• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

The Economy Cannot Recover As Long As Inequality Continues to Skyrocket ... But Government Policy Is INCREASING Inequality

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Thu, 07/07/2011 - 13:06 | 1433085 BigJim
BigJim's picture

Yes, having the government bail out the richest 1% when they fuck up, and transfer the cost to other taxpayers and currency holders, is obviously going to perpetuate wealth inequality.

But it seems to me that all the hand-wringing about these inequality statistics ignores the fact that the stats are not age-adjusted.

You would expect a 25 year old to be massively more wealthy than a 15 year old, a 35 year old to be more wealthy than a 25 year old, etc. This would peak somewhere around retirement, and if the retirees invested well - so that their principle expanded greater than their outgoings - they'd continue getting richer until death. Obviously then, increased longevity is going to increase wealth inequality statistics.

So let's see some age-adjusted statistics (as well as the end of TBTF, and the enforced penury of those who got bailed out)

Thu, 07/07/2011 - 12:56 | 1433055 aerial view
aerial view's picture

The laws unjustly favor large corporations at the expense of small businesses. If there were no Walmarts, McDonalds, Home Depots, etc, unemployment would not exist, tax base would be much larger and wealth would be more evenly distributed. When I lived in a small town that allowed a Walmart to come in, no less than 20 small businesses went under.

Thu, 07/07/2011 - 12:27 | 1432921 steelhead23
steelhead23's picture

I would like to commend both Mr. Washington and Mr. Durden for presenting this fine piece.  I hope folks don't take the wrong message from the thesis that income inequality undermines economic growth and stability.  The issue is not so much "taking from the rich" in the form of increasing taxes, rather the issue is about increasing wages from labor, which has more to do with trade policy than tax policy and much more to do with boosting labor power than boosting the welfare state.  Indeed, I believe the entire fiscal problem is being pursued stupidly.  Rather than trying to balance the federal budget by cutting spending and increasing taxes, the focus should be on putting slack productivity to work - increasing wages would increase federal revenues without increasing tax rates and would decrease the need for unemployment compensation, food stamps, etc. 

Thu, 07/07/2011 - 12:48 | 1433016 AnAnonymous
AnAnonymous's picture

The issue is not so much "taking from the rich" in the form of increasing taxes, rather the issue is about increasing wages from labor,

 

But that is taking from profits... So the same.

Thu, 07/07/2011 - 12:17 | 1432876 rex-lacrymarum
rex-lacrymarum's picture

The biggest reason for the growth in the GINI coefficient is the fiat money system and the policy of inflation associated with it - as recounted here (link below)  in a critique of a recent Sarah Bloom Raskin speech. It is quite extraordinary to see a person who's working for the institution that bears the highest responsibility for growing wealth inequality to complain about it (and of course, demand even more intrusive government regulations to 'fix' it).

http://www.acting-man.com/?p=8422

Thu, 07/07/2011 - 11:46 | 1432710 steelhead23
steelhead23's picture

I would like to commend both Mr. Washington and Mr. Durden for presenting this fine piece.  I hope folks don't take the wrong message from the thesis that income inequality undermines economic growth and stability.  The issue is not so much "taking from the rich" in the form of increasing taxes, rather the issue is about increasing wages from labor, which has more to do with trade policy than tax policy and much more to do with boosting labor power than boosting the welfare state.  Indeed, I believe the entire fiscal problem is being pursued stupidly.  Rather than trying to balance the federal budget by cutting spending and increasing taxes, the focus should be on putting slack productivity to work - increasing wages would increase federal revenues without increasing tax rates and would decrease the need for unemployment compensation, food stamps, etc. 

Thu, 07/07/2011 - 11:28 | 1432610 dexter_morgan
dexter_morgan's picture

"The bottom line is that government policy is increasing inequality by helping the big boys and hurting just about everyone else."

By George, I think you've got it.

Thu, 07/07/2011 - 11:07 | 1432509 Bartanist
Bartanist's picture

IMO it has nothing to do with equality, however it has everything to do with fairness and equal protection under the law.

