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Free Minds & Free Markets

Less Economic Freedom Equals More Income Inequality

Politicians aiming to reduce inequality end up unintentionally making it worse.

Occupy Everythingwikimedia:shankboneIncome inequality has been attracting the attention of politicians, policy wonks, pundits, and the public. In 2013, President Barack Obama declared that "a dangerous and growing inequality" is the "defining challenge of our time." On 60 Minutes last month, Speaker of the House John Boehner argued that "the president's policies have made income inequality worse." Senator Mike Lee of Utah has said that "the United States is beset by a crisis in inequality" and that "bigger government is not the solution to unequal opportunity—it's the cause."

In his 2013 speech, Obama also said, "We need to set aside the belief that government cannot do anything about reducing inequality." He's right, but not in the way he thinks. Several recent economic analyses show that the best thing government can do to reduce income inequality is to get out of the way.

For example, according to a study comparing outcomes in all U.S. states in the January 2014 issue of Contemporary Economic Policy by Illinois State University economist Oguzhan Dincer and his colleagues finds that reducing economic freedom actually tends to increase inequality. "On average, as the size and scope of government increases, so does income inequality," Dincer tells Reason.

The authors go on to establish "Granger causality." Simplistically stated, this means they show a causal feedback loop, in which economic intervention produces economic inequality, which in turn leads to more economic intervention. Politicians often react to rising inequality with policies that, on average, end up making inequality worse—say, by increasing the minimum wage. (That is not to say that some policies, such as raising the top marginal tax rate, could decrease inequality. But taken as a whole, the effect moves in the other direction.)

First consider the big picture. Progressives are fond of citing data that shows that income inequality in the United States was falling throughout the 1950s and 1960s. The trend seemed to be following a hypothesis proposed by the economist Simon Kuznets. As economic growth takes off, Kuznets argued, income inequality initially increases as some workers move from low-productivity sectors into higher-productivity sectors. As the higher-productivity sectors absorb a growing proportion of workers, income inequality then begins to decrease, producing the famous inverse-U-shaped relationship between income inequality and economic growth.

The previous high-water mark for income inequality in the United States was in 1929, just before the Great Depression, when the Gini coefficient for household income inequality reached approximately 0.450. (If incomes were perfectly equal the Gini coefficient would be 0. If one household had all the income, it would be 1.) Income inequality decreased during the economic calamity of the Depression and continued to fall, just as Kuznets predicted, as the U.S. economy expanded in the post-World War II years. It hits a low point of 0.386 in 1968. At that point, according to data from the Federal Reserve Bank in St. Louis, the Gini coefficient began rising. By 1980 it reached 0.408, in 1990 it was 0.428, in 2000 it was 0.462, in 2010 it climbed to 0.470, and by 2013 it had ascended to 0.476.

A Canadian free-market think tank, the Fraser Institute, issues an annual report on the Economic Freedom of North America, analyzing how each U.S. state and Canadian province stacks up with regard to measures such as taxation, government spending, and labor market freedom. Dincer's study analyzes trends in both economic freedom and income inequality among the states between 1981 and 2004, finding that "economic freedom reduces income inequality both in the short and the long run."

To get a rough idea of how this works, let's compare the eight states with the greatest economic freedom to the eight that scored the lowest. The eight states with the highest economic index scores, ranging from 7.8 to 7.1, were Texas, South Dakota, North Dakota, Virginia, New Hampshire, Louisiana, Nebraska, and Delaware. The eight states with the lowest scores, ranging from 5.2 to 5.8, were Maine, Vermont, Mississippi, New York, Rhode Island, West Virginia, New Jersey, and California. Averaging the U.S. Census Bureau's 2012 Gini coefficients for both groups, one finds that the Gini coefficient for the economically freer group is 0.452 whereas the one for the less free group is 0.469. In other words, income inequality is higher in the less economically free states.

A cautionary note: Dincer points out that a lot of information is lost when using just summary statistics like the freedom index. Still, an overall pattern can be detected. "I think the relationship between higher inequality and lower economic freedom is an indication of how badly state governments are being managed," Dincer suggests.

A 2013 study in The Journal of Regional Analysis and Policy by economists at Ohio University and Florida State University bolsters Dincer's findings. That study, also using Fraser state economic freedom index data, identified a Kuznets curve relationship between increasing economic freedom and trends in income inequality.Their analysis "suggests that beginning from a low level of economic freedom, increases initially generate more inequality as the upper part of the income distribution benefits relatively more than the lower part; however, as enhancements of economic freedom continue, this reverses and the lower part of the distribution experiences larger relative income gains."

Kuznets Freedom Income CurveBennett and Vedder

In their study, Dincer and his colleagues report that their results "support previous studies which find a positive relationship between economic freedom and per capita income." Last November, a National Bureau of Economic Research study by the Mississippi State University economist Travis Wiseman found, all things being equal, that a one-point increase on the Fraser Economic Freedom of North America index is associated with about an $8,156 increase in real average market incomes.

The most dismaying conclusion from Dincer's study is that its "results suggest that high income inequality may cause states to implement redistributive policies causing economic freedom to decline. As economic freedom declines, income inequality rises even more. In other words, it is quite possible for a state to get caught in a vicious circle of high income inequality and heavy redistribution." Sadly, the Fraser numbers show economic freedom in decline in most states since 2000.

