The Increasing Invisibility of Income Inequality

by DON BOUDREAUX on MAY 9, 2004

Take a thoughtful libertarian and a thoughtful left-liberal for a latte, listen to them converse, and you’ll find agreement on a surprisingly wide range of issues. One issue, though, that will almost certainly not be agreed upon is the significance of income inequality. The left-liberal’s deep concern about this issue, and the libertarian’s (and conservative’s) relative unconcern about this issue is striking.

This issue is too big to grapple with fully over a leisurely latte (or in a blog post). But I here suggest that economic growth, even as it might generate ever-larger income inequality, increasingly renders these same differences in money income or wealth less and less relevant as a measure of differences in quality of life. Some examples:

– Inexpensive consumer electronics enable almost all Americans, even the poorest, to listen at their leisure to the world’s finest orchestras perform great music; contrast now with, say, 1880, when only the relatively rich could afford to hear great music – and only the superrich (by hiring their own chamber orchestras) could enjoy listening to such music whenever they wished.

– Today’s inexpensive Chevrolets and Kias are more reliable and better equipped than were top of the line Cadillacs of 40 years ago.

– Fifty years ago European vacations were a luxury enjoyed mostly by the rich and upper middle classes; today – chiefly because of inexpensive air travel – such vacations are within the means of a much greater proportion of the population.

– The clothing worn by wealthy Americans is virtually indistinguishable from the clothing of ordinary Americans; Bill Gates, Tom Hanks, and Laura Bush are not distinguished from the vast majority of Americans by their clothing. In both quality and quantity, clothing is nearly super-abundant in modern western society.

The further back you go in history, the greater were the material differences that separated rich from poor. Many of these distinctions were evident to the untrained eye (for example, the rich rode in carriages; the poor walked). Fewer of the distinctions today between rich Americans and middle-class Americans – even poor Americans – are as palpable, as salient, as stark, as were the distinctions of generations past.

Bill Gates has many more zeroes in the accounts of his finances than I have in the accounts of my finances. But I don’t see these; no one sees these. What is seen, what is experienced, what is palpable, as differences between Gates’s financial status and that of ordinary Americans is increasingly disappearing.

Blarney

by DON BOUDREAUX on JULY 6, 2005

Dear Mr. Ebnet:

You are "saddened" that Ireland is becoming economically prosperous. No, that’s not quite right (or fair of me): You are "saddened" because Ireland is losing its "identity" as its people cooperate ever more closely with more and more peoples from around the world in a process that improves their standards of living.

The sight of "foreign manufacturing plants" in Ireland burdens you with "oppressive melancholy." You regret that Gaelic is fading today everywhere as a spoken language, save in the western coast of Ireland – the part that remains poorest and that hasn’t yet been much affected by globalization.

You expressly hope that other countries don’t follow Ireland’s recent path, lest they lose their "identities."

Reading your letter reminds me of a conversation I had about five years ago with a friend – a dear and good friend – who just returned from her first trip to Ireland. She was disappointed because Ireland "looks a lot like America."

This American friend of mine wanted Ireland to be filled with cute little thatched-roof cottages inhabited by gentle peasant-folk tending their gardens, feeding their pigs, and looking about merrily in verdant meadows for four-leafed shamrocks. My American friend was appalled that the Irish share her taste for material wealth – for houses with solid roofs – for modern appliances – for automobiles and broad, smoothly paved roads – for shopping centers, airports, fusion-cuisine restaurants, and all the other blessings of a worldwide market.

Of course, my American friend didn’t quite see herself in this way. She simply didn’t see or think. To her – a middle-class American woman for whom material wealth is the norm – the expected opportunity to gaze first-hand upon simple peasants going about their peasant-ways in their peasant-clothes in their peasant-settings was almost something of a right. "How dare they not be as I expect them to be!" was her unsaid theme. "How dare they enjoy similar things to those that I enjoy! How dare their country look like mine! This unexpected set of affairs makes my vacation to Ireland less pleasant."

In other words, this friend of mine – like you, Mr. Ebnet – selfishly wants other people to be museum pieces for her enjoyment. You and she dislike signs of material progress in Ireland because you live in the United States, with ready access to an abundance of material wealth that the Irish are just now beginning to enjoy themselves.

