Video: The inequality myth explained

posted at 8:45 am on October 27, 2011 by Ed Morrissey

As Power Line says, someone at PBS screwed up by allowing Richard Epstein to explain why the current sturm und drang over “income inequality” misses the point. Epstein argues that whatever income inequality exists is the result of productiveness and success in the markets, and that imposing redistributive government policies to “correct” for the inequality will mean much less innovation and economic success. When Epstein’s interviewer points out that marginal and capital-gains taxes were much higher in earlier periods of economic growth, Epstein points out that the tax code had more shelters for investors that shielded capital from seizure — and that government was much less redistributive than it is today:

Watch Does U.S. Economic Inequality Have a Good Side? on PBS. See more from PBS NewsHour.

While we cogitate over hearing this at PBS, of all places, James Pethokoukis reminds us that the central premise of “income inequality” is flawed anyway:

5. The Minneapolis Federal Reserve concluded — after taking into account household size and differing price index – median household income for most household types increased by 44 percent to 62 percent from 1976 to 2006. In addition, its research shows that median hourly wages (including fringe benefits) rose by 28 percent from 1975 to 2005.

6. As technological change accelerates and becomes more pervasive, the market will reward workers with more education and skills. As CBO notes: “Numerous researchers have concluded that, on balance, the technological changes of the past several decades— and perhaps the entire past century—increased employers’ demand for workers with higher skills and more education. That increase, along with a smaller increase in the supply of workers with higher skills and more education, generated substantial gains in the relative wages of more-educated worker. In the past decades, inequality has been going up everywhere.” It is a global phenomenon.

7. And why did the top 1 percent do particularly well? One potential explanation from CBO: ”The compensation of ‘superstars’ (such as actors, athletes, and musicians) may be especially sensitive to technological changes. Unique characteristics of that labor market mean that technical innovations, such as cheap mass media, have made it possible for entertainers to reach much wider audiences. That increased exposure, in turn, has led to a manyfold increase in income for such people.” The CBO also mentioned ”changes in the governance and structure of executive compensation, increases in firms’ size and complexity, and the increasing scale of financial-sector activities” as possibilities.

My bottom line: a) income inequality has increased somewhat in recent decades, but not exploded; b) that increase is natural given technology and globalization; c) incomes could have risen faster with a better educated workforce (that also didn’t have to compete with an influx of workers from Asia), but did OK; d) we need to boost education to keep up with advancing technology and productivity; e) the past decade was one of slow growth followed by a nasty recession. No argument there. Looking forward, America will need a pro-growth tax system, smarter regulation and far better human capital (helped by higher teacher pay in exchange for eliminating tenure, more skilled immigration, etc.). That way, incomes won’t just be more equal, they’ll be growing.

“Income inequality” has always existed. It exists in every economic system ever invented. Does anyone doubt that income inequality exists in communist China, or existed in the Soviet Union? If you don’t want to argue from the extremes, take a look at western Europe, which has relied on massively redistributive policies for decades. The difference between these systems and the American experience is that membership in an economic class has never been static, but is changeable depending on one’s innovation and effort. That goes to the heart of American exceptionalism, and American success — or at least it did before we tried turning ourselves into a version of Europe’s sclerotic nanny states.

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Link Sen. Toomey’s “Headline” video to this post, please. It needs to have a wider audience and relates to the points of this thread.

We need to expose the Left’s talking points as absurd as often as we can through reasoned, not emotional, means.

onlineanalyst on October 27, 2011 at 8:49 AM

(Class/Income/Social Status) inequality, isn’t going away any time soon.

listens2glenn on October 27, 2011 at 8:54 AM

onlineanalyst on October 27, 2011 at 8:49 AM

How recent is this video?

listens2glenn on October 27, 2011 at 8:57 AM

So, how are the OWS protesters doing this morning????

Khun Joe on October 27, 2011 at 8:57 AM

Government is the great fiction through which everybody endeavors to live at the expense of everybody else.

-Frederic Bastiat

Good Lt on October 27, 2011 at 8:57 AM

Orwell summed up the redistributionist alternative in one classic line:

Some animals are more equal than others.

Drained Brain on October 27, 2011 at 8:59 AM

I wonder if Michael Moore is the leat bit upset that he makes 100 times more than the NYC cab driver.

NOPE!

WANTED: Cancer researcher: salary 7 to 10 dollars per hour. Great benefits.

We are an “everyone should make the same crappy salary” employer.

NickDeringer on October 27, 2011 at 8:59 AM

Productiveness and contributions to growing the economic pie have always been unequal, too. How about them apples?

onlineanalyst on October 27, 2011 at 9:00 AM

This interview was awesome. Good thing Margaret Warner wasn’t doing it; she wold have been sputtering and red in the face.

DaydreamBeliever on October 27, 2011 at 9:01 AM

What a great clip. In those eight minutes you hear the entire argument, the conservative’s economic sanity and simplicity and the liberal’s idiocy and craving for virtuous “equality” even at the cost of laying waste to our economic system and the human spirit. I couldn’t quite tell if the interviewer was just playing devil’s advocate or was indeed the typical uncomprehending dumba*s liberal.

rrpjr on October 27, 2011 at 9:02 AM

Damn!

