American Elephants

Free Markets, Free People, Free Minds, Free Speech by The Elephant's Child

How do  you make an economy grow and prosper? An constant theme among the Democrats focuses on dividing up existing wealth. They are quite sure that affluent Americans have reached their wealthy state at the expense of the poor and the middle class. Their solution is to take the excess wealth from the rich and give it to the poor in the form of government grants of one sort or another.

The important point is that there is no growth nor prosperity in their plan. Bernie Sanders can promise free college for all which he intends to accomplish by taking more money from the rich, whether in much higher taxes on their income or some kind of direct grab of their untaxed wealth in offshore shelters or wherever they are hiding it.

The problem is that the Democrats are far more interested in “equality” than they are in creating wealth. They really don’t understand how wealth is created, they are much more caught up in class envy. A constant theme of the current Democratic presidential race has been income inequality, with a belief that America’s rich have reached their status at the expense of the poor and the middle class. Perhaps they always think of wealth as a pie, divided into servings, and the rich get the big pieces so there is little left for the poor.

They are big on “diversity” so they are currently intent on moving poor minorities into well-to-do suburban neighborhoods. Every neighborhood should be diverse, no more black neighborhoods or ethnic neighborhoods. My German ancestors came to Germantown in Pennsylvania when they arrived in America. Human beings are tribal, and want to live with people who are like themselves, and speak the same language, and eat the same kind of food, celebrate the same holidays — it’s natural, and happened with most ethnic groups who immigrated.

How do you create wealth? New small businesses start and gradually grow into big businesses, not all of them of course — but all big businesses once started as little businesses.

And those small businesses began with an idea. How do you generate ideas? Some of them start with irritation with a tool, for example, when someone is frustrated with a tool that does not accomplish the desired task, and they just figure there must be a better way.  For most, it stops there because they have no idea how to turn their idea into a business. Those who create a business don’t necessarily have knowledge of how to successfully run a business. And how to run a business is divided up into many different skill sets.

All those inventions that have changed the world — think of how Edison’s little lightbulb changed life all across the world, and all the millions of other inventions and businesses that have derived from cheap, dependable light— when the sun goes down.

It’s autonomy — the quality or state of being independent, free and self directing. The capacity of a rational individual to make an informed, uncoerced decision. Why do the Democrats hate freedom so much?

Is Income Inequality Really the Burning Issue of Our Times? by The Elephant's Child


A constant theme for the Democratic presidential race has been income inequality. Democrats always want to increase envy in the minds of their loyalists, and what better way than to insist that America’s affluent got rich, unjustly, at the expense of the poor and the middle class. Envy and resentment stoke the fires of class warfare, and the Obama Administration’s lackluster economy and slow growth make people feel helpless and more inclined to blame others for their circumstances.

Liberals want to address income inequality by redistributing wealth from the well-to-do and giving it to the poor. It’s comforting to believe that the misfortunes of your life can be blamed on someone else. But natural demographic changes and lifetime income cycles distort the estimates of income inequality.

Young people just beginning a career not only don’t earn very much, but they want to get married and buy cars and houses and have babies. And they go into debt to do so. Their parents have been saving all of their lives, educating their children, and gradually building up some wealth. U.S Census data show a clear relationship between age and median net-worth in every quintile, Moreover, the death rate has fallen sharply — people are living longer, and there are more of them. Young people have less retirement savings, and the old folks have a far higher homeownership rate. Older workers have more skills built up over a lifetime, and are worth more to employers because they are more productive.

Economist Thomas Sowell has explained:

Only by focusing on the income brackets, instead of the actual people moving between those brackets, have the intelligentsia been able to verbally create a “problem” for which a “solution” is necessary. They have created a powerful vision of “classes” with “disparities” and “inequities” in income, caused by “barriers” created by “society.” But the routine rise of millions of people out of the lowest quintile over time makes a mockery of the “barriers” assumed by many, if not most, of the intelligentsia.

The Left believes in government, not in the free market, which they don’t understand at all. The only way that government can create jobs is to hire more people — which they do regularly by creating more regulations and more agencies — all of which is paid for by the taxpayers, thereby reducing the wealth of the people and the economy. This is what they call progress.

Bernie Sanders’ and Hillary Clinton’s campaigns are based on finding ever more ways to redistribute wealth, taking more money from more productive people and giving it to the less productive.