You blithely wish that the Irish had remained poor so that you would have continued, during your visits from America, to luxuriate in their quaint languages and enjoy gazing upon Ireland’s natural vistas unaffected by advanced commerce.

And you want other peoples to reject the wealth that the Irish (and Americans) now enjoy so that they retain their "identities" – identities as poor, peasant-dominated societies.

Why should other people want to make these sacrifices for you, Mr. Ebnet? Are you willing to make like sacrifices for them? Are you, for example, willing to go off to live in the Minnesota woods in an unheated log cabin with no running water or electricity? No car? No supermarkets? After all, I’m sure that visitors to America would really appreciate gazing upon a true American pioneer, living just the way our great-great-grandparents lived.

If you’re not willing to take this step, Mr. Ebnet, please tell me why you expect the Irish and other peoples in places less affluent than the U.S. to do so? Or, at least, please explain why your selfish desires about how Ireland and other countries should look and sound deserve a hearing given that the people who live in these places obviously want more material prosperity.

Sincerely,

Don Boudreaux (whose grandmothers were born Teresa Flanagan and Estella Ryan)

Where Would General Motors Be Without the United Automobile Workers Union?

 04/19/2006 George Reisman

This is a question that no one seems to be asking. And so I've asked it. And here, in essence, is what I think is the answer. (The answer, of course, applies to Ford and Chrysler, as well as to General Motors. I've singled out General Motors because it's still the largest of the three and its problems are the most pronounced.)

First, the company would be without so-called Monday-morning automobiles. That is, automobiles poorly made for no other reason than because they happened to be made on a day when too few workers showed up, or too few showed up sober, to do the jobs they were paid to do. Without the UAW, General Motors would simply have fired such workers and replaced them with ones who would do the jobs they were paid to do. And so, without the UAW, GM would have produced more reliable, higher quality cars, had a better reputation for quality, and correspondingly greater sales volume to go with it. Why didn't they do this? Because with the UAW, such action by GM would merely have provoked work stoppages and strikes, with no prospect that the UAW would be displaced or that anything would be better after the strikes. Federal Law, specifically, The National Labor Relations Act of 1935, long ago made it illegal for companies simply to get rid of unions.

Second, without the UAW, GM would have been free to produce in the most-efficient, lowest cost way and to introduce improvements in efficiency as rapidly as possible. Sometimes this would have meant simply having one or two workers on the spot do a variety of simple jobs that needed doing, without having to call in half a dozen different workers each belonging to a different union job classification and having to pay that much more to get the job done. At other times, it would have meant just going ahead and introducing an advance, such as the use of robots, without protracted negotiations with the UAW resulting in the need to create phony jobs for workers to do (and to be paid for doing) that were simply not necessary.

(Unbelievably, at its assembly plant in Oklahoma City, GM is actually obliged by its UAW contract to pay 2,300 workers full salary and benefits for doing absolutely nothing. As The New York Times describes it, "Each day, workers report for duty at the plant and pass their time reading, watching television, playing dominoes or chatting. Since G.M. shut down production there last month, these workers have entered the Jobs Bank, industry's best form of job insurance. It pays idled workers a full salary and benefits even when there is no work for them to do.")

Third, without the UAW, GM would have an average unit cost per automobile close to that of non-union Toyota. Toyota makes a profit of about $2,000 per vehicle, while GM suffers a loss of about $1,200 per vehicle, a difference of $3,200 per unit. And the far greater part of that difference is the result of nothing but GM's being forced to deal with the UAW. (Over a year ago, The Cincinnati Enquirer reported that "the United Auto Workers contract costs GM $2,500 for each car sold.")

Fourth, without the UAW, the cost of employing a GM factory worker, including wages and fringes, would not be in excess of $72 per hour, which is where it is today, according to The Post-Crescent newspaper of Appleton, Wisconsin.

Fifth, as a result of UAW coercion and extortion, GM has lost billions upon billions of dollars. For 2005 alone, it reported a loss in excess of $10 billion. Its bonds are now rated as "junk," that is, below, investment grade. Without the UAW, GM would not have lost these billions.