Epstein, I bow … I bow before the Master.

PackerBronco on October 27, 2011 at 9:04 AM

The problem is that explaining this takes a few minutes. It doesn’t lend itself to a 10-second, emotionally wrenching soundbyte like “the gap between rich and poor is widening” or “top 1% thrives as middle-class incomes stagnate.”

What the Left cynically presents as practical economics or compassion is, at its core, covetousness.

SAMinVA on October 27, 2011 at 9:04 AM

What the Left cynically presents as practical economics or compassion is, at its core, covetousness.

SAMinVA on October 27, 2011 at 9:04 AM

Indeed, within every socialist – and now I suppose I must also say Democrat – beats the heart of a thief.

PackerBronco on October 27, 2011 at 9:08 AM

SAMinVA on October 27, 2011 at 9:04 AM

Dead right. It is the burden conservatives bear. It is why men like Reagan, who were able to both neatly summarize conservatism and yet explain it in longer forms as well, are so valuable and rare. It means we need to find men and women who are fighters and communicators, that is, can brutally deconstruct the fallacies of leftism in one breath as they inspire and elucidate conservatism in another.

rrpjr on October 27, 2011 at 9:10 AM

Thanks for posting this, Ed. Richard Epstein rocks.

When the interviewer parroted the Leftist talking point that productivity was doing well when taxes were super high (the 1950’s) Epstein missed a chance to explain that the US at the time was literally the only game in the world for investment and business opportunity…the productive folks literally had no other place to invest their capital. Europe was still rebuilding, Japan was 30 years away from productivity, China even moreso, etc.

visions on October 27, 2011 at 9:11 AM

“far better human capital (helped by higher teacher pay in exchange for eliminating tenure, more skilled immigration, etc.)”

This blood, sweat and treasure sucking meme of throwing more money at Education makes for better educated students still needs a huge stake through it’s heart.

Dusty on October 27, 2011 at 9:15 AM

Brilliantly said.

beatcanvas on October 27, 2011 at 9:18 AM

Education is no panacea.

You can’t just pour Math/Science/Engineering into people’s heads. A lot of folks aren’t up to it.

But carpenters, plumbers, bricklayers, welders, drivers, janitors etc. etc. will always be needed. And those jobs can’t be exported.

Learn a trade, kids.

Bat Chain Puller on October 27, 2011 at 9:29 AM

The same conformity that socialists love so much leads to everyone buying an iPhone (for example) at the same time. That leads to smart entrepreneurs making a fortune. If you want big business to have a harder time, don’t be so quick to follow the crowd. Serving fads makes fortunes for people. Live with it.

RBMN on October 27, 2011 at 9:29 AM

Great explanation. Used to be called Economics 101.

Also, love the way the anchor ends the segment “Libertarian Economist Richard Epstein”. Kind of like the way they end interviews with Robert Reich “Liberal Economist Robert Reich”. You remember that, right?

dirtseller on October 27, 2011 at 9:32 AM

Is PBS scared of a Republican Senate, prompting them to air both sides of the debate?

Richard Epstein and Thomas Sowell vs. Paul Krugman and Tom Friedman

I would watch that on Pay-Per-View.

Theworldisnotenough on October 27, 2011 at 9:35 AM

OT but this is another great video by Bill Whittle.He talks about pretty much everything.

Mord on October 27, 2011 at 9:40 AM

Wow. Just brilliant – clear, concise, and rational. Wow.

therambler on October 27, 2011 at 9:45 AM

Another thing to keep in mind as well, while income inequality has risen for families and households, it hasn’t meaningfully changed for individuals (since 1994, using all the data the U.S. Census has published in easily accessible digital form on its Income site – and really, since the mid-to-late 1960s, if you really want to go data mining through badly scanned PDFs.)

What that means is that *all* of the increase seen in family and household income inequality over the years is completely due to changes in household composition, rather than some small segment of the population sucking in larger amounts of income (that’s because families and households are made up of individuals, who are the ones to whom the paychecks, dividend checks, capital gains, etc. are issued.)

ironman on October 27, 2011 at 9:48 AM

Looking forward, America will need a pro-growth tax system, smarter regulation and far better human capital (helped by higher teacher pay in exchange for eliminating tenure, more skilled immigration, etc.).

Let’s pay teachers and professors based on the economic success of their students. A direct measure of their abilities to educate and worth to society.

NotCoach on October 27, 2011 at 9:55 AM

Shelters, baby. The peasants are revolting.

John the Libertarian on October 27, 2011 at 10:06 AM

You just know that the interviewer thinks Mr. Epstein is nuts.

Cindy Munford on October 27, 2011 at 10:09 AM

You can boil it all down to this; “under socialism, we will not all be equal. We will all be equally poor.”

