He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under the first President Bush. He is a graduate of Harvard College and Harvard Law School. He is author of The Obamacare Disaster, from the Heartland Institute, and President Obama's Tax Piracy, and his latest book: America's Ticking Bankruptcy Bomb: How the Looming Debt Crisis Threatens the American Dream-and How We Can Turn the Tide Before It's Too Late.
Latest posts by Peter Ferrara (see all)
- Tax Reform Would Modernize How U.S. Taxes Global Business Income - June 24, 2017
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- A Principled Tax Reform Allows Expensing of all Business Costs - June 23, 2017
Earlier this month, President Obama tried to change the subject from Obamacare by pitching some rhetoric on “equality” to rally his Far Left base. Not much thoughtful or helpful is ever said on that subject, and Obama’s speech was well within that tradition.
Throughout academia, the media, and the core of the Democrat Party, the reigning assumption is that the ultimate goal of any fair society would be precisely equal incomes and wealth for all. Try to think that through for a second, and explore whether the inevitable results of that could possibly be considered fair, or even desirable.
Suppose this very ‘Che’ policy was enshrined as the official policy of the United States. Anyone’s income above average would be taxed away, and given to those with below average incomes, until everyone’s income was exactly equal. Under the logic of such a policy, there would be no reason for anyone to work, at all.
If you work more, and earn anything above average, those additional earnings would be confiscated and given to others who earned less than average. So why would you do it?
But, indeed, why work at all? Even if you didn’t work at all, you would still get the same average income as everyone else. Income would be taxed away from others earning more than average and given to you, until you received the same average income as everyone else.
But as more and more people learned the ropes of these new rules, and so stopped working, at all, that average income that everyone gets would be declining and declining, until America was the poorest nation on Earth. That would be some fundamental transformation. But what would be fair about that?
The same would apply to savings and investment, and entrepreneurship in any form. If you saved and invested more, and so accumulated above average wealth, that additional wealth would be confiscated from you, and given to others with below average wealth, until everyone had the same average wealth. So why would anyone do that?
But if you saved and invested less than average, you would get social supplements until you had the exact same average as everyone else. So why bother with any savings and investment at all? If you didn’t save and invest anything at all, you would still be given the same average wealth as everyone else. So as more and more people stopped saving and investing anything at all, that same equal average wealth of everyone would decline over time, until it reached zero, and America was, once again, the poorest nation on Earth. What would be fair, or even desirable, about that?
And why even bother trying to start and run your own business, when if it is successful, it would have to be taken away from you? So a policy of equal incomes and wealth for all would mean no entrepreneurship, at all. Which would mean no job creation, and no wage growth. What would be fair about that?
So any society committed to equal incomes and wealth would logically only regress back towards the Stone Age. This is exactly what we saw throughout the 20th century in every Communist country that tried to implement such supposedly fair policies.
And if this is the logical ultimate result of such policies, any policy adopted to approach those principles would approach those same results, again as was demonstrated throughout the 20th century. Any such policies would retard economic growth, and lead to long term economic stagnation and decline, the greater the more such policies were implemented.
Don’t make a fool of yourself and try to deny these obvious truths. All you could say in response is that no one really means equal incomes and wealth for all is the actual goal. So then stop talking and acting like it is.
Consider how these principles would work in an environment some may understand better. A college Professor announces that to demonstrate his commitment to social justice and equality, henceforth every student would get the same grade as the average grade achieved by the entire class. Above average students would immediately recognize this as unfair, for they would get no reward and recognition for their hard work, talent and abilities. Thoughtful average students would recognize this as unfair as well, for why should below average students that did not devote the same hard work and ability as they get the same grade as them? Even honest below average students would recognize this as unfair as well, for they would know that they did not deserve the grade earned by others.
But there would be an even more revealing secondary effect as well. The above average students would stop working so hard and studying, for they would get no gain from doing so. They are going to just get the same average grade as everyone else in any event. So their grades would decline. As a result, the average grade for the class will decline as well, hurting everyone. Indeed, the same effect would result for every student. For each student would know that his own individual effort would not affect the average grade for the entire class significantly. So the average students would stop studying as well! And even the below average students would recognize there is no point to whatever effort they were providing. So their studying would also decline, to nothing.