In any case, the Gini coefficient rose in the eight least free states from an average 0.447 to 0.469 over that period. In contrast, the Gini coefficient increased at a slower rate, from an average of 0.439 to 0.452, for the eight freest states. In other words, the whole country appears to be on a downward spiral in which ever-lessening economic freedom produces ever-greater inequality.

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  • Murray Got hard||

    Right. The progs believe that higher economic freedom leads to more inequality, that is basically saying that the poor are helpless and incompetent

  • sarcasmic||

    When you view the economy as a zero-sum game, then the rich getting richer necessitates the poor getting poorer.

  • Dances-with-Trolls||

    That's it in a nutshell. No comprehension of how wealth is created.

  • Wicked Skin||

    Well duh. The government builds stuff to create jobs and jobs lead to wealth. Everybody knows this is so. You know nothing DWT.

  • sarcasmic||

    Money is wealth, and since government prints the money, government is the creator of wealth! Duh!

  • JohnKiley||

    A lot depends on what a rich person is doing. For example: many if not most lawyers are involved in parasite activities. Producing nothing, their profits come from the productive. For that matter, the huckster who tricks someone into signing a contract that is going to damage him is also not producing anything of value. The corporate executive that bribes a regulator into injuring or shutting down his competition is actually destroying wealth. Many get richer using zero-sum methods. I doubt those angry at the rich are thinking about Bruce Willis or Steve Jobs.

  • ||

    But don't the productive hire them for their services, thus making their services productive?

  • MarkLastname||

    1) As usual, those parasite only exist because the state mandates they do. Lawyers generally exist to either A: work for the government or B: solve problems created by labyrinthine government laws and regulations. The corporate executive is only non-productive because either overregulation or the absence of competition (due to overregulation) has made bribery the best or only way to boost profitability, as opposed to expanding production.

    Also, private parasites are parasites at the expense of those who choose to pay their salaries. Whereas those '99%ers' who use taxpayer funded scholarships to get useless degrees and 4 years living expenses or get do-nothing government jobs? No one is choosing to get screwed by them. It's mandatory to pay those leeches.

  • brobbs||

    Excessive/anticompetitive regulation also enables many giant corporations to endure that would be unable to in a free market, due to their unwieldy size and inefficiency from bureaucratic bog down.

    Well meaning but stupid liberals then push for lots of government intervention to "control" these behemoths that wouldn't even exist in the first place (not in their present forms and sizes at least) without government intervention.

  • MarkLastname||

    The Dodd-Frank reforms are a perfect example of this. They basically make it so you can sue a bank for denying you a mortgage if you feel they were unjust in denying you, while also allowing people to default on loans if the terms of the loan are retrospectively deemed to harsh (in which case why agree to them in the first place?). And what banks will be most hurt by these added costs and risks? The small and medium sized ones. The big banks that already have massive regulatory compliance offices actually benefit from regulation because they capture more of the market share after the smaller banks are driven out of business by the regulation.

  • DesigNate||

    That's a main tenant of progressivism: Nobody has agency but the people in power and everyone needs their help and guiding wisdom.

  • Calidissident||

    Left-wing conception of "economic freedom" is very different from the libertarian one. To them, government regulation and redistribution promotes freedom by protecting worker's rights and allowing people to live with less worries, while the libertarian conception of economic freedom (to them) leads to capitalist oppression of the working class by the evil corporations.

    I obviously don't agree with that view, just pointing out how they can believe that without necessarily thinking those things about poor people.

  • sarcasmic||

    The left has no concept of what voluntary means. Everything is force. So when people in the Third World voluntarily leave their subsistence farms to go work at the factories in search of a better life, the left feels that these people are being coerced by the corporations.

    I was talking about this with my mother the other day. My grandmother and great-grandmother came to the USA from Canada in search of work in the '20s. At the age of 13 my grandmother was working with her mother in the shoe factories, and she loved it. It gave her something interesting to do, new people to meet, and of course a paycheck.

    All of her grandchildren went to college. And it never would have happened without the opportunity to work in a sweatshop.

  • Calidissident||

    I agree 100%. That's why it's important to point out that a leftist wouldn't agree with a libertarian on what an increase in economic freedom is.

  • some guy||

    Yeah, its funny how these proggies think they know so much about subsistence farming, yet they obviously have never been to such a farm or really talked to someone who lived on one. Pretty much every old person in my family (70+ years old) grew up on a subsistence farm and every single one of them GTFO as soon as they could. They were willing to do anything to get away from the farm because the only thing worse than living on a farm was living in prison or on the street.

  • C. Anacreon||

    No, that's not what a small farm is, you and your family clearly know nothing about this issue.

    On small farms are created works-of-love organic fruits and vegetables that are grown in harmony with our fragile eco-system. These wholesome foods go directly from local farms directly to fork, in concert with the genius of a culturally-competent chef, and can be paired with an outstanding wine from grapes grown within 50 miles of your home. The noble farmer, vintner and chef combine to give you fabulous low-fat, low-sodium nutrition while simultaneously reducing our carbon footprint and paying a living wage.

  • some guy||

    Actually, this is what a lot of small farms have become... thanks to all that disposable income that's been created in this country over the last 200 years. Of course, my great-gramma would say that these people are hobbyists, not subsistence farmers.

  • Knarf Yenrab!||

    Anyone but an industrial farmer is a hobbyist. Every small farmer I've ever known has supported his farm (which is at best break even, with most running in the red, not counting the farmer's time and opportunity cost) with a day job.

