Contributor Post Created with Sketch. Is the US Economy Immoral?

 

shutterstock_259200614When Democrat Jerry Brown ran a long shot presidential campaign back in 1992, he snarkily referred to Bill and Hillary Clinton as “Bonnie and Clyde,” the Depression-era bank robbers. Brown, now the governor of California, thought he had a legitimate chance to win the nomination. He wasn’t going to let some delicate notion of political etiquette stand in his way.

Don’t expect that kind of tough talk from Bernie Sanders, another longshot Democratic presidential candidate challenging a Clinton. During his announcement Tuesday, all the socialist Vermont senator had to say about Hillary Clinton was that his campaign “is not about Hillary Clinton.”

That’s not exactly surprising. The socialist Sanders almost certainly doesn’t believe he will defeat the Clinton machine and be the Democratic Party’s next presidential nominee — much less America’s next president. So there’s no reason to play attack dog. More likely, what Sanders really wants is a big stage to highlight what he sees as the terrible unfairness and inequality of the modern U.S. economy, one where Americans have “a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country.” In other words, the economy is just dandy at generating wealth, but that prosperity only benefits a few.

This is hardly a novel observation on the left. Clinton will likely campaign on a similar theme, though probably stated less provocatively. The New York Times reported that at a meeting with economists earlier this year, she said we needed a “toppling” of the wealthiest 1 percent. And recently, the Center for American Progress, a think tank with deep ties to Clinton, sponsored a lengthy report decrying income inequality and calling for “inclusive prosperity.”

But Sanders goes much farther, and makes a deeper point when he talks about what’s driving inequality:

The issue of wealth and income inequality is the great moral issue of our time, it is the great economic issue of our time, and it is the great political issue of our time… This grotesque level of inequality is immoral. It is bad economics. It is unsustainable. This type of rigged economy is not what America is supposed to be about. This has got to change and, as your president, together we will change it.

This sort of sweeping rhetoric connects with progressives at an almost visceral level. After listening to Sanders, many liberals are probably ready to grab the pitchforks and head to the nearest mansion or mega-bank to demand their fair share.

But here’s the thing: Effective solutions require an accurate diagnosis of the underlying problem. For example: It matters whether a bridge collapsed because a recent earthquake was too strong or because bridge inspectors were bribed to approve shoddy construction. Similarly, it matters whether higher inequality is mostly the result of powerful interests immorally rigging the game or of impersonal macroeconomic factors, specifically technology and globalization.

Let’s consider just one small slice of the economy, and one that is often decried by liberals as being highly immoral and unfair: executive compensation. Why have CEO pay packages, by some measures, greatly outpaced worker wages in recent decades? Sanders would point the finger at CEOs manipulating pliant corporate boards. The 0.1 percent and 0.01 percent all taking care of each other, at the expense of the rest of us. But a new study suggests the story isn’t so simple.

The National Bureau of Economic Research working paper “Firming Up Inequality” finds that earnings inequality hasn’t risen because the best-paid workers at companies now make a lot more than they used to compared to everyone else at their respective firms. Instead, the authors find “strong evidence that within-firm pay inequality has remained mostly flat over the past three decades.” What has changed is the pay gap between firms. Workers at the higher-paying firms now make a whole lot more than they used to versus those at lower-paying firms. Why would this be? Maybe some companies are paying a premium for highly specialized, highly educated employees in response to a more globalized, technology-centric economy. It might not just be because powerful players are rigging the game!

Likewise, economists Steven Kaplan and Joshua Rauh find in their 2013 paper “It’s the Market: The Broad-Based Rise in the Return to Top Talent” that technology has enabled highly talented and educated individuals — including private and public CEOs and hedge fund managers — to perform on a larger scale, “applying their talent to greater pools of resources and reaching larger numbers of people, thus becoming more productive and higher paid.”

Now, this isn’t to say every CEO deserves what he or she makes. Nor does it mean we should just passively accept market outcomes. But it does mean that endemic unfairness in the U.S. economy is more complicated than some progressive nightmare of a bunch of Scrooge McDucks rigging the world’s largest economy so they can add more gold to their personal money bins.

As I noted in another column here at The Week, when inequality researcher and best-selling author Thomas Piketty was asked what do about inequality, he conceded that “the main policy to reduce inequality is not progressive taxation, is not the minimum wage. It’s really education.”

If Bernie Sanders is looking for immorality in America, he can start with our underperforming schools.

There are 8 comments.

  1. James Gawron Thatcher
    James Gawron Joined in the first year of Ricochet Ricochet Charter Member

    JamesP,

    I must do some Gawrononomics.

    1) Socialism = Merchantilist Feudalism with pseudo-scientific ideology.

    2) Merchantilist Feudalism couldn’t support 1/10 of the Worlds population in existence today at even a subsistence level.

    QED If Socialism is more moral than our present system then all one needs do is figure out which 9/10 of the World’s population one wants to get rid of.

    Boy is that ever moral?!

