Inequality

How to Fix the Economy, and Income Inequality

The libertarian way.

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Conservatives want to get the economy roaring again. Republican presidential candidate Jeb Bush, for instance, wants to bring back 4 percent growth. Liberals want to reduce economic inequality. Hence the surging support for Bernie Sanders. The two goals often seem to work at cross purposes. But what if there were an idea that could do both? Brink Lindsey, a scholar at the Cato Institute, has written a paper that identifies not just one such idea, but four. Each of them addresses what he terms "regressive regulations": government rules that "redistribute income and wealth up the socioeconomic scale." Those rules have two other common features: They impede economic progress, and they have few disinterested defenders anywhere along the political spectrum. Nearly the only people who support them are the moneyed interests that benefit from them. They are, therefore, "low-hanging fruit guarded by dragons." Tackle them, and you can do a great deal of good.

Lindsey's ideas address:

1. Overly restrictive copyrights and excessive patents. Copyrights and patents are supposed to incentivize innovation by protecting property rights. Lindsey argues they have gone too far. A 1998 extension of copyright protection, for instance, was retroactive — even though "it is impossible to change incentives with respect to works that are already created. Retroactive extension thus amounted to a straight-up wealth transfer from consumers — and would-be adapters and remixers — to copyright holders."

Patents have exploded, from 61,620 in 1983 to more than 300,000 today — even though research and development outlays, as well as the rate of technological breakthroughs, have remained steady. Now you can patent such nebulous things as "methods of doing business."

The proliferation of patents has fed an army of "patent trolls," who buy patents on the cheap from distressed companies. As the Electronic Frontier Foundation explains, "the Patent Office has a habit of issuing patents for ideas that are neither new nor revolutionary, and these patents can be very broad. … (T)he troll will then send out threatening letters to those they argue infringe their patent(s)," demanding exorbitant licensing fees as the price of staying out of court — and in business.

Indeed, the majority of patent infringement suits today are "brought by firms that make no products … and whose chief activity is to prevent other companies" from making any. Result: the stifling of innovation, often by struggling entrepreneurs.

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2. Too-tight immigration policies, especially for high-skilled workers. "The most straightforward way to increase economic output," Lindsey notes, "is simply to add more inputs used in production — namely, capital and labor." He recaps reams of research showing that immigrants "are disproportionately entrepreneurial and innovative."

One-fourth of Silicon Valley companies have at least one founder born abroad, for instance, even though immigrants make up less than 13 percent of the U.S. population. Others have reported that immigrants are now twice as likely to start a business as native-born Americans, and in 2011 created one out every four new businesses in the U.S.

Immigrants might be poorer than the typical American when they arrive here, but many don't stay that way, and those who climb the economic ladder bring many native-born Americans with them: Immigrant-owned businesses have created 4 million jobs here. Unfortunately, only 7 percent of permanent resident visas go to "individuals who qualify on the basis of their work skills or other economic value," Lindsey writes.

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3. Occupational licensing. Nearly one-third of American occupations now require a permission slip from the government — up from 10 percent in 1970 — including makeup artists, auctioneers, bartenders, florists, and ballroom dance instructors.

This causes harm in several ways. It acts as a drag on employment, which impedes economic growth. It raises prices for consumers, sometimes by as much as one-third, which hits the poor the hardest. It erects barriers to entry for the less educated: Thirty-two percent of Americans have a college degree, but 43 percent of people in licensed jobs are required to have one.

And for what? Not for health or safety. Lindsey points out that if health and safety were the principal drivers of licensing, then most states would license the same basket of occupations. That's not the case. Moreover, as Matthew Yglesias notes, in a Vox article on how the Obama administration is encouraging states to rethink excessive occupational licensing: "You can tell from the enormous state-to-state variation that rules are often going well beyond what's needed for safety." Alaska requires three days of training for manicurists; Alabama, 163.

Yglesias adds another point: "Licensing has in some cases become a cudgel with which to punish the already disadvantaged. Over a dozen states have rules that can make nonpayment of student loans into grounds for license revocation — turning state licensing boards into debt collectors. And rules barring people with felony convictions from obtaining licenses are widespread, which tends to exacerbate all the problems with racial and socioeconomic disparities in the criminal justice system."