    People don't understand how desperate life on the farm was. Beyond the drudgery of the work, horses, bulls, and hogs are dangerous, augers are amputation machines, early tractors flipped all the time, and people died left and right from falling tree limbs or, more recently, cars and tractors that slip off jacks or crush the concrete blocks they're resting on. And that's after the mechanical innovations that arrived on family farms after WW2.

    If you want a reminder of what the wonderful farm life was really like, go to an old country cemetery and take a look at all the graves of infants and children. There's your farm life before it became possible to buy heirloom tomato seeds online.

  • some guy||

    And before crop insurance was available farming was a real adventure. All that hard work and risk of injury could be wiped away in an afternoon.

  • dan'o||

    Bah, my family was paid by Dep Ag to grow nothing for decades a couple generations ago. They thought it was dumb, but cashed the checks anyways. Farming can be easy (and food made much more expensive) with a little bit of help from the Feds. /hangs his head in shame

  • MarkLastname||

    God I cannot understand the 'grown locally' movement. If you live in Des Moines do you want wine from Iowa? Fuck no, I want my potatoes from Idaho, my wine from Italy, my chocolate from Germany and my oranges from Florida. Fuck grown locally. Autarky is as dumb as creationism.

  • ||

    "Pretty much every old person in my family (70+ years old) grew up on a subsistence farm and every single one of them GTFO as soon as they could."

    Mine too. Every single one of my grandparents and my wife's grandparents grew up on farms. Not one lived on a farm in adulthood (or even went near one, or ever spoke nostalgically about them). I've always found the lefty crusade to "save the family farm" a little weird considering the families *themselves* ran screaming at the first opportunity.

  • some guy||

    My family kept the farms for sentimental, hobby and rental value. But they made sure they could afford to only do the aspects of farming that they actually enjoyed.

  • brobbs||

    Ive always found the lefty crusade to "save the family farm" a little weird considering the families *themselves* ran screaming at the first opportunity.

    I'm no lefty, but I think a lot of these farm comments are missing two key points:

    1) Technology exists today that makes small farm life not nearly as miserable and hopeless as these 1950s era stories illustrate. If done smartly, small farming can be productive and relatively pleasant.

    2) Pleasant or not, a lot of entrepreneurs do want to run small/family farms but are prohibited from doing so by endless USDA, FDA, and state-level regulation (aimed in theory/propaganda at food safety, but in reality at industry competition) and resultant ruinous lawsuits by Monsanto and other Big Ag giants.

    Of course, liberals cannot envision regulation ever doing harm and instead blame it all on Monsanto, as if Monsanto arose from free market capitalism. Libertarians know better.

    In summary, I agree liberals are stupid on this issue (as on all economic issues). However, our current regime of massive government protection of Big Ag is not good for food quality, economic freedom, or America at large.

  • Pulseguy||

    I have an alternative health practice in a suburb of Victoria, BC. Around me are lots of 'organic' hobby farms, and consequently a number of my clients have quit their stock brokerage jobs, and law jobs, and are doing the amazingly beautiful work of growing organic vegies which they attempt to sell for about $20 a pound. Those that do it full-time age about 20 years in 5 years. They work 7 days a week, feeding sheep, shoveling poop, spraying vinegar and ginger on their organic crops that are being eaten by bugs that apparently bulk up on vinegar and ginger. One by one, they quit. They hate it, and they're exhausted. Factory farms have reduced the horrible burden we used to have to have to produce laboriously our food.

  • some guy||

    Vinegar and ginger are just salad dressing for bugs.

  • Robert||

    So as the TV ad said, now they're filthy rich instead of just plain filthy?

  • ||

    Awww some guy we just bought 15 acres for a little farm!!

  • MarkLastname||

    May I suggest trying to grow opium on it? Now that's a cash crop.

  • MarkLastname||

    Sure, in the sense of 'freedom from want', 'freedom from fear.' Freedom from having to work, freedom from the consequences of one's mistakes, freedom from the distress of opposing viewpoints.

    With 'positive rights' leftists can effectively invert freedom, and restrict it as a means to securing it. Leftists value economic freedom in the same sense that they value someone's 'freedom' not to be spoken to more than my freedom to speak. Hence their love of speech codes.

  • Win Bear||

    Actually, higher economic freedom does lead to more inequality, at the same time as making everybody better off. The prog mistake (which you seem to be making as well) is that that is a bad thing.

  • Almanian!||

    /"Occupy Everything" - that's just "derp" in a nutshell, isn't it?

  • Dances-with-Trolls||

    They could start by Occupying a Position of Gainful Employement

  • Almanian!||

    Whoa! Whoa! Whoa! When we said "everything" we didn't mean "EVERYTHING!"

    /SJW derpster

  • Libertarius||

    "All this talk about gainful employment is harshing my mellow, man."

  • Plàya Manhattan.||

    No shit?

  • MarkLastname||

    Plenty of shit.

  • ||

    Politicians aiming to reduce inequality solve problems end up unintentionally intentionally making it worse so that people end up relying on them even more.

    FTFY.

  • sarcasmic||

    You mean if the government got out of the way and allowed people to engage in economic activity without asking permission and obeying orders, that the poor could become richer, reducing inequality?

    Hogwash! Equality means tearing down the rich! We must spread the wealth! We must take those company shares and other wealth that the rich own and give it to poor families so they can feed their children! Because wealth is money!

  • Almanian!||

    OT: I havent' checked EVERY post, so I may have missed something, but I have not seen Bo since I suggested he take the weekend off this morning....OVER THE SHRILL PROTESTATIONS OF SOME.