Sixth, without the UAW, GM would not now be in process of attempting to pay a ransom to its UAW workers of up to $140,000 per man, just to get them to quit and take their hands out of its pockets. (It believes that $140,000 is less than what they will steal if they remain.)

Seventh, without the UAW, GM would not now have healthcare obligations that account for more than $1,600 of the cost of every vehicle it produces.

Eighth, without the UAW, GM would not now have pension obligations which, if entered on its balance sheet in accordance with the rule now being proposed by the Financial Accounting Standards Board, will leave it with a net worth of minus $16 billion.

What the UAW has done, on the foundation of coercive, interventionist labor legislation, is bring a once-great company to its knees. It has done this by a process of forcing one obligation after another upon the company, while at the same time, through its work rules, featherbedding practices, hostility to labor-saving advances, and outlandish pay scales, doing practically everything in its power to make it impossible for the company to meet those obligations.

Ninth, without the UAW tens of thousands of workers — its own members — would not now be faced with the loss of pension and healthcare benefits that it is impossible for GM or any of the other auto companies to provide, and never was possible for them to provide. The UAW, the whole labor-union movement, and the left-"liberal" intellectual establishment, which is their father and mother, are responsible for foisting on the public and on the average working man and woman a fantasy land of imaginary Demons (big business and the rich) and of saintly Good Fairies (politicians, government officials, and union leaders). In this fantasy-land, the Good Fairies supposedly have the power to wring unlimited free benefits from the Demons.

Tenth, Without the UAW and its fantasy-land mentality, autoworkers would have been motivated to save out of wages actually paid to them, and to provide for their future by means of by and large reasonable investments of those savings — investments with some measure of diversification. Instead, like small children, lured by the prospect of free candy from a stranger, they have been led to a very bad end. They thought they would receive endless free golden eggs from a goose they were doing everything possible to maim and finally kill, and now they're about to learn that the eggs just aren't there.

It's very sad to watch an innocent human being suffer. It's dreadful to contemplate anyone's life being ruined. It's dreadful to contemplate even an imbecile's falling off a cliff or down a well. But the union members, their union leaders, the politicians who catered to them, the journalists, the writers, and the professors who provided the intellectual and cultural environment in which this calamity could take place — none of them were imbeciles. They all could have and should have known better.

What is happening is cruel justice, imposed by a reality that willfully ignorant people thought they could choose to ignore as long as it suited them: the reality that prosperity comes from the making of goods, not the making of work; that it comes from the doing of work, not from the shirking of it; that it comes from machines and methods of production that save labor, not the combating of those machines and methods; that it comes from the earning and reinvestment of profits not from seizure of those profits for the benefit of idlers, who do all they can to prevent the profits from being earned in the first place.

In sum, without the UAW, General Motors would not be faced with extinction. Instead, it would almost certainly be a vastly larger, far more prosperous company, producing more and better motor vehicles than ever before, at far lower costs of production and prices than it does today, and providing employment to hundreds of thousands more workers than it does today.

Few things are more obvious than that the role of the UAW in relation to General Motors has been that of a swarm of bloodsucking leeches, a swarm that will not stop until its prey exists no more.

It is difficult to believe that people who have been neither lobotomized nor castrated would not rise up and demand that these leeches finally be pulled off!

Perhaps the American people do not rise up because they have never seen General Motors, or any other major American business, rise up and dare to assert the philosophical principle of private property rights and individual freedom and proceed to pull the leeches off in the name of that principle.

It is easy to say, and also largely true, that General Motors and American business in general have not behaved in this way for several generations because they no longer have any principles. Indeed, they would project contempt at the very thought of acting on any kind of moral or political principle.

One of the ugliest consequences of the loss of economic freedom and respect for property rights is that it makes such spinelessness and gutlessness on the part of businessmen — such amorality — a requirement of succeeding in business. Business today is conducted in the face of all pervasive government economic intervention. There is rampant arbitrary and often unintelligible legislation. There are dozens of regulatory agencies that combine the functions of judge, jury, and prosecutor in the enforcement of more than 75,000 pages of Federal regulations alone. The tax code is arbitrary and frequently unintelligible. Judicial protection of economic freedom has not existed since 1937, when the Supreme Court abandoned it, out of fear of being enlarged by Congress with new members sufficient to give a majority to the New Deal on all issues. (Try to project the effect of a loss of judicial protection of the freedoms of press and speech on the nature of what would be published and spoken.)