I am a proponent of fair, not equal. The system we have now is not "fair".

Thu, 07/07/2011 - 11:45 | 1432704 dexter_morgan
dexter_morgan's picture

+++  seems obvious, but apparently it is not

Thu, 07/07/2011 - 10:14 | 1432296 FMR Bankster
FMR Bankster's picture

History shows income inequality is only reduced during depressions and World Wars. It won't happen but we could slow the process some by raising the taxes on capital gains and dividends (why the hell should THAT income be taxed at a lower rate)and end corporate tax breaks that distort the economy towards finance capital. End the deduction for interest expense and LBO's end overnight. (along with the layoffs)Basically do away with ALL corporate tax breaks and drop rates towards those prevelent in other countries. Never happen of course since liberals love their green energy dreams (illusions)just as much as the right loves drill baby drill tax breaks for fossil fuels.

Thu, 07/07/2011 - 10:06 | 1432275 Clowns on Acid
Clowns on Acid's picture

As soon as Robert Reich, NY Times, and DSK were mentioned the article lost credibility.

Thu, 07/07/2011 - 10:30 | 1432340 Reptil
Reptil's picture

FWIW I think not, it didn't. The article pointed out that what these men said is different from what they do.

This isn't helping either: Prison inmates to take lower wage jobs. SLAVE LABOUR? Unemployment ratios? WTF?

http://thinkprogress.org/politics/2011/07/06/261319/scott-walker-prison-...

Thu, 07/07/2011 - 10:06 | 1432274 geno-econ
geno-econ's picture

In the end it does not matter ---except that the wealthy have bigger tombstones and their children enjoy life more for a while longer until their wealth dissipates and they too have smaller tombstones.  Throughout history humans have always pitted the haves and have nots against each other with tragic results. The real losers are the pretenders who become pawns of the wealthy. 

Thu, 07/07/2011 - 10:06 | 1432272 Sambo
Sambo's picture

As long as people are willing to take paycuts or tiny pay raises, while the proverbial Sword of Democles hangs over them, the corporate world will continue to force unemployment higher, force the hands of the govt towards increasing handouts (unemployment benefits, medical cost write offs, home loan write offs, college loan write offs etc) at the expense of the tax payer.

For majority of the folks, there is no recovery and there will not be one in the foreseeable future.

This can change if a black swan event happens... like when slave workers all decide to show the 10% rich class the finger one day.

 

Thu, 07/07/2011 - 10:04 | 1432267 bigkahuna
bigkahuna's picture

The key is debt. To resolve the inequity, we have to  get out of debt. To ALL of us as a collective: WE GOT IN, WE GET OUT. To each person as an individual: YOU GOT IN, YOU GET OUT. It is really that FREAKIN' simple people!!! Now lets take responsibility and drive it home! 

Thu, 07/07/2011 - 09:14 | 1432127 LawsofPhysics
LawsofPhysics's picture

This cycle of greed has been played out over and over throughout history (It really is a monopoly game after all).  The moral hazard has been unleashed and until fraud, at all levels, is prosecuted you will see more and more people disconnecting from the system until the system fails.  All one can do is prepare and hedge accordingly.

Thu, 07/07/2011 - 08:52 | 1432052 praps
praps's picture

The rich own most everything and are buying the rest. Ever played Monopoly?

The rich need to be taxed more to redistribute the wealth and to stop them buying up more and more. They need to be forced to sell a few assets back to the middle class.

Thu, 07/07/2011 - 11:26 | 1432605 MachoMan
MachoMan's picture

Taxation of income can be manipulated easily...  capital flight...  numerous issues...  however, what you are really advocating, practically speaking (given you desire to actually collect wealth) is confiscation.  Just cut to the chase.

Further, should you seek confiscation, you have a limited window to perform it, given it will be: (a) more and more apparent and (b) incrementally implemented.  Confiscation will come as default...  but will also come as confiscation...

Thu, 07/07/2011 - 08:49 | 1432046 Mercury
Mercury's picture

I'm not saying wide income inequality isn't now and can never be a problem but importing near destitute immigrants exacerbates this situation.