    Hmm - he's been gone since then.

    YOU'RE WELCOME!

    Have a good weekend, Reasonoids! And Bo, too.

  • sarcasmic||

    Like we could be that lucky.

  • Jerryskids||

    I say this every time this comes up - you have to look at more than household income when you're analyzing this stuff. Poor people can't afford to get divorced or move out of their parent's (or children's) home, it takes a certain level of wealth for single people to live on their own. It's not that hard to tie together the rise in women in the work force, divorce, single parent households and poverty and income inequality as measured by household income. Would a single mother working a low-wage job and struggling to pay the rent have been better off if she stayed married to her bastard husband just for the household income? Once upon a time, she wouldn't have had a choice.

  • Pulseguy||

    Yeah, she would have been. Assuming he is only a typical bastard, ie he isn't perfect in every single way, and not a crack head/alcoholic/wife beater.

  • Eggs Benedict Cumberbund||

    This all looks great and conforms to what I believe to be the way the economy works but I'd like to see some error bars and some p values.

  • MarkLastname||

    Also economic inequality crusaders knowingly exclude government transfers (welfare etc.) from their accounting, so many poor an middle class even simply choose to work less and substitute government payments for earnings; in leftist accounting, this accounts to a pay cut, because ironically, leftists don't include government transfers in income when they're trying to justify increasing government transfer payments.

    Also there's the fact that much income has been replaced with benefits like health insurance or pensions both in private and public sectors (also due to state regulations or incentives), so again the total compensation is undervalued but just looking at monetary income.

    So the inequality crisis in actually largely just an artifact of the statistics rather than a real thing.

  • Chumby||

    It isn't about enabling folks to get out of mobile home parks and pallet houses; it has to do with the utter contempt of seeing someone having and enjoying luxury goods that they cannot afford.

  • TimothyLane||

    Less economic freedom means more crony capitalism, which means more businesses who succeed by competing for government favor rather than consumer favor. Naturally, this is good for the corrupt (both crony capitalists and their connections).

  • Hamster of Doom||

    I despise that phrase, "crony capitalism". "Urban camping" is another. Loathsome weasel nonsense phrases meant to direct the conversation.

    The government interfering in the market to favor one person/company is not capitalism. The word is "theft". "Plunder" is another, more fitting word. "Racketeering" is a good description.

    I'm sorry, it's pedantic and I know it... I just despise that phrase. I've got issues, okay?

    *twitches*

  • Robert||

    Heck, I don't even like the Marxist word "capitalism", which as Clarence Carson & others have explained, is inapt to describe free enterprise.

  • ||

    "Politicians Aiming to Reduce Inequality Usually Make It Worse"

    I think they may not be aiming for what they say they are aiming for.

    An Iron Law applies here; Foreseeable consequences are not unintended.

  • Sevo||

    "I think they may not be aiming for what they say they are aiming for.

    *cough*re-election*cough*

  • MarkLastname||

    It'd be interesting to try to verify but it may as well be a law of nature that if a problem takes more than 4-8 years to solve, or to cause, then a politician will not only not try to solve it, but will actively make it worse, because they would not get credit for solving it, will not be blamed for causing, and their like-minded successors can use the problem's continued existence to justify their own.

  • sarcasmic||

    Or their good intentions blind them to the results.

  • Edwin||

    yeah, no shit.

    The problem is our culture has a certain strain of people/thought (that is, people who hold the thought) that sees everything not just as competitive, which is healthy and normal in a capitalist society, but as ADVERSARIAL, which is wrong and way different.

    They literally believe that harming other people somehow helps them. Even beyond the fact that other people being poorer makes you directly comparatively richer, which already is a perverse preference, they really think that money comes from screwing other people over.

    In a real capitalist culture, the people have some competitive streak, but it isn't adversarial, it's more playful if anything, if not just a plain realization that you have to be good at SOME skill to make some good money in the economy.

  • sarcasmic||

    They literally believe that harming other people somehow helps them.

    I don't know about that. I think it's just emotional fulfillment. They see a rich person and it makes them mad. Tearing down that rich person makes them happy, regardless of if it helps them or not.

  • Hamster of Doom||

    Crab pot.

  • ||

    yes, in a truly competitive market competing steers different businesses into niches. The businesses themselves are actively trying to find their niche, to exploit some part of the market other businesses are not, not destroy the competition.

  • Edwin||

    leftists fail to understand that when we say economic freedom, we really mean economic freedom in every sphere of life, not just leaving corporations alone. At the extreme, me and people like me are Georgist, which would REALLY drive things towards egalitarianism.

    They don't understand that in a truly free country is a mixed bag but mostly positive, and very very egalitarian. There would be scores of the upper-middle class who would just be middle class, since no protectionism to protect them, there would be way more factory jobs for stupid and poor people, way fewer bureaucratic jobs and more hands-on jobs, which is "worse" for women, who would inevitably be married at much higher rates anyway. It would be smellier, smaller, faster, less "nice", riskier, and way way more egalitarian.

    In my world, there wouldn't even be nice areas with nice houses, except for an extremely small few. No land ownership and no local land-control policies means that very few groups of voters would make the trade off of having a "nicer" area for less commerce; there would be no "investment" illusion in homeownership and no local zoning boards

  • some guy||

    No land ownership? How exactly does that work with economic freedom? Land is a big part of and enabler of the economy.

