe Krugman just got off on the wrong foot with his sources. Let’s see where he goes from here. Krugman talks about his experience growing up in the 60s in this article, and it is a time it sounds like he wishes to return. (If you didn’t know already, I’m sure by this following statement you can assume that Krugman is not black.) He says, “It was a society without extremes of wealth or poverty, a society of broadly shared prosperity, partly because strong unions, a high minimum wage, and a progressive tax system helped limit inequality. It was also a society in which political bipartisanship meant something: in spite of all the turmoil of Vietnam and the civil rights movement, in spite of the sinister machinations of Nixon and his henchmen, it was an era in which Democrats and Republicans agreed on basic values and could cooperate across party lines.” Ah yes, basic values that Krugman cherishes like male female marriage, and restricted abortion.

Do any of you buy that for a second? I’m not saying Krugman is lying to us here, only that he is lying to himself. His memory is selective to say the least. He remembers what he wants, he remembers the best parts of his growing up, he even goes so far as to recreate the cause for those good times; unions, high minimum wages, and progressive taxes.

Krugman continues, “I believe that politics has also played an important role in rising inequality since the 1970s. It’s important to know that no other advanced economy has seen a comparable surge in inequality – even the rising inequality of Thatcherite Britain was a faint echo of trends here.”

But did inequality rise in Britain under Thatcher? Depends on who you ask I suppose. David Brooks, a man of the right I will admit, points out that, “Some economists believe we should reduce inequality by restructuring the economy — raising taxes on the rich and redistributing money to the poor. That's fine, but it won't get you very far. In Britain, Gordon Brown has redistributed large amounts of money from rich to poor regions, but regional inequality has increased faster under the current government than under Margaret Thatcher.” (This is from Brooks’ article, Of Love and Money. A good read I might add.)

I believe the real question is this: What are the goals of the right vs those of the left? I would argue that the primary goal of the right is creating wealth, while the primary goal of the left is redistributing wealth. The left’s goal sounds far nobler, however, equality doesn’t tell you much about location does it? Regardless of intentions, the left will not bring the poor’s standard of living up; rather they will bring everyone else down. Everyone on the bottom economic rung is not an equality I am interested in.

Too often we think of economics like a pie; a few have big slices, a few have little slices, and everyone else has middle-sized slices. If we just took a little pie from the people with big slices and gave it to the people with little slices, we would all have an equal sized slice right? I wish that was the case. However, when you knock down the people who are actually making the pie and giving themselves the biggest piece, they stop making so much pie. In the end we all end up with shriveled pieces, and the incentive to reach for a bigger slice no longer exists. By no means am I advocating total laissez-faire capitalism, but the dangers of redistributive policy need to be addressed.

Let me just say before I go on that I believe Krugman is an intelligent, well-intentioned person. While I don’t agree with his ideas, I do not question his motives. I have a passionate belief that guides me in disagreements. This belief is this: The people with whom differ are either evil, ignorant, or very smart but have simply arrived at a different conclusion then me. I try to assume that latter. One can assume from the following that Krugman does not share this belief. For Krugman, conservativism is THE irrefutable problem with our system. It is the cause for not only economic inequality, but also for the political partisanship that is preventing us from making progress. He writes, “Because of movement conservative political dominance, taxes on the rich have fallen, and the holes in the safety net have gotten bigger, even as inequality has soared. And the rise of movement conservatism is also at the heart of the bitter partisanship that characterizes politics today.”

Really? Conservatives are at the heart of the bitter partisanship that characterizes politics today? Sure Rush and Hannity say some pretty stupid things, but they are just windbag commentators. Meanwhile you have the head of the DNC saying that conservatives don’t care about kids going to bed hungry, and Barney Frank calling Justice Scalia a homophobe. Think about it for a moment; conservatives (at least conservative that are actually voted in to an office to speak for the party) tend to attack policy, while liberals attack the person postulating the policy. I would accept the argument that both conservatives and liberals are too partisan, but I don’t see how anyone could look at the two groups objectively and conclude that the conservatives are the real bomb throwers.

In the end, I think Krugman makes a good emotional plea for economic reconstruction, but I don’t see much in the way of rational support for this plea. Most people would like to see a measure of economic equality, but how much can you have without destroying the economic stability of the country? Again, I don’t question his intentions, but I do question his logic. We don’t have to like capitalism, but we better have an alternative that can actually work before we throw it out. To paraphrase Winston Churchill, capitalism is the worst form of economics, except for all others that have been tried.

Saturday, January 31, 2009

A logical appeal to an emotional plea

In the interest of continued postings, I am yet again publishing one of my essays. This a response paper to Barbara Ehrenreich's book "Nickle and Dimed, On Not Getting By in America"
As always, I welcome and encourage counter arguments.