If the income of every American who has been in this country a year or longer doubles from 2011 to 2012 (a good thing), the income inequality gap would be that much wider than it was a year earlier as a new crop of very poor immigrants would be holding down the left side of the scale.

Maybe I'm missing something here and I'm using an exaggerated example to make a point but I don't see how this can not be the case.

Thu, 07/07/2011 - 07:41 | 1431950 Bicycle Repairman
Bicycle Repairman's picture

"Part of the widening gap is due to the fact that most American companies' profits are driven by foreign sales and foreign workers."

This is the end game.  America's middle class is tapped out and has outmoded skills.  They have been discarded as producers and consumers.  There will not be any plan to rectify either problem.  Hope everyone likes bread and circuses.

Thu, 07/07/2011 - 09:15 | 1432111 Capitalist10
Capitalist10's picture

Part of the widening gap is two generations of Americans who have been educated in lousy schools to have lots of self esteem but little in the way of motivation, discipline or skills.  Thanks to the teachers unions, their skills are "outmoded" the day they leave school.

Rising inequality reflects the spltting of America into a shrinking productive class and an expanding moocher class.

Fri, 07/08/2011 - 19:41 | 1438687 pitz
pitz's picture

So why aren't the scientists and engineers that *do* have the skills, earning a million bucks a year?  After all, they're scarce, according to you.

Only 1/3rd of the engineering and science graduates from top US ivy league institutions are able to find employment, and this has been the situation for much of the past decade. 

Hardly indicative of an economy that is in need of skilled workers, when those who do have skills aren't highly cherished, but are rather treated worse than dog shit.

Thu, 07/07/2011 - 09:18 | 1432135 LawsofPhysics
LawsofPhysics's picture

Remind me, exactly what do the bankers and financial fucknuts "produce" again?  They are the only ones that I see making large sums of money, aside from energy companies.  I think you have a very fucked up idea of exactly what being "productive" is.  Pushing paper creates nothing of real value (i.e. non-productive), especially once the "mark to myth" accounting is ended.

Thu, 07/07/2011 - 09:50 | 1432220 Capitalist10
Capitalist10's picture

I don't necessarily disagree with you about financial types, but look around you:

I see a few folks who bucked the trend - everything from good mechanics to engineers, programmers, entrepreneurs and small businesspeople.  But mostly I see folks with no more skills or ambition than racking up a high score in the latest video game and sucking off the government tit.

Thu, 07/07/2011 - 10:37 | 1432371 Sambo
Sambo's picture

I think there has been a major disruption in consciousness. As humans we are becoming immature...haven't you noticed? Adults are behaving more like children now, aided in their slide to immaturity by the cell phone / video game / facebook culture.

 

Thu, 07/07/2011 - 12:10 | 1432835 piceridu
piceridu's picture

+++++ I'm long infantilism.

Thu, 07/07/2011 - 11:00 | 1432480 Capitalist10
Capitalist10's picture

That's what I'm talking about.  But it is not all humans.  I see lots of ambitious and hard working Asians, Brazilians and Eastern Europeans.  Americans and Western Europeans, not so much.

It is not just the facebook culture, but the neverending expansion of the welfare state that is turning Westerners into dependent children.  Look at Greece for an extreme example.

Thu, 07/07/2011 - 11:23 | 1432594 MachoMan
MachoMan's picture

The nanny state is designed to create ninnies...  Does a dump site develop bears who are lean, mean hunting machines?

Thu, 07/07/2011 - 19:20 | 1434469 DaveyJones
DaveyJones's picture

good analogy. Nature is also the oldest most perfected check and balance competition system that forces the player to adapt, work hard and plan. The cheater can never run the system, something takes them out.

Thu, 07/07/2011 - 12:41 | 1432976 BeansBulletsBandaids
BeansBulletsBandaids's picture

Nice bear analogy. I'll definitely use that one.

Thu, 07/07/2011 - 07:05 | 1431930 ebworthen
ebworthen's picture

 

There is thought, there is politics, there is ethics.

Thinkers who are politicians without ethics are natural.

