The rage right now is to talk about income inequality. It is apparently the greatest problem facing the world. Possibly the greatest problem that will ever face the world. And if we don't take care if it immediately, we face imminent destruction.
Never mind income inequality has always existed and will always exist.
Never mind we are better off now than at any point in the history of mankind and that we will likely continue to see our standard of living rise.
Never mind that everyone's income has been growing. While some have been growing faster than others, that rising tide is lifting all boats.
So why is this such an obsession. Part of the answer surely lies in the fact that the economy has been stagnant for the past five years despite (or actually because of) all of President Obama's "fixes." They've got to try and change the subject somehow.
But I think it really goes deeper than that, especially since it is a subject that continually comes up and will always be a rallying cry for the far left.
The reality lies in the fact that the modern day leftist views himself as the cognitive elite. He sees his superior intellect and comes to the conclusion that, given his remarkableness, he should be making the most money out of everyone in the world. He is at the top and should be compensated accordingly.
But when he looks at the world, he is nowhere near the top of the income ladder. Those evil bankers and executives and anyone else with a bigger paycheck, who aren't nearly as smart as he is, make so much more. So he let's out the rallying cry of "Income Inequality" in order to try and drag them down.
Under the guise of trying to "level the playing field" and "fighting for the common man" lies the truth that each of these elites see themselves as better than everyone. They want to then drag down anyone above them in order to sit at the highest perch. It is much less about income inequality for those below them and so much more about the inequality they see above them. They would like to reach that height, but can only do so by trying to pull down anyone above.
The obsession with this inequality hurts, rather than helps. Rather than looking to lift others up, it seeks only to tear down those higher up. To paraphrase Tocqueville: Equality is a slogan based on envy. It signifies 'Nobody will occupy place higher than I.'
I was recently in a cab on the way to the airport. When the driver learned I worked in finance, he asked if we were in a recession still. "No," I responded. He then asked why a certain company was laying off thousands of workers. "Frankly, it's because the government's response to the downturn has made it worse."
I didn't get the chance to dive deeper into the subject, which was unfortunate. Though I don't know if he would have enjoyed it as much as I would.
So much of the focus has been on trying to drive consumer demand. Many people think, wrongly, that consumption is the engine of our economy. If we all just get out and buy more stuff, everything will all turn around. The economy will pick up and all will be well.
And we can all ride unicorns over rainbows to our new wealth.
This idea is fundamentally backwards. It isn't consumption, buying more stuff, that drives our economy. It is investment. It is productivity. It is the creation of new things.
It is easy to understand why we get this backward. It is ingrained in our thinking. It is how everyone looks at the economy. It is how all the talking heads explain it.
When we talk about GDP, we generally break it down into consumption and investment, and investment (buying capital like new machines to produce stuff) is always a much smaller portion than the consumption. But that isn't the reality of the economy, it is the flaw in our explanation.
Basically, in order to eliminate double counting from the data, we only look at "finished goods." So we don't take into account the production of all the goods. That phone in your pocket has a lot of parts to it. And you can be a lot of investment went into the production of all those parts. But only the finished phone is being counted in GDP. Which is fine, except when we want to talk about what really drives us forward.
"Well," you might say, "that is all well and good, but if we increase demand for products by buying more, won't that spur more production?"
Therein lies the fundamental problem with our thinking.
In order for us to consume anything, we must first produce something of value. You cannot simply go out and get a new smartphone. First, you must produce something for which you get paid. Once you've produced, you can then consume that new phone.
But our government policies have been completely focused on just the consumption. So in order to "spur demand," money is taken from someone, passed through multiple levels of government bureaucracy, and then a fraction of the original amount is delivered to the recipient. NOTHING HAS BEEN PRODUCED. Not only that, but actual value has been destroyed in the transfer. So while Person A now has a portion of Person B's money, the total value in the system is the same or less. So Person A can buy a phone, but Person B cannot.
In order to actually drive the economy forward, we must focus on production. We must focus on investment. We must focus on productivity and value. Taking money from B to give to A does nothing for us. But encouraging A and B to both produce will create real value for both. And with that added value, both can consume additional amounts.
How best to encourage productivity? Rather than the government forcibly taking money from Person B, we could allow Person B to keep more of what he makes. This could be accomplished through a reduced tax rate.
And what about Person A. If he is unemployed for example, continuing to pay him to not work or produce would seem counter productive. Rather, we could go back to a normal amount of unemployment benefits so that unemployment isn't a lifestyle, but rather a blip.
Ultimately, we must invest to move the economy along. We must encourage production as a means to increased consumption rather than the other way around.
My personal musings on a variety of topics.