Any business firm today that tried to make a principled stand on such a matter as throwing out a legally recognized labor union would have to do so in the knowledge that its action was a futile gesture that would serve only to cost it dearly. And a corporation that did this would undoubtedly also be embroiled in endless lawsuits by many of its stockholders blaming it for the losses the government imposed on it.

But none of this should stop anyone else from speaking up and making known his outrage at what the UAW has done to General Motors.

This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author's web site www.capitalism.net is included. (Email notification is requested.) All other rights reserved. Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics. His book is available through Mises.org, Amazon.com, and on his web site. See his Mises.org Daily Articles Archive and read his interview in the Austrian Economics Newsletter. You can contact him by mail. To comment on this piece, go to the blog.

Politics And Immigration

 Give me your tired, your poor,

Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tossed to me
I lift my lamp beside the golden door.
—Verse engraved on the base of the statue of liberty

Readers of my blog know that I am overall very pro-immigration. I have a strong belief that immigrants are a net plus, both for this country and for the immigrants themselves. In economics, there are hardly ever such win-win situations as there are with immigration and our country.

One of my biggest pet peeves is, when discussing politics and my views on immigration, for someone to automatically refer to my immigration views as ‘liberal’, or to imply that I am not conservative on immigration issues. The reason this bothers me so much is because immigration is much more complicated than simply reducing it to a liberal/conservative or Democrat/Republican issue, and frankly, I don’t think a pro-immigration view is a liberal tenet, rather it’s more of a conservative tenet. I have refrained from discussing this topic before because it is one of those topics where it is very difficult to explain and the likelihood that someone will read into my posts what I did not mean is high. So up until now, this has been a conversation I usually only bring up over a few beers with friends. However, because of the rise of the minutemen and President Bush’s immigration plan, I have decided to write on this and explain exactly why I think immigration is more a conservative issue.

The Real Public Service

The Real Public Service

Thomas Sowell
|
Posted: Jun 01, 2010 12:01 AM

Every year about this time, big-government liberals stand up in front of college commencement crowds across the country and urge the graduates to do the noblest thing possible-- become big-government liberals.

That isn't how they phrase it, of course. Commencement speakers express great reverence for "public service," as distinguished from narrow private "greed." There is usually not the slightest sign of embarrassment at this self-serving celebration of the kinds of careers they have chosen-- over and above the careers of others who merely provide us with the food we eat, the homes we live in, the clothes we wear and the medical care that saves our health and our lives.

What I would like to see is someone with the guts to tell those students: Do you want to be of some use and service to your fellow human beings? Then let your fellow human beings tell you what they want-- not with words, but by putting their money where their mouth is.

You want to see more people have better housing? Build it! Become a builder or developer-- if you can stand the sneers and disdain of your classmates and professors who regard the very words as repulsive.

Would you like to see more things become more affordable to more people? Then figure out more efficient ways of producing things or more efficient ways of getting those things from the producers to the consumers at a lower cost.

That's what a man named Sam Walton did when he created Wal-Mart, a boon to people with modest incomes and a bane to the elite intelligentsia. In the process, Sam Walton became rich. Was that the "greed" that you have heard your classmates and professors denounce so smugly? If so, it has been such "greed" that has repeatedly brought prices down and thereby brought the American standard of living up.

Back at the beginning of the 20th century, only 15 percent of American families had a flush toilet. Not quite one-fourth had running water. Only three percent had electricity and one percent had central heating. Only one American family in a hundred owned an automobile.

By 1970, the vast majority of those American families who were living in poverty had flush toilets, running water and electricity. By the end of the twentieth century, more Americans were connected to the Internet than were connected to a water pipe or a sewage line at the beginning of the century.

More families have air-conditioning today than had electricity then. Today, more than half of all families with incomes below the official poverty line own a car or truck and have a microwave.

