Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at intelligent and rational individuals, whose comments are very welcome.

"No matter how vast your knowledge or how modest, it is your own mind that has to acquire it." Ayn Rand

"Observe that the 'haves' are those who have freedom, and that it is freedom that the 'have-nots' have not." Ayn Rand

"The virtue involved in helping those one loves is not 'selflessness' or 'sacrifice', but integrity." Ayn Rand

06 January 2015

Income Inequality and Government Policy

The very strongly socialist Democrat Party has made what it calls the problem of income inequality the cornerstone of their party platform.  It is the justification for calls for raising the minimum wage once again.  It justifies further and endless entitlement programs.

But is income inequality any more of a problem than are the inequality of the following characteristics of an individual?
  • Intelligence
  • Morality
  • Energy
  • Friendliness
  • Athleticism
  • Goal-Directedness
  • Height
  • Attractiveness
  • Benevolence
  • Sexual Prowess
  • Humor
  • Knowledge
  • Loyalty
  • Productivity
  • Interest in movies and TV
  • Interest in partying and drugs
  • Interest in politics
  • Interest in reading
  • Interest in spending time with children
No.  A desire to reduce income inequality by the application of government force is very much similar to the desire to reduce the inequality of any of these other individual traits by the use of government force.  In all cases, the use of force for such a purpose is an attack upon individuality itself.  It is most certainly an attack on the freedom of the individual to make his own choices and to own and manage his own life.

Some people choose to work 30 hours a week and watch 40 hours of TV a week, while others choose to work 70 hours a week and watch little TV.  Perhaps instead of transferring the extra money earned by the 70-hour worker to the 30-hour worker, we should tax people for the income they did not earn while watching TV?  That is only fair, especially considering that the harder worker generally did more to improve the standard of living of his fellow Americans.

Yet it is also the case that we Americans are actually far richer than most other people in the world.  Consequently, if income inequality really were a problem that should be leveled by government, then it would have to be performed by ceding American governmental sovereignty to the United Nations.  Even poor Americans are too rich by world standards and should be deprived of much of their income to equalize the human condition with respect to income.  Look at the percentage of people in the world with higher incomes than the following incomes:

$1,400               48.1%
$20,000               3.6%
$25,000               2.0%
$32,400               1.0%
$35,000               0.81%
$51,939               0.28%, this is the median US household income in 2013, US Census Bureau
$75,000               0.11%
$100,000             0.08%
$125,000             0.07%

Only 0.28% of households in the world have incomes greater than the median household income in the USA.  So, let those who are serious about eliminating income inequality by a simple re-distribution of income give away almost all of their own income until that equality is achieved around the world.  As the income of the lower half, less than about $1400 a year is increased, the dividing line between the poorer half will rise and those Americans earning only $1400 a year will start to receive redistributed money.  But, those earning the outrageous sum of $20,000 a year will always be contributors in the self-sacrificial duty to raise the income of the poorer half of the world population.

Well, alright now, but many Americans are only thinking of income inequality as a problem within the confines of American, because its great usefulness as a political power tool is in the context of the Democrat Socialist and generally the Progressive Elitist effort to transform the USA.  Why would these people think of income inequality as a problem to be dealt with as a matter of principle.  No, it is just a convenient tool to increase the power of government and of those who wield great influence over the government.  The aim is not to achieve income equality even in the USA.  It is to pretend to redistribute some money in the name of reducing income inequality so the government can be made more powerful.  A more powerful government can do even more to make those who have pull in Washington still richer than the present special interest control over Big Governments makes these cronies of Big Government.  A real effort to eliminate income inequality would defeat the real purpose, just as offering a real education in government-run schools defeats the real purpose of having government and special interest control of the schools.

A very interesting study of income inequality was produced from U.S. Census Bureau data from 2012 which shows the Gini index of income inequality by congressional district in the US.  Those districts with Democrat representation are shown in blue, while those with Republican representation are shown in red.  The plot below shows the districts in order of Gini index, where a higher Gini index represents a greater income inequality:

It is immediately striking that congressional districts most dominated by Democrat Representatives are those with the highest income inequality.  At the lowest and highest levels of income inequality the rate of inequality changes the most.  Let us look at these two ends of the spectrum of American income inequality more closely:

Democrats represent 23 of the 25 most income unequal congressional districts, while Republicans represent 13 of the 25 districts with the least income inequality.  Republicans are predominant in those districts with more nearly normal distributions of income.  Now, we cannot immediately assume that Republican representation reduces income inequality.  But, we should at least be asking whether there are reasons why Democrat representation might be adding to income inequality.  The rational man wants to know.