Raising the minimum wage is one way. “No one can raise a family on the minimum wage” they say. No one is supposed to. Minimum wage jobs are meant to be jobs for first-time workers. How many people do you suppose are qualified to wipe off tables, sweep the floor and punch labeled keys on the cash register at a fast food restaurant? Conversely, how many people do you suppose are qualified to manage 20,000 employees in 20 separate divisions of a giant corporation in fierce competition with other giant corporations in the same business?

“But it isn’t fair!” is the cry. Your mother probably told you that life is not fair. She was right. The young person who graduates from college and graduate school with excellent grades and an advanced degree is going to have a different life than the young person who dropped out of high school without graduating, and has had trouble finding a steady job. That isn’t about fairness.

In actuality, the middle class is just fine, and still driving the economy. What is happening is more a result of how the researchers  divide up the quintiles into which they separate Americans. You have the poor, the lower middle class, the middle class, the upper middle class and the rich. Pew Research, for example, takes the median income in a given year, with half richer and half poorer. And how you define “middle income” can create all sorts of mischief and all sorts of interesting headlines.  Pew’s definition of “middle income” isn’t anchored to any fixed standard of living, but in fact represents a rising standard of living over time. And surprisingly, everybody is substantially better off than they were 45 years ago.

Poverty has decreased across the world, and in 2015, food prices are down by 19 percent in just the last year. Food is more abundant, probably due to  slight increases in carbon dioxide in the atmosphere, a natural fertilizer for plants which is greening the world.

Redistribution Doesn’t Work, And American’s Know It. by The Elephant's Child


Here’s a great Fourth of July weekend message for Americans:

The White House has all but abandoned a message
of income inequality it had focused on last year.
It turns out Americans are not moved by the topic
and prefer a message based on opportunity.

This is a very big deal indeed. Barack Obama has called income inequality a “fundamental threat to the American Dream, our way of life and what we stand for around the globe.” This is a burning issue for liberals. They depend on class envy, hatred for the rich, compassion for the poor, and the never-ending leftist effort to make everybody equal — except for the wise experts who will run everything, of course. And ordinary Americans just don’t care. They would rather have more jobs and more opportunity.

In 2013, income inequality was the top narrative for the White House, but they abruptly switched away from it. Democratis strategists and their pollsters concluded that they should focus less on the wealth gap and more on emphasizing that all Americans shoud have economic “opportunity” to get ahead or a “fair shot”. Oh yes, we remember Mr. Obama’s constant refrain about “an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.” Another iteration of equality.

Last year White House political research showed that income inequality was a wonky term that did not always resonate with voters, but Obama insisted on speaking about it anyway.

That focus culminated in a December speech in a low-income neighborhood in Southeast Washington, where he referenced inequality 26 times and discussed academic findings on the gap between the wealthy and the poor.

“He wasn’t particularly interested in knowing whether that was a good economic message,” said one person familiar with the process, who spoke on the condition of anonymity in order to discuss private conversations. “He wanted to sound alarm and put voice behind that.”

But as 2014 loomed, White House strategists concluded that inequality was not registering with voters on its own.

It’s the phrase, you see. “Income inequality ” doesn’t have a ‘personal immediacy’ and there are other things that are much more immediate and tangible and more real to people. It’s a matter of getting the right phrase. What they want, of course, are more taxes on wealthier Americans in order to give more benefits to poorer Americans. It’s just a matter of figuring out what phrases will be most compelling. It is a matter of feelings — what will resonate with voters emotionally. They will test a variety of words and phrases to see what resonates.

What they will not do is investigate to what extent inequality matters. “Claims about the supposed harm done by rising income inequality are rarely substantiated, and a comprehensive read of the evidence as to inequality’s consequences offers little cause for alarm.”

Income inequality is a thing of graphs, charts and statistics. Politicans look at the statistics and are sure that it represents dire circumstances for the poor and nasty greed of the wealthy. They create remedies based on statistics that represent an average across the country,and try to legislate a correction. Fifty years ago Lyndon Johnson began a $20 trillion War on Poverty. Fifty years later, the overall percentage of impoverished people in the U.S. has declined only 2 percent. When the War on Poverty began, about 6 percent of children were born outside of marrige. Today it is 42 percent and a catastrophe. The incentives of welfare encourage recipients to stay on welfare forever, and that creates a pathology of crime, drugs, incarceration.