This didn't come about because of the politicians, bureaucrats, activists or others in "public service" that you are supposed to admire. No nation ever protested its way from poverty to prosperity or got there through rhetoric or bureaucracies.

It was Thomas Edison who brought us electricity, not the Sierra Club. It was the Wright brothers who got us off the ground, not the Federal Aviation Administration. It was Henry Ford who ended the isolation of millions of Americans by making the automobile affordable, not Ralph Nader.

Those who have helped the poor the most have not been those who have gone around loudly expressing "compassion" for the poor, but those who found ways to make industry more productive and distribution more efficient, so that the poor of today can afford things that the affluent of yesterday could only dream about.

The wonderful places where you are supposed to go to do "public service" are as sheltered from the brutal test of reality as you have been on this campus for the last four-- or is it six?-- years. In these little cocoons, all that matters is how well you talk the talk. People who go into the marketplace have to walk the walk.

Colleges can teach many valuable skills, but they can also nourish many dangerous illusions. If you really want to be of service to others, then let them decide what is a service by whether they choose to spend their hard-earned money for it.

I LOVE Diversity

 I absolutely love it. Here is a recount of my day today...

I arrived at work to find my Indian/Canadian office mate in the office, we chatted a little about martial arts and what not, than I immediately went to the lab to do some work. As soon as I arrived in the lab, I started talking to an Iraqi friend, this friend is from northern Iraq, and overall supports the war in Iraq. He is always up to date on all the news, and fills me in on what it's like to be in Iraq. Today's topic of choice was the movie I let him borrow, Voices of Iraq, he hadn't watched it yet, as I was interested in his perspective on the movie.

Soon after that, I bumped into another friend at work, a native of Canada. This is a friend that I have long economic conversations with. He grew up amongst anarchists (damn Chomsky!!) and has leanings towards communism (yikes!!!). Needless to say, I immediately proceeded to talk about the wonders of Capitalism. Today's topic was some books I had recommended him (Friedman, Sowell, and Hazlitt). He is a smart cat, with a huge heart, it won't be long before he connects the dots.

Later, I chatted with a different Indian friend, not my old house mate, but a friend that is part of my group at work. We chatted about work stuff here and there, but overall touched on the topic of colonization (Queen Elizabeth, give them their Diamond back!!!) and what it does to a country. Nothing too long, just simple conversations.

I than headed to class (UCSD) with my other office mate (it's a big office, ok!!), who I have known since I started college, and who happens to be a Vietnamese refugee. His father, after the USA withdrew from Vietnam, was imprisoned for 10+ years for fighting with the USA for South Vietnam. President Reagan (may he rest in peace) went to Vietnam, and gave every family that had a family member imprisoned for a certain number of years (can't remember the exact number, I think it was 2 or 3 years) for fighting with the USA, free passage to the United States. My friend came, worked for a few years, saved saved and saved. Eventually enrolled into college, while still waking up at 4 amish to deliver newspapers, and graduated top of his class (I was second :-( ). He is now one of the top Engineers at our company. Imagine, with no help but his own will and dedication, in fact, there were many times where he had to go out of his way to support him and his father. Yet he did it, with no complaints and nothing but love and joy for this country. He never stops telling me how absolutely horrible it is to live under a communists regime, and always reminds me how lucky I am to be in the United States (God Bless America!!).

Upon arriving at school, I got the updates from our (school) lab partners. There are five of us, myself, my Vietnamese work mate, two foreign exchange students from Iran, and one Sikh from India (btw, Turbans in the USA pretty much means Sikh NOT Muslim). We chatted a bit, and than headed back to work.

When I got back to work, another friend of mine was in the (work) lab. This is another Mexican/American friend who, like myself, speaks fluent Spanish. When I was younger my dad used to give me a 'coscoron' everytime I spoke English to someone who you could clearly tell spoke Spanish better, and it's no different with this friend. I don't care how many people are around that don't know Spanish, when me and him communicate it is always in Spanish (Remember the Treaty Of Guadalupe Hidalgo, before giving me an English Only lecture ;) ). Sometimes we talk about his kids, who btw, were raised by him and his wife of SEVERAL years (they were married very early, both are natives of Mexico). His oldest son just completed, at age 25ish, his Masters in Electrical Engineering from UCSD and now works for Nokia (making BIG bucks), and his eldest daughter is a public school teacher, his second oldest daughter is getting her bachelors degree at UCSD in Physics. Yeah, you heard that right, I am very proud (on a side note, my 13 year old sister is very good at math, I have high hopes for her, more news in a few years)!!!