When you think about poverty, you probably do not picture someone working a full-time job. Most people envision someone living in a homeless shelter or panhandling near a busy intersection of town. However, poverty affects far more than just the unemployed, and perhaps even more than the national statistics reflect. In Barbara Ehrenreich’s book Nickel and Dimed, she takes a closer look into the world of the average minimum-wage worker and finds that the rising costs of basic needs like housing, childcare, and healthcare have taken many Americans to the brink of poverty and beyond. Ehrenreich presents an array of problems with the current minimum-wage system and convincingly argues that it is our moral duty to address them. Where Ehrenreich struggles however, is with possible solutions outside of her own political views. She suggests what would amount to a complete restructuring of the American labor system, but fails to offer any convincing argument that it would have any hope of working. The minimum-wage problem is bigger than partisan politics, and her narrow view of possible solutions would likely lead to more problems than they would fix. The system may well be broken, but it is not beyond repair as Ehrenreich suggests. There are many right-now solutions that can help to improve working conditions for minimum-wage workers, and barriers can be removed that may be keeping people from climbing the economic ladder. This must all be balanced with a healthy dose of reality, recognizing that naive idealism is no substitute for steady progress.

There are many areas where working conditions can be improved with little or no negative side effects on employers or the economy. Ehrenreich points out several areas where employer expectations are unreasonable, and these should be addressed. In Ehrenreich experience as a waitress in Florida for example, she explains that, “Employees are barred from using the front door” (16), and even when they are off-duty, “Barred from eating at the restaurant” (23). In Maine where Ehrenreich worked as a maid, “The rule is that no fluid or food item can touch a maid’s lips when she’s inside a house” (82). As Ehrenreich suggests, and I believe most people would agree, these rules are not only unnecessary but unkind. They make employees feel like the proverbial redheaded stepchild; like second class citizens who do not deserve to mingle with the normal citizenry. Ehrenreich also exposes unfair employer expectations in her Wal-Mart experience in Minnesota. Employees are expected to maintain a specific dress code, but for some that dress code is simply out of reach, as Ehrenreich points out, “At $7 an hour, a $7 shirt is just not going to make it to [the] shopping list” (159).

Clearly these are very real problems that should be addressed, but as is frequently the problem with Ehrenreich’s approach, no solutions are offered. She believes that these problems are simply inherent in the minimum-wage world, and are offered up as a condemnation of the bourgeois rather than as a problem to overcome. A solution is not so far out of reach however, the Equal Employment Opportunity Commission (EEOC) for instance was designed to deal with issues of worker’s rights, and should always be considered when discussing working conditions. Since its inception the EEOC has expanded into many areas regarding workers rights, not only creating and enforcing laws, but also supporting litigants in court (Commission).
Barriers that can stifle the ability of the minimum-wage worker to move up the economic ladder should also be addressed. In order to tackle this issue we must first establish what these barriers are, and then determine their severity. In the interest of honesty and clarity, let me begin this argument by stating that I believe class mobility is 10 percent circumstance and 90 percent determination. This belief may well cloud my vision on the matter, but I will endeavor to use only logic and objectivity in place of my personal feelings. It will be up to you, my reader, to determine my success in this.

One of the primary barriers for a minimum-wage worker to overcome is their parent’s economic status. In fact, Enrenreich contends that, “In poverty, as in certain propositions in physics, starting conditions are everything” (27). I will grant that starting conditions are something as it relates to poverty, but they are not everything. Enrenreich not so subtly suggests that there is not much hope for someone who is born into a lower economic class, pointing to education as one of the few means by which one can escape from poverty. In fact, education is often held to be one of the most important barriers to overcome in order to move up the economic latter, and for good reason. Todd Stinebrickner, professor of Econometrics and Labor at the University of Western Ontario has stated that, “There is a considerable earnings variation among individuals with college degrees” (Economics). He goes on to say that, “These issues are especially important to students from low-income families, who are less likely to complete college degrees than students from other backgrounds” (Economics).

Ehrenreich includes low access to education in her long laundry list of problems that the minimum-wage worker faces, but mentions it only offhandedly rather than discussing specifics. She stacks education on what she sees as a mountain of evidence against a flawed system that leaves the poor out in the cold. I suspect she glosses over the topic of education because significant efforts are already being made in this area. Government and private financial aid for low income students is staggeringly high, with over $80 billion annually in financial aid coming from the federal government alone (Federal Student Aid).