Politicians without ethics occasionally have an intelligent thought.

Ethical politicians of intelligence are rare.

 

Thu, 07/07/2011 - 06:54 | 1431922 snakehead
snakehead's picture

"The economy" is doing just fine for the klepto class.

Thu, 07/07/2011 - 04:24 | 1431881 tinylittleguy
tinylittleguy's picture
In a Bill, Wall Street Shows Its Clout

By Andrew Ross Sorkin

Wall Street often tries to play down its influence in Washington. As Congress pushed through financial regulations that seemed to get watered down last year, Wall Street’s chief executives tried to suggest, somewhat surprisingly, that their highly paid lobbyists did not have much sway.

If there is still any question about how much power Wall Street actually has in Washington, here is some fresh evidence worth examining.

In a piece of legislation recently passed by the House and the Senate to revamp patent law, a tiny provision was inserted at the last minute called Section 18.

The provision, which my colleague Edward Wyatt detailed in an article ahead of the House’s vote on the bill last month, has only one purpose: to allow the banking industry to skirt paying for certain important patents involving “business methods.”

The provision even allows “retroactive reviews of approved business method patents, allowing the financial services industry to challenge patents that have already been found valid both at the U.S. Patent and Trade Office and in Federal Court,” according to Representative Aaron Schock, an Illinois Republican who tried to strike the provision.

The legislation was initially introduced by Senator Charles E. Schumer, a New York Democrat, with an even narrower view: to protect the interests of his big bank constituents in a dispute with DataTreasury Corporation of Plano, Tex., a company that owns dozens of patents for processing digital copies of checks.

Wall Street fought for the bill because it says it has been held hostage by holders of “business method” patents that should never have been granted by the patent office in the first place. Banks like JPMorgan Chase have been fighting DataTreasury over its patents for years.

The language in the bill is expansive. It covers patents for “a financial product or service” as well as “corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service.”..................... read more

Thu, 07/07/2011 - 07:05 | 1431931 equity_momo
equity_momo's picture

Dont be spamming Andrew Fucking Sorkin's feces on ZH. The guy is a fully-fledged ass-licker of Wall St. If he ever says anything negative about the St you can bet its because he has been advized to , by the St.

Thu, 07/07/2011 - 11:35 | 1432659 NotApplicable
NotApplicable's picture

Hey, it's still good to know.

Too bad that DC can't put together the logic that if business process patents are bad for the financial industry, they are bad for all others as well. Are there any worse barriers to entry?

Thu, 07/07/2011 - 06:48 | 1431918 ebworthen
ebworthen's picture

 

Hangings, and an axe to the machines.

 

Thu, 07/07/2011 - 04:22 | 1431879 Kreditanstalt
Kreditanstalt's picture

Well, there are two kinds of critics of today's economic mess.

a)those who think that government should play referee, should regulate to prevent "unfairness", that the masses should use their governments to "tax the rich" because having more money is "unfair" or "unequal"...that "the banksters" "stole the people's money" and that, if "the money" was just returned, an the criminals punished, we could all go back to peace & prosperity forever, just like 1985...or 2005.  See: Paul Craig Roberts, Paul Krugman, Karl Denninger, Lou Dobbs, Ezra Klein, Charles Hugh Smith, or Matt Taibbi.

b)those who think that socialism has had its time and that we should give anarcho-capitalism a chance.  Inequality is an unavoidable (and necessary) fact of capitalist life and SOCIAL ENGINEERING NEVER WORKS.  That the socialist Fed and the fiat money system are the roots of the problems, that "the wealth" locked up in real estate never existed, that it is impossible for everyone to get rich in a Ponzi...that LESS regulation and more self-reliance is the answer...see Doug Casey, Lew Rockwell, Bill Bonner, or any number of other libertarian bloggers.

Pick your reality...

Thu, 07/07/2011 - 05:05 | 1431890 AnAnonymous
AnAnonymous's picture

Pick your reality?

In the classical US propagandist motto, it means "pick up your lie. And join your forces with me to defend it against the attacks of other propragandists and comfort it against the existence of facts."