This means not only that the average class grade that everyone receives would plummet precipitously. It means also that there would be no studying, and no one would learn anything. So the whole point of the class would be defeated.
This is exactly what happens to the economies of societies where the social justice vision of equal results for all is most assiduously followed. See, e.g., North Korea, Cuba. Or compare North Korea with South Korea, or the old East Germany with the old West Germany. Or China of the 1960s and 1970s with the Japan of the time. Or China of the 1960s and 1970s with the China of today.
The simple minded often talk as if policies to impose greater equality are policies to help the poor. But policies involving equal incomes and wealth for all are logically distinct and distinguishable from safety net policies and programs to protect the poor from material hardship and deprivation. As the discussion above shows, policies imposing equal income and wealth for all would only create more poverty, not help the poor.
Safety net programs carefully designed with incentives to promote positive, productive activity, rather than self-defeating counterproductive behavior, like non-work, or bearing children outside of marriage, dropping out of high school, and abusing drugs with excessive free, recreational time financed by taxpayers, can promote economic growth and prosperity for all. American taxpayers today are paying those in the bottom 20% of incomes literally a trillion dollars a year not to work. That can be replaced with programs involving private employers paying them more to work, and so contribute to a booming economy for all.
Such safety net programs are necessary in a modern, civilized society, and well designed with positive incentives, would not be an excessive or difficult burden on a booming economy. There is no reason for free market advocates to appear blind or indifferent to human suffering and deprivation, and such a stance is politically counterproductive to the adoption of pro-growth, free market policies that would benefit all with booming economic growth.
For the able-bodied, all such safety net assistance should be tied to showing up in the morning for work assignment. Then there would be no counterproductive incentive not to work from such assistance. Such assistance would not promote family breakup, single parent families, dropping out of high school, and counterproductive, excessive partying with taxpayer financed free time. It would promote the opposite in each case. Necessary child care would be part of the benefit package for those who do show up for work. But the counterproductive effects of our current, mindless, overbloated, welfare empire are actually promoting increased rather than reduced inequality, by incentivizing non-work, family breakup, single motherhood, and other economically counterproductive behavior.
Once the poor are adequately provided for through such safety net programs to prevent human suffering, however, there is no moral argument at all for taxing and spending beyond that just to enforce equal incomes and wealth on everyone. Quite to the contrary, the policy is morally quite objectionable, as it takes by force what some have produced or earned through free exchanges in the marketplace, which they are rightly entitled to enjoy as they choose.
In other words, rightly understood, the policy is morally indistinguishable from armed robbery. Even enacted through democracy, morally it is just gang theft. The fact that you may earn more than someone else through free private exchanges is, in fact, not anyone else’s business, and policies to impose equality on you by force interfere with your freedom to engage in such mutually beneficial free exchanges, as well as stealing your property.
Taxing the more productive to subsidize the less productive will only reduce economic growth and prosperity for all, so practically it would be counterproductive policy as well. The real world truth is that booming economic growth is the actual foundation of social justice. Booming growth and modernized, pro-growth social safety nets can in fact end poverty in America, and win the War on Poverty at last. And such booming growth, not redistribution, is the foundation of prosperity for the middle class. But increasing taxes on work, saving, investment and entrepreneurship, to subsidize reduced or no work, savings, investment and entrepreneurship, would nullify such growth, and lead to long term stagnation and economic decline.
The Bible says, “By their fruits you shall know them.” Today under Obama we have lost the war on poverty. Poverty has soared under Obama, with the number of Americans in poverty increasing to the highest level in the more than 50 years that the Census Bureau has been tracking poverty. Over the last 5 years, the number in poverty has increased by nearly 31%, to 49.7 million, with the poverty rate climbing by over 30% to 16.1%. Obama has also been the food stamp President, with the number on food stamps increasing during his Administration to an all time record high of 47.7 million, up 80% over the past 5 years.