While walking down the hall, I chatted with a white friend, about another Chinese friend who had been in a bicycle accident. Everything is ok, he will be back to work on Monday.

After this, I came home and chatted with my white roommate about this upcoming weekend. You see, I have friends coming over this weekend, mostly old college friends, but some friends I knew outside of college. As a matter of fact, I have a very close college white friend of mine driving from San Jose as we speak, he is due to get here at 3am in the morning. Who is coming you say, well if everything works as planned, it should be possibly two black guys, two white guys, four Mexican guys, two Cubans, and a guy from Peru. And those are just the ones staying over my place. I invited some friends from work, friends from school, and just friends that live in San Diego (Oso and Derek, you guys are invited too).

All in one day. I haven't even started talking about how my meetings at work are...It's almost a mini United Nations (except we get things done, and don't steal from the poor).

For all the crap some people give to California, this is certainly not part of it. This is the America I've known, the America I love, and the America that makes this country great. Sometimes I think it is even better than all the hot women here (ok, you're right, the hot women are better, but it's a close second). And it is very enriching.

With that out of my system, see you all on Monday, I got some partying to attend too.

PS: I also got A LOT of work done in the blank spots above...don't want anybody getting the impression... (Originally published: 1/21/2005)

Environmental Progress vs Economic Growth

 Many people try to frame environmental debates as debates between those who care about the environment and those who simply do not. This is not an accurate picture.

The tug of war between environmentalists and 'non-environmentalists' is not a tug of war between those who care for the environment vs those who do not care for the environment. It is between the environment vs economic growth and personal income (be it in the form of more money in your pocket or having a job).

I can not think of one contentious environmental law that doesn’t either harm economic growth or people's pocket book. For example, if you want to place higher taxes on gas, something that John Kerry was very fond of, that would disproportionately hurt my friends back in Compton than people in San Francisco. Why? Because the poorer you are, the more those extra cents a gallon matter. Or think of emission regulations, like those here in California. If those place a burden on companies, who bears the brunt of those burdens? Not the rich CEOs, but the people at the bottom of the economic ladder. For example, if the company decides to leave California because the restrictions are so high, that hurts primarily those w/ less economic capital, those that have less experience and education to bargain with. They lose that job, and they will have a much harder time getting another job than me and my Engineering friends. Or assuming the company doesn’t leave, say those regulations cost the company some extra money, hurting their bottom dollar, who are the first to go? Not the CEOs, but those at the bottom. In addition to personal income, economic growth is also (severely) restricted. Estimates say that it would cost us as much as $150 billion a year to transfer to a more environmentally regulated system.

This is especially evident when you look at underdeveloped countries. The last thing underdeveloped countries need is environmental regulations. At such low levels of economic growth, the first thing they are concentrating on is economic growth and feeding their children. This is the primary reason that underdeveloped countries are usually left out of environmental treaties.

This is primarily why the most pro-environmental people tend to be wealthy. All them Hollywood liberals, for example, are a lot less concerned with economic growth and bottom dollars than the poor. Or, for example, if you were to take a sample of the Sierra Club members, you would see that they are largely upper-income city dwellers (and tend to be anti-immigration, but that is a story for another day). This is why you see limousine liberals much more pro-environmentalist than say, inner city liberalism. Inner city liberals, being on the lower end of economic growth and income, tend to benefit more from the other side of that tug of war.

Of course, both sides are important. We need to preserve the environment and encourage economic growth and care for the poor. The question is where in the middle do you draw the line? The poorer you are, the more you want the line to the right; the richer you are, the more you want the line to the left. Conservatives/Republicans tend to err on the side of economic growth (and, indirectly, personal income for the poor), while liberals/Democrats tend to err on the side of the environment, both ideally wanting the best of both worlds. (Originally Posted: 5/11/2005)