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4. Zoning. From 1950 to 1970, housing prices moved in tandem with construction costs. Then prices began to outstrip costs, and the trend "has been especially dramatic in America's big coastal cities."

Density might explain that — maybe some cities are just filling up — except that home prices do not correlate highly with density. However, prices do apparently correlate with "the progressive tightening of land-use restrictions." This "regulatory tax" can add as much as 50 percent to the cost of a dwelling.

Zoning, Lindsey says, exists "to protect homeowners' property values at the expense of housing for everybody else … and accomplishes its objectives by keeping poor people away from rich people." Not surprisingly, zoning "controls tend to be strictest in the cities with the highest per capita incomes."

As a result, and contrary to historical trends, people are moving away from big coastal cities — which are, by the way, "the country's most productive places," the ones that have "incubated the greatest productivity gains."

High prices caused by zoning are forcing people — non-rich people — to move to less productive regions, which hurts both their own economic prospects and the economy overall. (Lindsey cites a writer for The Economist who terms the phenomenon "moving to stagnation.")

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It's customary in contemporary political discourse to pit economic liberty against economic equality: A laissez-faire economy supposedly brutalizes the weak, while a controlled economy slowly chokes to death on its own red tape. Lindsey has done the country a service by reminding everyone this dichotomy is too simplistic. Sometimes the best way to give the poor a hand up is simply to take government's boot off their neck.

This article originally appeared at The Richmond Times-Dispatch.

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42 responses to “How to Fix the Economy, and Income Inequality

  1. “How to fix the Economy, and Income Inequality”

    Fix the first one and completely ignore the second one. The second one is not a problem, just a bogey man dreamed up out of thin air by the left. A fake issue like all of their issues. More politics of envy.

    Yes, it is desirable to have wealth widely distributed in society. Every fix listed in this article will help do that. Those that want to take advantage of it will but there will always be people with less than others.

    1. You fix the second one by reducing the left’s number’s.

    2. The production of wealth always socializes the benefits. Bill Gates might be a billionaire many times over, but he’s created hundreds of billions of dollars in benefits for the rest of the world that have never seen the inside of his vault.

      Trying to get people who complain about “income inequality” to admit that the productive rich–meaning Gates and Zuckerberg, not Musk–have provided the rest of the world with much more wealth than they have gathered for themselves is like pulling teeth.

    3. The only way to shrink the inequality is for those at the bottom to have, on a long term basis, a larger growth percentage than those above them. But those above them are typically there because they have more skills and motivation. The inequality that exists in the US is a function of a growing economy.

      When we were first married, my wife was making $5/hr and I was making $10/hr, 67% of the total. A few years later she had doubled her income to $10/hr, but I had tripled mine, making $30/hr, or 75% of the total.

      She had doubled her income, but progressives would say she was worse off because there was a larger gap between her and me.

      1. Just a wild guess, you worked hard and earned it. The government didn’t give you a damn cent did they.

        I too came from humble beginnings, my wife and I struggled for years but we worked hard and are now doing much, much better.

        I think the hard work part is ignored by those that consider themselves victims, for their own selfish reasons.

        Homey don’t play that

  2. How underwhelming.

    1. I thin it’s reasonably whelming.

      1. MeThins it’s side-whelming.

  3. It all comes down to the root freedom: to do as you will with yourself and your property, regardless of harm to self or the distaste of others.

    Naturally our rights collide constantly, whether walking down a crowded street or seeing someone’s chimney smoke from the next valley over. Thus redress of these collisions must judge them with a bias towards absolute personal freedom. If I say something insensitive which wounds your ego, that is your problem, because I can’t know in advance what will offend you. But if I sling a piece of lead in your direction, I sure as shit can predict that harm will result, and thus I am at fault.

    The only legitimate use I see for government is defining common terms, with the most obvious being the definition of “threat”. Even something as simple as “imminently unavoidable harm” leaves plenty of room for quibbling.