Moreover, again contrary to his rhetoric, middle class incomes have fallen during the entire five years he has been President. Contrary to his rhetoric regarding Obamacare, selling it to the Left as universal coverage, CBO scored Obamacare as still leaving 30 million uninsured 10 years after full implementation! But the actual impact of the program so far has been to increase the number of the uninsured, rather than reduce it, as millions have lost coverage that they liked and thought they were promised they could keep.
And shamefully contrary to his rhetoric in his inequality speech earlier this month, inequality is actually accelerating and soaring under Obama. The Census Bureau publishes the Gini Index, which is the official measure of income inequality. That index has climbed every year President Obama has been in office. It was flat during the 8 years under President Bush (which means inequality did not increase).
Inequality is increasing under Obama because the incomes of the top 20% of income earners are increasing, with the Fed pumping up the stock market and corporate profits, while incomes for everyone else have been declining. What the middle class has gotten is part-time jobs, due to Obamacare overregulation. And what the poor have gotten is no jobs, dumped onto increased welfare dependency instead.
That is right, Progressives, what all your huffing and puffing has achieved is the rich getting richer, and the poor getting poorer. That didn’t happen under Reagan, where the rich got richer, and the poor got richer. After 1983, the poverty rate declined every year under Reagan, and incomes grew for every income quintile.
The economic reality underlying all these disasters, so contrary to Obama’s own rhetoric, has been his very poor record on economic growth (also contrary to his long term rhetoric). Real GDP growth during Obama’s first term was the worst of any President in the last 70 years! Economic growth during Bush’s awful second term, previously the worst since the Great Depression, was more than twice as much as during Obama’s entire first term. Even Jimmy Carter produced 4 times as much economic growth during his one term as Obama did during his entire first term.
Yes, the economy was in recession when Obama entered office. But there have been 10 other recessions since the Great Depression, before Obama. And what the record shows is that Obama has delivered to the American people the worst recovery since the Great Depression! In the 10 post depression recessions before President Obama, the economy recovered the lost GDP during the recession within an average of 4.5 quarters after the recession started. But it took Obama’s recovery 16 quarters, or 4 years, to reach that point. Twenty quarters, or 5 years, after the recession started, the economy (real GDP) had grown just 3.2% above where it was when the recession started. By sharp contrast, at that point in Reagan’s recovery from the 1981-1982 recession, the economy had boomed by 18.6%, almost one fifth.
And no, Obama cannot say that his recovery was so bad because the recession was so bad. The American historical record has always been the worse the recession, the stronger the recovery, as the economic recovery has always before raced ahead to catch up to the previous long term economic growth trend line. Those touting the last quarter as showing that the recovery is finally here are the same people, President Obama and his hapless economic advisors included, that were telling us at the beginning of the year that the sequester spending cuts were going to further crater the economy. Those cuts seem instead to have given the economy a strong boost, which should have been expected. That experience only further indicates that Obama and his disgraced economic advisors are actually ineducable, approaching a point of disability. Given the American historical record, our economy should be in the fourth year of a booming recovery by now, just like under Reagan.
It was not the 2008-2009 recession that was the cause of Obama’s economic failures. That recession ended more than four years ago by now, and only provided the foundation for what should have been a booming recovery to snap out of it. The cause has been instead Obama’s consistently anti-growth economic policies, still reflected in this month’s inequality speech. In that speech, he called for reducing inequality through increased taxes to finance increased government spending, and still more regulation, all of which would only further short-circuit growth, and so would only make the problem of inequality worse.
What we should have learned by now, after 5 hard years of Obama’s economic repression, and rhetoric consistently opposite of all results, as demonstrated above, is that despite Obama’s duplicitous air of speech making certainty and pedagogy, Obama has no idea of what he is talking about regarding economic policy at least. And if we cannot learn to approach his speechmaking with that understanding in mind, then it is we who are ineducable, and now incapable of self-government.
[First published at Forbes.]