Income inequality has not gone away as a goal of the Left. It is merely seeking a new disguise. Just another shift in the permanent effort of the Left to make everybody equal — except for the ruling class of wise experts who will direct and control everything. A growing economy offers opportunity for all.

Growing Inequality Isn’t What Matters. What Matters is Good Jobs for the Jobless. by The Elephant's Child

In an attempt to turn the American conversation away from the botched rollout of ObamaCare and the horror stories from new enrollees, President Obama has begun emphasizing income inequality. Envy is always a popular ploy among Democrats that plays well at the polls. Ron Bailey summed it up well at Reason:

Are the rich getting richer? Yes. Are the poor getting poorer? No. Over the past 35 years most Americans got richer. Has income inequality increased in the United States? Yes. Does it matter? President Barack Obama declared in a December speech at the Center for American Progress that “a dangerous and growing inequality and lack of upward mobility” is “the defining challenge of our time.” Is that true? No.

The financial arm of the federal government uses the census and statistics from the IRS to divide the American people into quintiles. In December 2013, the Congressional Budget Office (CBO) examined the after-tax income trends for each quintile of American households since 1979, including not just wages but also benefits and transfer payments. The bottom fifth’s after-tax income in constant dollars rose by 49 percent. The incomes of the middle three quintiles increased by 37 percent, 36 percent and 45 percent respectively.

Gary Burtless, an economist at the Brookings Institution examined CBO data from 1979 to 2010 (the last year for which data are available), and divided the top quintile into four groups: those in the 90th percentile and below, those in the 91st through 95th percentiles and the top 1 percent. During those years, incomes for those fortunate households increased by 54 percent, 67 percent, 79 percent and 202 percent. The rich got richer too, but they got richer faster. Is this when “the one percent” became an ‘important’  buzz word?

What is missing in these statistics is the fact that the people in these quintiles are not the same people over time. Forbes magazine’s annual listings of the richest Americans and world’s richest are manna for the Occupy crowd and the faculty lounge. University professors have always found it enraging that corporate CEOs make huge salaries with enormous benefit packages when they, with their PhDs, are clearly smarter. Envy. But where else do you find so many who disapprove of capitalism?

Economist Alan Reynolds points out that “those who obsess over income shares should welcome stock market crashes and deep recessions because  such calamities invariably reduce ‘inequality.’ Of course, the same recessions also increase poverty  and unemployment.” If you follow Forbes listings, you will notice that some drop off the list and new names appear. But these are not normal times we are living through, as we have an administration determined to fix inequality, but consistently doing the wrong thing about it.

In his December speech, the president suggested that rising inequality is limiting income mobility, leaving poor Americans increasingly stuck and struggling on the lower rungs. The data do not support this claim.

We have had an astounding period of growth that has produced enormous wealth because of internet technology. I don’t know that we have ever before had a technological innovation that meant that every household and every office had to have at least one computer and probably one for each and every  person. Not only that, but the industry is so busy creating and updating and innovating that everyone has to replace everything constantly, and they do so without much complaint, and there are no signs that it ever diminish.

The great defining economic challenge of our time is not putting an end to inequality. The challenge is the persistent joblessness and sluggish economic growth perpetuated by Obama administration policies. A growing economy  will produce more economic mobility. Trying to make the poor stop being poor by redistributing the wealth of the rich has never worked, though often tried.

Intellectuals fretting about income disparity are far too focused on the wealthy, while ignoring the elephant in the room. The strongest statistical correlate of inequality in the United States is the rise of single-parent families during the past 5o years. In 1960, more than 76% of African-Americans and nearly 97% of white were born to married couples. Today the percentage is 30% for blacks and 70% for whites.

This trend, accompanied by high divorce rates means that roughly 25% of all American children now live in single-parent homes, twice the percentage in Europe. Roughly a third of American children live apart from their fathers. It matters. Two parents work better than one.  Even rich kids don’t do as well in single parent families.

Class Warfare, Self-Reliance, Envy and The Benefits of Income Inequality by The Elephant's Child

President Obama’s suggestion that if he loses the 2012 election “it might herald a painful era of self-reliance in America,” is still bothering me.  Self-reliant people are those we call — adults. And how interesting that he would come up with that as he praises the Occupy people, proposes to reduce the payments on student loans (by an impressive $10 a month), and in every way suggests that Americans are children who must be cared for.