SOCIAL ENGINEERING NEVER WORKS. 

 

And another US citizen who is convinced he deserves every single cent he makes.

I wonder if propagandists fully realize how cheap their propaganda is.

The US has a story of successful social engineering. The FF detailed their recipes fully and applied it successfully.

Next time:

LAND GRABBING NEVER WORKS.

 

 

Thu, 07/07/2011 - 06:25 | 1431908 Kreditanstalt
Kreditanstalt's picture

The whole premise of this article is that there is something wrong with "inequality", and that therefore the unequal majrity should use their governments to seize assets from "the rich".

How is violence an answer?

If you want personal liberty it's axiomatic that you can't have theft of earnings.  Inequality (and "unfairness") are part and parcel of free market capitalism, which is the only way you're ever going to see personal liberties restored.  How can society have EVERYONE succeeding, no one failing, everyone a safety net and yet still have innovation, drive, risk-taking and increasing production?

A planned economy goes against human nature.

Without failure, without unfairness and inequality, there can be no winners.  No job creators.  No innovators, no risk-takers and no risk capital.  Without the ability of the most savvy and successful thinkers in society to seize opportunity?

That necessitates inequality of outcome. 

Fri, 07/08/2011 - 08:00 | 1435506 Ranger4564
Ranger4564's picture

I hate to have to respond to such misguided reflection, but I can't take the crap you posted only to see others refer to it as accurate.  First of all, equality is the fucking goal... if you would step out of the economy and step into society.  The problem is how to achieve that equality while preserving freedoms.  And no, your answer is not the last word, because there is still a lot of history left to write, so please, use your innovative powers to come up with something clever.

 

That brings me to the most blatant bull shit I keep hearing repeated.  If inequality / untenable situations drive innovation, what the fuck are you or anyone else waiting for? How come the world is not awash in innovative responses to the plight of the citizenry?  Why is the situation getting worse, not better?  Why is everyone waiting for someone else to come up with a solution?  Innovate, you motehr fuckers, my life depends on it.  (Well, not really, but for effect, I'll let that stay).

 

I'll tell you why.  Because inequality does not motivate innovation, and in fact, neither does capitalism.  Desperation does not breed invention... it breeds desperate behaviors.  Innovation happens when imaginative people analyze the world / conditions and resolve that there are better ways to accomplish something.  Very very few people innovated the computer, in terms of the larger populace.  Very few created the light bulb, the automobile, the anything actually.  So the norm is to not innovate, no matter what economic system prevails.  The norm is for the average loser to wait for someone clever to come along to save their miserable lives.

 

You can keep waiting, or create a civilization where people are offered support, training, education, resources, to experiment, think, try things, innovate using their imagination.  In fact, the current system stifles innovation, not facilitates it.  I'll give you a prediction... the dismantling of NASA and the privatization of the knowledge that space travel provided will be permanently lost and will result in the fdiminishment of society overall, as private enterprises refuse to share their knowledge. 

 

Inequality is just that, and nothing more.  I do not aspire to be better than you or richer than you or more powerful than you.  I aspire to my own ambitions.  I was born equal, and no matter what games you a-holes want to play, I will not be subservient, or superior.

Fri, 07/08/2011 - 08:05 | 1435522 AnAnonymous
AnAnonymous's picture

Desperation does not breed invention... it breeds desperate behaviors.  Innovation happens when imaginative people analyze the world / conditions and resolve that there are better ways to accomplish something.

 

Wont earn you a popularity contest.

Fri, 07/08/2011 - 21:54 | 1438940 Ranger4564
Ranger4564's picture

Haha, glad you replied my brother.  I meant to reply to your posts but I was so busy with work... all those negative junks you kept getting, but you were right most of the time.  You are on the right path I think so keep doing what you're doing, and I will as well.

 

Take care.

 

 

Thu, 07/07/2011 - 11:31 | 1432640 NotApplicable
NotApplicable's picture

Good post.

Those who promote institutionalized violence won't understand it, though. They seem to confuse the idea of equality under the law, with equality from the law.