  • Pulseguy||

    I'm assuming he meant 'No land ownership control policies, and no local land-control policies...'. But, maybe not.

  • american socialist||

    Boy, there sure are a lot of caveats in this article? What's the Gini coefficient of Denmark, again?

  • some guy||

    About 28, which is low. What's your point?

  • some guy||

    Guess he didn't have one...

  • ace_m82||

    Apples to apples. What's the Gini in Switzerland? New Zealand?

    Typical socialist, doesn't like what the data say, so send up a quick red herring.

  • some guy||

    Or look at China's Gini. It's much higher now than in the 1980s so the Chinese people must be much worse off now than in the 1980s right?

  • MarkLastname||

    Exactly! Just like socialists also think the 50s an 60s were the good old days, before we had modern medicine, reliably air conditioning, computers, abundnant food, all those useless luxuries, because we were more equal!

    Obviously, a world in which some people have $1500 laptops and others have to settle for using desktops at the public library is grossly inferior to a world where everyone has to use slide rules.

  • Suicidy||

    Since when does income have to be 'equal'?

  • some guy||

    Since the first human became jealous of his neighbor.

  • Shrug||

    Since we became a post scarcity economy.

  • RAHeinlein||

    Yes, it disturbs me that a libertarian site accepts the premise that income inequality (particularly "income") is relevant.

  • some guy||

    In general Reason is pretty good about saying that high income inequality is either irrelevant or a sign of a booming free market which benefits all. I think Ron is just trying to point out that the politicians who try to "fix" inequality inevitably end up only making it "worse", by their own standards.

  • some guy||

    Edit: A high income inequality can be a sign of either a booming free market OR massive corruption. You have to look at how the economy is doing to know which. Example: Brazil has high inequality... due to massive corruption. Same with Mexico. Hong Kong and Singapore have relatively high inequality due to relatively free markets.

  • some guy||

    Edit2: A low income inequality is usually a sign of either tremendous social/economic stability (Denmark, Sweden, etc.) OR a sign of tremendous social/economic upheaval (Afghanistan, Iraq, etc.) Everyone tends to be equal when everyone is alike. Everyone tends to be equal when everyone loses everything.

  • RAHeinlein||

    All good points (edits). I'd like to see more discussion related to total benefit metrics other than income/wealth. Everyone receives free education, with relatively little quality disparity (with notable exceptions in some areas), access to the same roads, other public institutions, etc.

    It's likely indices/metrics have been devised, but I haven't reviewed literature in this area.

  • Raston Bot||

    Maine has discussed freeing up its poorest county. This from 2013:

    http://www.pressherald.com/201.....ate-taxes/

    Washington County residents have mixed reactions to plan to eliminate taxes

    The residents don't seem to be against it. The leftists hate it, of course, because they are economic retards:

    The Center for Media and Democracy, a national group based in Madison, Wisc., that tracks the activities of State Policy Network members and associated groups, says Mainers should be wary of the proposal because of its source. Last month, it released a report alleging that the network is funded largely by global corporations and by groups and foundations associated with conservative billionaires David and Charles Koch.

    “Groups like MHPC paint this work as 'economic development’ but we need to look at where they are coming from and who is funding their agenda,” says spokeswoman Rebekah Wilce who, by coincidence, was born in Washington County.

    Their agenda, she says, is to pass bills that “benefit corporate funders, not the people of Maine.”

  • american socialist||

    Ron,

    I have a question about the chart. Doesn't it suggest that if we move towards less economic freedom we get lower Gini coefficients? If the goal is to minimize Gini coefficients shouldn't we be moving towards an economic freedom score of zero. What would such a society look like, I wonder. Labor unions, cradle-to-grave social security, well financed schools, paid vacation time... All terrible things, I know. I'm just curious about the math, though, really. Thanks,

  • Raston Bot||

    Venezuela. It would look like Venezuela. Or possibly North Korea.

  • ace_m82||

    Nazi Germany. Communistic Russia/China. Zimbabwe and Venezuela. That's what it would look like.

    You see, if you want to decide what to do with all capital, you must first take it from everybody. In order to do that you need lots of force. That force doesn't dissipate after you've stolen everything. So then you need to do something with that force (in order to "keep people employed").

    I'd go on, but you've obviously never read "Road to Serfdom", which is mainly Hayek warning Britain against what he saw Austria and Germany do.

  • to_each_his_own||

    ^^this
    The most equal country right now is North Korea....

  • Marshall Gill||

    Liberty distributes wealth unequally. Socialism distributes misery equally.

  • Win Bear||

    Nazi Germany. Communistic Russia/China. Zimbabwe and Venezuela. That's what it would look like.

    Nazi Germany was fascist, and the communist nations you list are in turmoil. They are not good examples of low inequality through progressivism because there are lots of confounding factors.

    The best equivalent is probably East Germany. East Germany is far scarier than the other examples you give. East Germany was pretty quiet, nobody was starving, everybody did have acceptable health care and education. It simply was a lot poorer than it needed to be and a lot less free. That's far scarier than regimes that kill people by the millions, because East Germany only fell because people saw that people were a lot better off next door.

  • KDN||

    The US is at ~7.75 or so currently, well past the point where increasing regulation decreases inequality, and has been between 7.7 and 8.7 since 1980. Gradual changes that make us less economically free are likely to exacerbate inequality.