This is why Liberals promote class war. Hate and envy for “the rich;” the Occupy people separate themselves into the 99% and the 1%.  The 1% are the rich — who deprive the 99% rest of the country — of what? Their money? Their possessions? Their influence?

Well, excuse me. I don’t care to be grouped in any 99% with the economically illiterate freeloaders drumming and chanting in squalor.  They do not represent 99% of anything. There are around 330 million people in the United States.  If you had an Occupy protest in two cities in each state, you would have to have 33,000 deadbeat occupiers at each protest to equal 1% of the 330 million people in the country.  They are just the other not quite 1%.  They have an exaggerated idea of their own importance, but tourists do come to look at the squalor.

Their motivating ideas seem to be their own student loans, or their unemployed state, or just general lethargy. In general the motivation seems to be the idea of increasing inequality. Since the poor cannot get poorer (though this is probably false, since we have very affluent poor, as demonstrated by their iPads and iPods and laptops) if the gap between rich and poor grows, then it’s no fair— the rich must be getting richer. In this recession, the rich aren’t as rich as they used to be either.

The whole thing, however, assumes that equality would be a good thing. Why would anyone assume that? Is it unfair if the fellow who worked long hours all his life to get an advanced education, build a business, and make it grow becomes richer than the deadbeat who dropped out of high school, dabbled in drugs and petty crime and never held a job for long?

Liberals have long focused on inequality and the unfairness of it all.  They cannot get their minds around the idea that inequality might possibly be a good thing.

I am a great admirer of Richard Epstein, Professor of Law, Scholar at the Hoover Institution.  He was invited as a contrarian speaker to the PBS News Hour’s series on “Inequality in America”, making sense of economic news.  This is not a video I can embed here, but here is the link. Professor Epstein is wonderful to listen to, explains clearly why economic inequality is a good thing.  It is a marvelous video, and great fun to watch the PBS host’s head explode. (They must wish they never invited him). Poor interviewer Paul Solman is flummoxed, incredulous, unbelieving!  How would anyone say such things!  But, but.. It’s great fun, and you may want to watch it several times to catch all of Epstein’s ideas.  PBS probably never heard such ideas before.

The Rich, The Poor, And Inequality. A Fresh Look. by The Elephant's Child
April 30, 2011, 4:44 pm
Filed under: Capitalism, Freedom | Tags: , ,

This graph, posted by economist Veronique de Rugy,  takes a minute or two to understand, but there’s a lot of information here, and it’s worth your time.  The graph shows inequality within a country— in the context of inequality around the world.

The horizontal line at the bottom shows the population of each country divided into  20 equal-sized income groups, ranked by their household per-capita income.  This is divided into 5 clusters (or ventiles) each of 5 percentiles, similar to the way we  customarily divide people in this country from ‘poor’ to ‘rich.’  So the entire population of a country is divided, by income, into 20 equal parts.

The household income numbers are all converted into international dollars adjusted for equal purchasing power, since the cost of goods varies from country to country.  In other words the chart adjusts for the cost of living in different countries, so we are looking at consistent living standards worldwide.

The vertical axis shows where any given ventile from any country falls when compared to the entire population of the world.

Trace the line for Brazil, a country with extreme income inequality.  The poorest 5 percent of Brazilians are as poor as anyone in the entire world,while at the other end of the Brazil line are some of the world’s richest people.  This one country spans the entire range of world income.

See how the entire line for the United States falls in the top portion of the chart?  The entire country is relatively rich.  Americas poorest people are still richer than most of the world.

Compare with the line for India.  India’s poorest correspond with the 4th poorest percentile worldwide, and India’s richest are in the 68th percentile, about where America’s poorest are, as a group.  The bottom chunk of Americans, some of whom make as much as $6,700, amounts to a good standard of living in India where about a quarter of the population lives on $1 a day.

When it comes to income inequality, in America, there is relatively not all that much  of it.  For most people in the world, where you are born makes all the difference.

What do the poor most need? They need to stop being poor.  And how can that be done on a mass scale excpt by an economy that creates more wealth?  Yet the political left has long had a remarkable lack of interest in how wealth is created.  As far as they are concerned, wealth exists “somehow” and the only interesting question is how to re-distribute it.
(Thomas Sowell)

The very fact that economists sweat over statistics purporting to demonstrate economic inequality in America proves that there is, relatively speaking, not much of it.
(Irving Kristol)

The chart comes from Catherine Rampell of Economix.


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