Worse yet, they fail to see how it is just another tool of social distortion, except for how they would like to distort it. If only my candidate could get a hold of the reigns of power, then...

Wishful Thinking 101, living a life of delusion.

As always voters, you have no right, you merely have might. Mob rule can only achieve so much, none of it good.

www.RegenerationX.org

Thu, 07/07/2011 - 12:45 | 1433001 AnAnonymous
AnAnonymous's picture

Do forger equality over the law but not equality to the law.

 

Not that easy to manipulate as freedom that could support that kind of drivel.

Thu, 07/07/2011 - 06:43 | 1431917 AnAnonymous
AnAnonymous's picture

What a lot of hogwash. Funny as lot though. So many points I wont address them in one swoop.

 

If you want personal liberty it's axiomatic that you can't have theft of earnings.  Inequality (and "unfairness") are part and parcel of free market capitalism, which is the only way you're ever going to see personal liberties restored.  

 

Earnings? What is that? Personal liberties restored? Had to be instaured then.

When? When the US was robbing its way to the top, robbing an entire continent?

No ground in reality.

Thu, 07/07/2011 - 07:54 | 1431963 AnAnonymous
AnAnonymous's picture

A planned economy goes against human nature.

 

And prohibition of theft does not?

 

Now let's take a closer look at the story of human nature that US citizens love to repeat.

 

When  it started, the US has postulated the natural theory of rights, supposedly, according to the US, linked to human nature.

Now let's inject nothing foreign to the US, lets consider the US as a fish bowl, a closed universe.

US has developed natural rights theory? Checked.

US has been a success? Checked.

Has the US enforced the natural rights theory? Not checked. On the contrary, the US has denied their own natural rights theory.

The conclusion: when one looks at the US, it comes that success has been achieved by going against human nature (as weighted by US standards)

 

The very own example of the US commands to go against human nature.

Thu, 07/07/2011 - 06:35 | 1431915 Bitch Tits
Bitch Tits's picture

No thinking, reasoning human being can deny what you're saying.

But the truth is, the game is rigged.

That is what most thinking people are angry about and fighting against.

Thu, 07/07/2011 - 11:16 | 1432562 MachoMan
MachoMan's picture

The game is designed to produce winner(s)...  the inevitable conclusion of this game is that it is rigged in favor of those who reach escape velocity for long enough...  they then jigger with the economic gravitational pull (taxes/regulation).  This is the whole point...  some win, some lose...

The justification for this is that through competition, the prices of goods should decline and the profits of any market with sufficient competition should be marginalized...  however, knowing this, the market participants seek to protect their profit shares by whatever means are necessary...  enter the government (given, if successful enough, there are some rights a private party cannot take away).

The simple reality is that both this type of system, and its opposite counterpart, are destined for failure...  boom and bust...  one part of the wealth equation gets too lopsided and the island (lol) overturns...  this happens whether in the pursuit of private gains or as a "benevolent" gesture to hold the country's money in trust as its party leader(s)...  clearly, I think, our concepts of personal liberty are most entwined with the free market approach...  so, this is the failure we choose.

Humans are prone to error and, given a dynamic environment (economic and natural alike), it is simply impossible for us to manage it perfectly...  until we're able to accomplish this feat, we are destined for failure...  

Thu, 07/07/2011 - 04:00 | 1431868 Dirtt
Dirtt's picture

Did I mention that GW failed here?  WTF.

Zero Hedge quoting Ezra Klein.  Is GW a fag?

Thu, 07/07/2011 - 03:56 | 1431866 Dirtt
Dirtt's picture

George Washington quoted Ezra Klein? Are you trying to lose credibility?  Are you begging for scorn?

That decrepit soul Ezra Klein has the credibility of a snail in France during WWII.  Yes Ezra.  WWII IS OLD.

Decrepit Souls like David Carr and Lizzy Trotta and Ezra Klein and Matt Taibbi have no business here.  Why you would quote such under-educated idiots is a mystery to me.  They attended US universities. You couldn't find time to interview inner school students in East LA?  At least that would have provided entertainment value.

Instead. ZERO!

 

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