    Economics is about trade-offs, though. Theoretically we could decrease our Gini by employing a grand socialist utopia on the order of the Congo or Venezuela, but having low economic freedom is strongly correlated to poor economic growth and wealth creation as well. In our current environment, the best way to to both prosperity and decreased inequality is less regulation, gov't consumption, etc, not more.

  • sarcasmic||

    Do you know how people get rich in a free market? They provide goods and services to voluntary customers, not to mention the jobs necessary to create those goods and services. Do you know why these customers voluntarily purchase those products? Because it enriches them.
    So it's a win-win. The producers gain wealth by selling stuff (and their workers have paychecks), while the customers gain wealth by purchasing stuff.
    Yes, wealth is concentrated among the producers, but there is an equal amount of wealth distributed through society. Everyone is richer.
    Socialism simply takes and distributes. There is no incentive to be productive, and both the producers (and their workers) and customers suffer.
    Socialism destroys wealth, while free markets create it.

  • Marshall Gill||

    IT IS A WIN-WIN! How often does this happen in human existence?

    Money Envy is the root of all evil.

  • GR8IPAZ||

    They called your cherished baby ugly. I get it. Your emotions reject the statistical analyses.

  • dan'o||

    Income inequality doesn't exist in Venezuela or N Korea if you extract the political elite. Everyone else is living in the same perfectly equal downtrodden, shit-stained existence

  • MarkLastname||

    In other words, you are admitting that you prefer a world in which everyone is equally poor to one in which some people are richer than others?

    It's nice that you're at least being honest about it. Those places with the lowest economic freedom scores also tend to have lower per capita income as well; so yeah, more equality, in that people are more equally miserable. Yay, socialist paradise.

    I am really am impressed, by the way, at the ability of you socialists to read selectively. Do those portions of the text that are inconvenient to your ideology just appear blacked out to your eyes? Who knows, maybe socialism is just a side-effect of some very particular kind of cataract?

  • Win Bear||

    I am really am impressed, by the way, at the ability of you socialists to read selectively. Do those portions of the text that are inconvenient to your ideology just appear blacked out to your eyes? Who knows, maybe socialism is just a side-effect of some very particular kind of cataract?

    As a fellow libertarian, I am really concerned that people like you don't understand how other people think.

    Yes, many people prefer a society in which everybody is poorer but inequality is lower. That's both an innate psychological preference, and it's also something major religions teach.

    It's an irrational and stupid belief, but you can't effectively argue for free markets if you are ignorant of basic human preferences.

  • Sevo||

    american socialist|2.20.15 @ 2:52PM|#
    "Ron,
    I have a question about the chart."

    Dipshit,
    I have a question about your mortgage.

  • to_each_his_own||

    Beware ANY politician that spews "Equality" as a goal. We will NEVER be equal, but we can be free!

    "Being equal means the Government gets to choose. Being free means YOU get to choose".

  • Len Bias||

    He left out the "cl" before "aiming."

  • mad libertarian guy||

    All of this of course falls in to the leftist trap of giving credibility to the absurd idea that economic inequality is a valid measure of prosperity, which it isn't.

  • sarcasmic||

    Well it is! I mean, inequality is unfair, so how could it be anything but bad? I mean, it feels bad so it must be bad!

  • PapayaSF||

    A few points.

    Yes, it's partly an absurd measure. According to Gini coefficients, a country in which everyone makes $10K/year is "better" than a country in which half the population makes $50K/year and the other half makes $100K/year.

    One factor that never seems to get mentioned: starting in the mid-'60s we began the War on Poverty, which meant (among other things) paying poor women to have children without fathers. Gee, more people stuck in poverty in the following decades! How'd that happen?

    And the other is mass immigration. We import scores of millions of poor people from the Third World, and suddenly there are a lot more poor people around. Who'd a thunk it? Perhaps that's going to show up in the statistics?

  • some guy||

    And the other is mass immigration. We import scores of millions of poor people from the Third World, and suddenly there are a lot more poor people around. Who'd a thunk it? Perhaps that's going to show up in the statistics?

    My experience with "poor" immigrants is that they quickly work their way to not being poor anymore.

  • PapayaSF||

    That happens sometimes, but it often doesn't, as the stats on Latin American immigrants show.

  • kbolino||

    Apart from cynical political ploys, that's more or less just your first point restated.

  • american socialist||

    "That is not to say that some policies, such as raising the top marginal tax rate, could decrease inequality. But taken as a whole, the effect moves in the other direction.)"

    Can someone pop up a chart that correlates economic growth with the tax rate that is imposed on rich people? I've lost the URL I usually use to teach Lefty communists the error of their ways so any help would be appreciated.

    Let's play an absurd, crazy thought experiment. Let's say economic growth isn't correlated to high marginal rates of taxation on rich people. Now that it's a stated goal for right-wingers to address income inequality (caused, of course, by Obama's utter mismanagement) wouldn't one way to lower inequality be to increase the tax rate on the 1% to where it was in 1943, 94%, when we had double-digit economic growth?

  • some guy||

    How many people actually paid that 94% rate and what percentage of the total federal tax haul came from that tax bracket? Did it really make any difference either way? Or was it just a political ploy meant to appease the masses?

  • KDN||

    Let's say economic growth isn't correlated to high marginal rates of taxation on rich people.

    It's better correlated to decreased regulation, and the chart you really want to look at incorporates effective marginal rates instead of the headline numbers.