  4. How many of those are going to happen in the next decade? My guess is 0.

  5. If the government does not license people, how can we know they actually know what they are doing? [/prog]

    1. That should apply to all bureaucrats as well. Let’s start the fees at $10,000…

  6. Well, Mr. Hinkle can run for Prez, too. And if elected do the complete opposite like all the rest.

  7. Hmmm, maybe the people at CATO should start looking at Bernie sanders’ record… http://olpa.od.nih.gov/legisla…..vation.asp

    Probably not though. We all know the way to address economic growth and income equality is to endlessly obsess over the tax rates of billionaires and handwringing over how bad rich white people have it in obama’s socialist hellhole.

    1. who pays for it?

      1. You mean enforcing patent and copywriter laws? We do, fellow taxpayer.

        1. Copyright. Geesch. This free market spell checker is a marvel.

        2. do you even read what you are posting and linking to? HR 417 is and bill your Socialist pal wants to use to eliminate private drug company R+D and have the government do it. So the taxpayers will pay more for less, and drug companies will be forced apply R+D $$$ to do the government says to do.

          You can’t really be this stupid, can you?

          1. Why yes, yes he can be that stupid.

    2. Epic reading fail there, AmSoc.

      The article mentioned NOTHING about tax rates, whether for billionaires or anyone else.

      It also failed to mention, much less obsess, any rich white people. In fairness, I’ll grant that some of the patent trolls it mentions might indeed be rich and/or white. It does not take a favorable view of them, however.

    3. Yes BernieCare, the supplemental government insurance that shifts the R&D costs to government taxes instead of directly through manufacturers. Of course BernieCare will cost twice as much as promised and you won’t get to take your same medications, but “better” ones endorsed by the incentives. Prizes are only awarded to the right people per progressive standards. Sounds great, I’m a handicapped black transvestite that loves Obama and is looking to get into drug R&D.

  8. Good article. Reason needs more like this. This is what serious people care about: employment opportunities, chances for growth, etc. The regulatory state does not produce meaningful gains. In fact, the opposite is true. If I ran for president, my platform would be simple: get back to work. We have had about ten years off from growth, and it sucks. I could care less about gay marriage, trans-testicles, free contraceptives, income inequality, etc. I care about my income, my marriage, my job, my prospects, etc. And people who pay the bills care about the same as well. Let’s stop talking about nonsense and let’s talk about getting back to work.

    1. Amen. Listening to all these dipshit conservatives whining about religious freedom is getting tiresome.

  9. Start making cash right now… Get more time with your family by doing jobs that only require for you to have a computer and an internet access and you can have that at your home. Start bringing up to $8596 a month. I’ve started this job and I’ve never been happier and now I am sharing it with you, so you can try it too. You can check it out here…
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    1. And here’s #5. Great contribution, Debra.

  10. Zoning?
    Certain locations are better for productive growth than others?
    The rest of the suggestions seem reasonable, but that last one is pure prog – get the poor to go live among the rich.
    Yeah, that’ll teach them to be successful.

    1. Force the rich people to care about the poor.

      GLWT

      I picked my mosquito system on the basis of lefties bitching about the owners being insulated from community efforts. HOW DARE I PROTECT MYSELF instead of focusing on draining Houston bayous.

      1. Hey! We can NOT drain the Houston bayous, they are “protected wetlands”, since the endangered species known as the pus-filled putrid-bellied socialist slime leech lives there!

      2. There was article on NY Times this past weekend about rent-controlled places needing to get rid of scofflaw renters who make too much money to qualify – the gist was this was hurting the poor. What the morons don’t consider, is they’re actually promoting the segregation of neighborhoods by income; cheap places forever cheap, rich places forever rich.

  11. It’s not obvious why “productivity” is location-dependent. Isn’t it good for Buffalo when NYC is an ass hat?

  12. What? I thought I was really going to get some insight into reduction of Income inequality???

    1) Copyrights & Patents – How does that impact in any way the rural and urban poor that make such low wages? Are we saying the greatest minds and innovators are sitting around in poverty just waiting for the ability to patent their inventions? While it is a fine idea to limiting the ability for monopolies to over-inflate prices, missing how this brings up the bottom 30%?

    2) While I agree loosening white collar immigration adds to the Top 20% income pool, again how does that bring up the income of those at the very bottom?