    Regards,

    Jim

    • #1
    • May 28, 2015, at 11:09 AM PDT
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  2. Old Bathos Moderator

    Bernie Sanders should be a hologram in a future museum. Visitors could learn about early twenty first century magical thinking about economic value from a persistent cult whose members thought that constant recycling of bad ideas from the era of Woodrow Wilson and Mussolini was cutting edge theory.

    • #2
    • May 28, 2015, at 11:33 AM PDT
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  3. Robert McReynolds Inactive

    Precisely. Capitalism does not depend on enslaving or “liquidating” vast swaths of the population in order to function as the socialist system does. History shows this. Furthermore, capitalism allows the individual to rise or fall on his or her own accord. Freedom, basically, is what makes capitalism more efficient as an economic system and more just as a moral system than anything else outside of the Kingdom of Heaven.

    • #3
    • May 28, 2015, at 11:35 AM PDT
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  4. Robert McReynolds Inactive

    Old Bathos:Bernie Sanders should be a hologram in a future museum. Visitors could learn about late 19th century magical thinking about economic value from a persistent cult whose members thought that constant recycling of bad ideas from the era of Woodrow Wilson and Mussolini was cutting edge theory.

    I fixed that for you.

    • #4
    • May 28, 2015, at 11:36 AM PDT
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  5. Dave Sussman Contributor

    James Pethokoukis: But here’s the thing: Effective solutions require an accurate diagnosis of the underlying problem. For example: It matters whether a bridge collapsed because a recent earthquake was too strong or because bridge inspectors were bribed to approve shoddy construction. Similarly, it matters whether higher inequality is mostly the result of powerful interests immorally rigging the game or of impersonal macroeconomic factors, specifically technology and globalization.

    The Left is right about one thing, powerful interests work hard each day to ensure they are protected by politicians. However, if Bernie wants to have an honest discussion, (which Piketty correctly states includes education), he needs to look into the collective mirror of the Left. Start with the teachers unions as well as legal reform and remove the entrenched unions and trial lawyers from the discussion.

    Competition in schools and tort reform would increase quality of education and lower costs for all consumer goods and services. Now, how would that effect the economy?

    • #5
    • May 28, 2015, at 12:06 PM PDT
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  6. Petty Boozswha Member

    Every time I read one of your postings Mr. Pethokoukis I feel you bring out the Occupy Wall Street molotov thrower in me. A few points:

    “Why have CEO pay packages, by some measures, greatly outpaced worker wages in recent decades? Sanders would point the finger at CEOs manipulating pliant corporate boards. The 0.1 percent and 0.01 percent all taking care of each other, at the expense of the rest of us.”

    On this issue Sanders is at least 98% correct and your high priced courtier consultants are all wet. Read Colin Powell’s autobiography; he discusses in passing how heavily recruited retiring Generals are for corporate boards. Why? Because they are notorious butt kissers and political followers, not leaders.

    Coming up on a word limit so I’ll make my second point below.

    • #6
    • May 28, 2015, at 1:55 PM PDT
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  7. Petty Boozswha Member

    Instead, the authors find “strong evidence that within-firm pay inequality has remained mostly flat over the past three decades.” What has changed is the pay gap between firms. Workers at the higher-paying firms now make a whole lot more than they used to versus those at lower-paying firms. Why would this be?”

    Anyone that spent two days in the real world economy would know the answer to this question. The MBA-ization and class structure of modern corporate America has outsourced to crony subcontractors, temp agencies, permanent interns and part-timers all the jobs that used to provide the first few rungs on the ladder to the American dream. There used to be an unwritten social contract in this country – my father benefited from it, going from ditch digger to operations manager with a million dollar home – that has been torn up by the 1%.

    • #7
    • May 28, 2015, at 2:03 PM PDT
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  8. Gazpacho Grande' Coolidge

    It’s always good to have an enemy to point to and say “That’s why I can’t succeed”.

    Worked out great in Germany in the 30’s.

    The gap isn’t the issue, but it makes for good soundbites because it’s easy to say and it can mean anything to anyone who hears it, like song lyrics. Income mobility is the metric people should look at – how much do people move up and out of poverty versus people moving into it?

    Take a look at the summary page on page 2. The other thing that’s not spoken about, at all, is that with massive immigration, you are freshly importing, annually, a new bumper crop of poor people to compare CEO salaries against, and then claim “Inequality!”

    Well of course they’re unequal. And there’s nothing wrong with that, either. If I work an extra job and earn more money than my neighbor, are we “unequal” now? Do I have to give more money to my neighbor because while he was sitting on his sofa, beefing out last night’s tacos, I was working a 2nd gig?

    Oh, that’s right, I already do – it’s called progressive taxation. So, Bernard, you want to take more from the workers? That does not sound Marxian to me, bro – so check yourself.

    http://www.treasury.gov/resource-center/tax-policy/Documents/incomemobilitystudy03-08revise.pdf

    • #8
    • May 29, 2015, at 3:26 AM PDT
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