    I've always figured it was a moving target; that the negative impact of increased taxes is dependent upon the overall rate of regulation within a given locality. I never got the chance to study it, though.

    wouldn't one way to lower inequality be to increase the tax rate on the 1% to where it was in 1943, 94%, when we had double-digit economic growth?

    Oh yes, policies that led to a decrease of private sector growth by over 10% and were funded by a government spending 3.25x what it took in. Totes sustainable.

  • XM||

    No one paid that 94% rate, because everyone in that tax bracket used all kinds of deductions. Their affected actual taxable income.

    Why is it relevant that income inequality was falling in the early 1900's? Are you suggesting that women, immigrants and minorities were earning as much as the dominant class of that time?

    Just about everyone in that era were poorer and lived shorter compared to now. You might as well praise North Korea's income equality - everyone there makes equally nothing.

  • OldMexican||

    Re: American Stolid,

    Can someone pop up a chart that correlates economic growth with the tax rate that is imposed on rich people?


    America already had a Great Depression with high taxes. You can't get a better correlation than that.

    Let's play an absurd, crazy thought experiment.


    Been there, done that - Marxianism.

    Now that it's a stated goal for right-wingers to address income inequality


    You must know some right-wingers nobody heard about.

    wouldn't one way to lower inequality be to increase the tax rate on the 1% to where it was in 1943


    And then have the 1% hide their assets?

  • bodenlosen Schweinerei||

    Can someone pop up a chart that correlates economic growth with the tax rate that is imposed on rich people?

    Please to be reading that statement closely and realize why such a chart would mean exactly dick.

  • MarkLastname||

    In 1943, in the middle of WW2 and massively increasing military spending? That's your evidence? Extenuating circumstance much?

    How about this: the spending multiplier during the 1940s was less than 1, ergo, the principle that government spending boosts growth is not only false, but gov spending actually drags down private sector spending. And of course, you'd say 'but, but, that was during the war, which inhibited private sector spending regardless, so it's an extenuating circumstance!!!'

    Secondly, ever consider that economic growth causes higher taxes on the wealthy? Temporal correlation means causality could go either way. You'd have to compare economies which have a high rate vs. ones that have a low rate simultaneously to get any indication. Of course, you wouldn't do that, because you'd find your beloved Scandinavian countries actually have remarkably low growth rates since they've escalated their welfare states, implying that welfare statism is in fact just a perk of prosperity, a luxury rich countries can afford, not a cause of prosperity.

    Really, your lefty brain's ability to doublethink is staggering. You, sir, are truly a psychological curiosity.

  • XM||

    Progressives are also fond of reminding nostalgic folks that women and minorities faced discrimination in the 1950's. Since chunks of of the population back then (effectively) couldn't even participate in the economy, why bother pointing out to falling income inequality of that era?

    And we have many more millionaires and even upper middle class (and way more people who are chronically unemployed) now, which really drives income inequality.

    If no one was super rich, then income inequality goes down. As it is, I could make 80 thou a year now and the wide income gap between me and some Wall Street maven will be completely unaffected.

  • Marshall Gill||

    If no one was super rich, then income inequality goes down

    I believe that you have struck the nail on the head.

  • american socialist||

    "total federal tax haul came from that tax bracket? "

    That statistic is just an indication of how unfair and skewed the distribution of wealth has become. That number, posted at rushlimbaugh.com for about the last 20 years should actually be shown at every OWS march as an indication of exactly where the money is.

  • XM||

    It's unfair to anyone who makes a decent amount of money, because they pay a lot in taxes but do not qualify for any benefits. The "wealth distribution" in this country almost exclusively favors high earners and those who earn nothing. The people in between are squeezed the most.

    I paid nothing in income tax way more than I paid income tax. Effective rate, real rate, it doesn't matter. IF I don't work, I don't essentially pay nothing. Yet, I qualified for pell grant, medicaid, free flu shots, free lunch, etc. Can't do that in Canada, Japan, and whatever socialist paradise that exist in the minds of the left.

    People don't come here because of some abstract "freedom" or "diversity". People know what they're doing when they come to America.

  • XM||

    scratch "don't"

  • OldMexican||

    Re: American Stolid,

    That statistic is just an indication of how unfair and skewed the distribution of wealth has become.


    All Equally Poor is the fair way to go - the Marxian way.

  • ||

    "And the trees were all kept equal by hatchet ax and saw..."

  • MarkLastname||

    Timepoint 1: A rich guy works and makes 1 mil per year and a working class guy works makes 40k per year; income ratio of 25. Both pay income tax, 400k (40%) and 8k (20%), due to its progressiveness, tax ratio is 50; working class guy's actual income is therefore 32k,

    Timepoint 2: rich guy still makes 1 mil per year an pays 400k in taxes, but working class guy works fewer hours at a (mandatorily) safer worlplace making 25k per year, collects 10k in untaxed benefits (like health insurance and pension) from employer and also from the state; receives tax credits that render his net tax rate effectively 0; so his actual income is now 35k. The actual income ratio factoring all compensation goes from 32/600 to 35/600, so inequality has declined. But numerically, the ratio goes from 40/1000 to 25/1000, and the tax ratio goes from 50 to infinity.

    And this doesn't even take into account that in timepoint 2 the working guy was supporting a housewife and three kids and in 2 he and his wife both work and support 1 or 2 kids. Factor in benefits, household sizes, transfer payments, etc. and your inequality problem dissipates.

    You really should try critical thinking on of these days American socialist.