We should attack this question with some knowledge of where Democrats hold representation in the House of Representatives.  The results of the 2012 election are shown in the map below:

The Democrats dominated the big cities of the Northeast and the Pacific coast, some highly Hispanic and Native American areas of the Southwest, the union strongholds in Minnesota, Iowa, Wisconsin, Illinois, and Missouri, a few concentrations of black voters in the Southeastern states, and a complete dominance of New England.

I am pretty sure the highly Hispanic and the highly black concentrated districts are responsible for many of the least income inequality districts the Democrats hold.  These districts are often uniformly poor, which is not a good thing.  It would be wonderfully good if these districts had more higher income people, to state the obvious.  Any district would benefit from more higher income people, provided that income was obtained in the private sector.

But most Democrat districts tend to be the high density population districts of cities and their nearby metropolitan areas.  Good fences and low population densities make good neighbors, but these conditions are lacking in cities.  As a result, there is a tendency for city dwellers to want more control over their neighbors.  They cannot achieve this on their own, so they enlist government with its monopoly on force to perform this function.  They therefore vote heavily for Democrats.  There are few exceptions to this rule.

High population densities also lend themselves to making great fortunes.  The best CPA in Russell, Kansas will only have a very few well-off clients, while a CPA with no better ability in New York City might well have many wealthy clients.  A very good restaurant in Stilwell, Oklahoma, the Strawberry Capital of the World, with a population of 3,840 people, will make less money than will a restaurant of the same quality in many parts of Chicago or its suburbs.  The networking possibilities of a major metropolitan area and its financial institution advantages will lend themselves to extreme wealth creation for a least some people.  So, we cannot blame Democrats across the board for these advantages that contribute to income inequality, except where that networking is used to provide a greater than average influence to special interests over governments.  This is a big exception, because we know that this kind of pull is used to increase the fortunes of a few cronies at the expense of the many who have little or no such pull.

Among those who have no pull are those who live in the inner city and sometimes suburb school districts with notoriously bad decades-long Democrat control of the government-run schools.  These schools are run as holding pens for children, for the advantage of government employees who staff them and the labor unions that represent school employees, as indoctrination centers for the mythical wonders of Big Government, and very often for the advantage of cronies who provide excessively expensive services and goods to the school systems.

The child victims too commonly do not graduate from high school.  Those who do often read at the third grade level, cannot write a coherent sentence, and know nothing about history, economics, science, and math.  Wonder of wonders, these city school children commonly have little ability to earn decent incomes as adults.  Very high percentages cannot finds jobs.  Many turn to crime and/or become dependent on drugs and/or welfare programs.  All of these income depressing effects are aided and abetted by the Democrat-controlled governments.

The problems do not end here.  The cities are more likely to have severe licensing laws for professions and jobs, which greatly limit entry into these jobs.  Those who start poor are more likely to be kept from becoming more wealthy by these restrictions.  Cities also produce a plethora of regulations, which hit small businesses especially hard.  This makes it harder for a poor person to succeed by creating his own small business.  Democrat city governments commonly favor labor unions, whose members add to their income by depressing the income of larger numbers of non-union members.  Once again, the Big Government model adds to income inequality, this time by suppressing the income of the poor.

Yes, Democrats might be more concerned that income inequality is common in America because it is more common in their districts.  So, they make more of it.  But, their governmental principles, insofar as they have any, embrace many policies that make income inequality greater.  They increase the income of those favored by the government, who are commonly not those they imply are favored in their speeches aimed at the poor and minorities to gain their votes.  They depress the future and present incomes of the poor and the minorities they claim to champion.  The governments they control are not righting wrongs of the private sector.  They are not righting wrongs of the government sector. 

This will not change no matter how often they pose as champions of income equality, because the wrongs their Big Government model does are inevitable by the nature of Big Government's need to sustain itself.  In comparison, competition and individual choice are very effective in limiting any injustices created in the private sector.  In the Big Government model, the government sector is characterized by force and a disrespect for the individual.  That lack of respect for the individual reduces the probability of individuals increasing their wealth all across the spectrum of incomes, but seems to act as a more severe depressant of the incomes of the poor who have no real pull in Big Governments.

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