    3) Occupational Licensing – While this does eliminate the need for “for profit” schools and student debt, don’t see this as a driving factor in income inequality. However, the only one that even comes close out of the four.

    4) Zoning – Really? Again, how does that drive up the income of the ten’s of millions of rural poor? And I disagree, home prices absolutely correlate to density.

    1. How does that impact in any way the rural and urban poor that make such low wages?

      Copyright violates NAP. It prevents cheaper competitors from bringing out their produce. If they did, there would be more purchasing power for all dollars.

      While I agree loosening white collar immigration adds to the Top 20% income pool, again how does that bring up the income of those at the very bottom?

      More people producing more stuff the market demands increases purchasing power of the dollar. More people correctly identifying what the market will demand does the same.

      While this does eliminate the need for “for profit” schools and student debt, don’t see this as a driving factor in income inequality

      It doesn’t eliminate for profit schools. It eliminates barriers to entry. More people making more things (the market demands) increases purchasing power.

      Really? Again, how does [zoning] drive up the income of the ten’s of millions of rural poor?

      It’s a barrier to entry. All barriers to entry decrease purchasing power.

      So, every question you asked proves that you don’t understand Say’s Law, you need to produce before you can consume.

  13. We can’t do those things. Those are Koch ideas.

  14. I never can get any rational explanation from “liberals” why I’m supposed to be incensed at income inequality in the first place. (OK, OK–I know you can never get any thing rational from “liberals” anyway, but still.*) Being more of an artsy type than a corporate or entrepreneurial type, I–surprise, surprise– am pretty poor myself ; but why am I supposed to be angry at the guy who managed to make a lot of money? I mean, as long as he made it honestly, sans force or fraud.

    *And by “liberals” I mean of course “tax-happy, coercion-addicted, power-tripping State fellators.”

    1. “tax-happy, coercion-addicted, power-tripping State fellators.” =

      Tax-Happy, Coercion-Addicted, Power-Tripping State Fellators. =

      THCAPTSF

      That is good abstraction of the alphabet-soup acronym names libtards love for their bureaucracies.

      Well done.

  15. As usual, we have met the enemy, and he is us, in our collective governmental manifestation.

  16. #2? Sure, let’s throw open the door to cheap foreign labor. The 1% will profit. Meanwhile, the kids just graduating with $100,000 debt loads can move back in with their parents because they can’t find jobs.

    What crap.

    Slam the door on Immigration. No one in unless they have at least a PhD and serious research credits. We do NOT owe the world a living, or a place to stay or anything for that matter. It’s about time Americans stood up for Americans.

    1. Who are you to tell me I can’t hire whomever I want or sell my property to whomever I want?

      Do you not see those are statist arguments?

  17. BambiB, your nativism is as dumb as it is stupid.

  18. Also, why PhDs? Are immigrants not economically productive without PhDs? A PhD says a person is good at school, not that a person is necessarily more valuable economically than a non-PhD. Is this just a way of reducing numbers rather than bringing the best? Only inviting the ones who have it so good in their own countries that they have no need to immigrate?

    While college grads will take a lot of low-income jobs, they’re not really in competition with “cheap foreign labor.” They’re more in competition with the educated immigrants that you’d like to bring into the country, especially in terms of longer-term economic prospects.

    I don’t even think you know what you’re talking about, so I am probably wasting my time.

  19. #5. Tax reform along the lines of the Single Tax, or Land Value Tax, first proposed in the 1800s by economist Henry George.

    Essentially, no income, sales, or “property” tax, only a tax on the value of land.

    Simple to define and enforce (you can try to hide income but you can’t hide land).
    Progressive and pro-growth; the wealthy are disproportionate owners of expensive real estate and would pay the lion’s share of the taxes, but the marginal tax on both income and consumption would be ZERO. A win-win for both progressives and free marketeers
    .
    The philosophy: Your earnings from your business, labor or profession belong to you 100%, but the value of your land is based not so much on your own efforts but the value of the community (location, location, location!) and is therefore fair game to be taxed to support the community.

    Milton Friedman called the Land Value Tax the “least bad tax”.

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