  • kbolino||

    Gifts to the United States
    U.S. Department of the Treasury
    Credit Accounting Branch
    3700 East-West Highway, Room 622D
    Hyattsville, MD 20782

    Let us know how much you've given to do your part, comrade.

  • OldMexican||

    The most dismaying conclusion from Dincer's study is that its "results suggest that high income inequality may cause states to implement redistributive policies causing economic freedom to decline.


    Which is to say, states end up tilling at windmills.

    Income inequality is inevitable, going by Pareto's Law: 80% of all income (in money terms) will be owned by 20% of the total population. Of that 20%, 4% will hold 64% of the total income (20% x 0.20 and 80% x 0.8). And of that 4%, 0.8% (close to 1%) will have 51.2% of all the total income. So there shouldn't be any surprise that there will be income inequality regardless of what the state does, unless it purports to make everybody equally poor á la North Korea or Cuba.

  • ER Jones, Author||

    One aspect of this is that people wanting to start out in business run into an incredible array of taxes and regulations. They are a barrier to entry and exacerbate inequality. Here in Seattle, WA, msft, amzn, costco and the like support min. wage increases and all of the other employee protections that the City council has rammed through. The big guys can afford it but people starting out can't. Small business is struggling and big business and the lawyers that serve them are feasting. All the redistributionist and employee protection bs just cuts out a layer of competition. If you want to solve inequality, open the doors to the average guy and gal to start up new businesses. They won't be able to pay as much and offer up the same benefits as the established businesses, but removing barriers gives them a chance to succeed.

  • bodenlosen Schweinerei||

    Wait, you mean not every business owner is swimming in a Scrooge McDuck pool filled with all the money they're not paying employees?

    Apostasy!

  • ||

    Exactly...nicely stated. What is frustrating is small businesses have virtually no say in govt, compared to the seven figures routinely spent by large corporations.

  • TKList||

    If you are concerned about the growing income inequality gap and if you are against war and the military–industrial complex, then you are against the Federal Reserve.

  • userve32||

    Lets jsut roll with it man.

    www.AnonWeb.cf

  • Commonman||

    Here's another one, trickle down economics will work to make the middle class better and provide more opportunities. How's that working for you?

    What I see is a lack of opportunities, I see our children not having the advantages we had, I see a growing wealth disparity that has taken place in the last 40 years, which by the way coincides with...wait for it...trickle down economics.

    By the way, the Chinese want to thank us for all the opportunities our major corporations have given them in the same time period. Few other countries say the same. Oh, I would want to forget the thanks from all the fast food restaurants and Wal-Mart for trickle down economics providing them with a cheap labor force.

  • Sevo||

    Commonman|2.20.15 @ 7:29PM|#
    ..."By the way, the Chinese want to thank us for all the opportunities our major corporations have given them in the same time period"....

    Oh, no! Thank YOU for the jingoism that you bring to the discussion!
    I'll bet you have a real reason those who work in China shouldn't eat, right?

  • MarkLastname||

    How does 1970s quality healthcare work for you? How about 1970s computers?

    Buddy, your head could not be further up your asshole. Seriously, wake up, here in the 21st century it's a lot fucking better than it was in the 70s by every single measure of standard of living for everyone down to the poorest of the poor.

    But at least if we were all equally miserable, poor, stupid, and sick, we'd have solidarity, right?

  • Frankjasper1||

    Commonman, what are your proposed solutions?

    Personally i don't care about income equality but rather standard of living and upward mobility.

    For the chinese comment and fast food/walmart...is you fail to consider how those things benefit the consumers. Sure you could have government force all those companies back, but then prices of products go up. And for fast food and wal mart, the reason wages are low is cause ANYONE can do the job. Raising the min wage will not accomplish what you think it will accomplish.

    You post seems all emotional and not really based in reality.

  • Frankjasper1||

    Commonman would it be preferable to have a country where everyone has equal incomes except for the govt officials like say north korea versus a country like the United States who has income inequality?

    I am in by no means the 1% but I prefer the US each and every time.

  • ||

    I'm sure the studies have been done, but I was surprised the author didn't talk more about how govt intervention in the form of direct subsidies does not help either. It's something that I often get in arguments about concerning welfare-state programs, which I believe creates a dependency that erodes the ability to consistently create your own wealth...Also, why dodn't they do something about Sole proprietorships and 1099 income?

  • ||

    How much reliance do you all place on the numbers in the nifty graph? My immediate impression is that they're sort of absurd, like IQ. Just as you can't reduce intelligence to a single number, so I doubt if you can reduce the equality or inequality of all social relations (including relative wealth) to a single number, or 'economic freedom', whatever that means.

    Inequality has increased in the U.S. (if it has, as it appears to) for the simple reason that both major parties are dependent on the favor of wealthy and powerful people who enjoy the inequality, and so strive to arrange things so as to please their masters. They're for freedom when it increases the inequality, and for regulation, domination, and repression when that increases the inequality. There's no mystery there. You don't need a little graph to figure it out.

  • kbolino||

    All elections are decided by votes, not power or money. The powerful and the monied are where they are because lots of people support them. Until you can deal with that reality, all this decrying of "masters" is just trying to shift blame to somebody else.

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  • Win Bear||

    By making these kinds of arguments, Bailey already accepts the premise that we want to reduce inequality; it buys into the zeros sum fallacy of progressives.

    In fact, increasing prosperity for everybody generally also results in greater inequality. If decreasing government intervention results in decreased inequality, that's not a good sign actually. However, I suspect the analysis is simply wrong.

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