Enrenreich also glosses over other areas that do not fit her “broken system” message. She dismisses a Time magazine story from June of 2000 showing that Minnesota’s welfare-to-work program had sharply reduced poverty, saying that it, “was a pilot project that offered far more generous child care and other subsidies than Minnesota’s actual welfare program” (Ehrenreich 218). I hardly see this as a cause for dismissal, but rather a reason for reflection. If this so-called pilot project did indeed have a positive impact on the poverty rates, then why not discuss this as a possible part of a greater solution? Put simply, it is because this small step toward progress does not comport with her radical reconstructionist views. Ehrenreich is not looking for renovation, she is looking for revolution. Her radical views are also made apparent by her belief that drug testing and prisons are simply tools of repression, and that management and the police are the beneficiary “agents of repression” (Ehrenreich 212-213).

Ehrenreich is so blinded by her militantism that she even resorts to subtle deception. She quotes an Economic Policy Institute study that “$30,000 a year for a family of one adult and two children” constitutes a living wage (Ehrenreich 213). This amounts to about $14 an hour, and according to the study would be enough to cover basic needs like housing, health insurance, and childcare, but little else. Ehrenreich goes on to say that, “The shocking thing is that the majority of American workers, about 60 percent, earn less than $14 an hour” (213). Did you catch the sleight-of-hand there? Neither did I the first time I read it. The parallel language distracts you from thinking anything is amiss. What you read is that a family needs $14 an hour, but 60 percent do not receive it. What you likely did not notice is that the $14 an hour figure is based on a single adult with two children, while the “shocking” 60 percent is based simply on the American worker.

Ehrenreich gets braver as she progresses through the book, going from disingenuous to downright dishonest when she states that single mothers, “have nothing but their own wages to live on, no matter how many mouths there are to feed” (213). This is simply not true. There are many private and government programs available to women with children who need assistance. Women, Infants, and Children (WIC) for instance, “Provides Federal grants to States for supplemental foods, health care referrals, and nutrition education for low-income pregnant, breastfeeding, and non-breastfeeding postpartum women, and to infants and children up to age five who are found to be at nutritional risk” (USDA). There is of course always room for progress in the many systems already in place to aid the poor, but these systems should be evaluated and improved rather than thrown out and replaced as Ehrenreich suggests.

Amid all this discussion of imperfect systems and class struggle, it is important to note that while there are legitimate concerns about class barriers, mobility does exist. In The New York Times written book Class Matters, one of the authors chronicles the life story of John Zannikos, “An illiterate [Greek] immigrant who came to New York years ago with nothing but $100 in his pocket and a willingness to work etched in his heart” (DePalma 112). He worked his way up in the restaurant industry through hard work; learning English as he went from dishwasher to short-order cook, and from small restaurant owner to successful entrepreneur. My father too, shares a similar story. He started as a janitor in a grain inspection office and over a period of years worked his way up into upper management.

Stories like these are at the heart of the American dream, but some dismiss these as anecdotal evidence that may actually be problematic to society. In Class Matters, another author states that, “These success stories reinforce perceptions of mobility” (Leonhardt 19) and labels this perception as, “Blind optimism” (Leonhardt 26). But are these merely misplaced perceptions, or justified hope? Mobility may not be as fluid or common as we would like, but it does nonetheless exist. In fact, many in America have apparently been vindicated in their optimism. In a 2005 survey by The New York Times “45 percent of respondents said they were in a higher class than when they grew up, while just 16 percent said they were in a lower one” (Leonhardt 10).

Renovation of the current system is certainly needed, but the principals of utility necessitate the use of reason over passion. While Ehrenreich presents many valid critiques of the minimum-wage system that need to be addressed, her well-intentioned suggestions would make matters far worse. Her suggested sharp increases in minimum-wage and social programs for instance, would force companies to raise prices and lay off employees in order to recover their costs. This would inevitably lead to a market stagflation; that is, higher prices but no new jobs. While some on the lower rung would now be able to live at a slightly higher standard living, we would be putting millions of people out of the job market, and consequently off the economic ladder all together. A balanced approach to improving working conditions for the minimum-wage worker should therefore be our primary short-term focus, and increased class mobility our long-term greater goal. While simple reparation certainly lacks the excitement of Ehrenreich’s proletarian revolution, it is our best hope for sustainable progress.

Works Cited
Commission, Equal Employment Opportunity. U. S. Equal Employment Opportunity Commission. 22 1 2009 .
DePalma, Anthony. "Fifteen Years on the Bottom Rung." Times, The New York. Class Matters. New York: Henry Holt and Company, 2005. 112.
Economics, Gatton College of Business and. University of Kentucky Center for Poverty Research. 22 1 2009 .
Ehrenreich, Barbara. Nickel and Dimed. New York: Henry Holt and Company, 2001.
Federal Student Aid, Free Application for. About Federal Student Aid. 7 4 2008. 22 1 2009 .
Leonhardt, Scott , David, Janny. "Shadowy Lines That Still Divide." Times, New York. Class Matters. New York: Henry Holt and Company, 2005. 10.
USDA, Food and Nutrition Services. Women, Infants, and Children. 19 12 2008. 23 1 2009 .