KMC1 on October 27, 2011 at 10:49 AM

You do not want to intellectually eff with Richard Epstein. He four years older than me and his brain works four times as fast. Envy…

If there are Hot Air folks who are not familiar with Ricochet, you should go there for “Law Talk,” discussions between Richard Epstein and John Yoo of “Torture Memo” fame. They get deep in the legal weeds, but the discussions are amazing.

Only a few “Law Talk”s are available outside the member area, but the weekly free podcasts with James Lileks, Rob Long and Peter Robinson also make it worth the trip.

eeyore on October 27, 2011 at 10:59 AM

“The poor get poorer.”
http://www.youtube.com/watch?v=okHGCz6xxiw

mrt721 on October 27, 2011 at 11:07 AM

But carpenters, plumbers, bricklayers, welders, drivers, janitors etc. etc. will always be needed. And those jobs can’t be exported.

Learn a trade, kids.

Bat Chain Puller on October 27, 2011 at 9:29 AM

A lot of those jobs have been taken by illegals. You’d be nuts to recommend an American kid to learn carpentry for example, or any building trade.

Rebar on October 27, 2011 at 11:08 AM

Well damn, no one told me Gilbert Gottfried started doing economics. And he’s done well!

Hannibal Smith on October 27, 2011 at 11:41 AM

Where liberals go wrong, contrary to existing evidence, is their assumption that the economy is a zero-sum game. That is, the more there is for them, the less there is for me.

In actuality you have two choices. Either let the rich keep more of their money to invest, start business, etc. so that the entire economy grows, or take more of the rich’s money to reduce inequality.

In the first situation, the rich get disproportionally richer, but you get richer too. That’s because the pie gets bigger.

In the second situation, the rich get poorer and less distant from you, but you are poorer too. That’s because the pie gets smaller.

So you have to ask yourself what’s more important. A) Do I want to be richer, or B) do I want the rich to be poorer?

And my guess is that those not idiots or liberals (but I repeat myself) will invariably chose “A.”

Dr. Charles G. Waugh on October 27, 2011 at 11:42 AM

Gee, and to think, I almost skipped this one. This clip should be required listening for anyone that wants a basic introduction to the equality of opportunity debate.

ExpressoBold on October 27, 2011 at 11:43 AM

Dr. Charles G. Waugh on October 27, 2011 at 11:42 AM

Unfortunately there are conservatives who believe in the zero sum fallacy as well.

NotCoach on October 27, 2011 at 11:45 AM

Wow, this guy Epstein is excellent. Moar!!

DaMav on October 27, 2011 at 11:53 AM

In our economy, income inequality is largely a result of innovation. Steve Jobs was rich because he created things. Most people on the Forbes 400 made their money by starting businesses, not inheriting wealth. Those who inherited wealth are Democrats, by the way, and spend a lot of time wringing their jewel bedecked hands about “income inequality”.

MTF on October 27, 2011 at 11:55 AM

What an excellent video thanks to the fact that it perfectly summarizes the idiocy of the Republican argument in this debate. He starts by talking about Jobs and Gates, people who made their fortunes by revolutionizing a market and revolutionizing how we live. I’m not sure you’ll find many people, even over at OWS, who would lump innovators like these two in with the real crooks. And for the record, Steve Jobs hated FNC.

He then discusses how income inequality creates incentive, and that’s absolutely right. You can’t have a functioning economy where everyone earns the same wage, and he says as much. However, he leaves it there. That’s not the problem. The problem is that, for most Americans, wages are stagnant while benefits have been decreasing (ironically, the post linked to by Ed demonstrates this point, with things such as numbers going back to the 70’s showing a median income rise far short of inflation, even when most of that growth occurred before the last decade) while income in the upper spheres of society have exploded. Ten years ago, when people became fantastically rich during the tech bubble, no one cared. Everyone was doing well, everyone could pay their mortgages and send their kids to school, so it didn’t matter how much was being drained from 401k accounts in fees to pay bonuses since they were still growing.

When the floor drops out, however, and a small percentage of society prospers exponentially despite that, people have a problem with it. The issue is with bankers who got rich by destroying everyone else’s accumulated gains. With corporations who treat workers like serfs. With a medical field who has caused runaway price increases. There’s nothing wrong with inequality, but there is a problem with one very small class of Americans doing everything they can to make themselves rich not by innovating and succeeding but by working their best to drain as much wealth from the rest of America as possible. Epstein leaves those points, which are the reason for the OWS protests in the first place, out since he knows there’s really no rational defense of it.

And what a lazy argument about taxes in the past “not effecting people”. So, why did we cut them in the first place, again? The Bush tax cuts were laughably ineffective in creating jobs. The idea that people will choose not to work hard and make money because of high taxes is just silly. When you cut taxes to as low as they are, investors can be lazy, do a bad job and still profit handsomely. When taxes are higher, like during the communist regime under Reagan, investors have to actually work hard and create value to accumulate wealth. It’s really quite simple.

Keep spinnin’, tho. The polls aren’t looking so good for the Tea party, tbh.

Rainsford on October 27, 2011 at 12:43 PM

The problem is that, for most Americans, wages are stagnant while benefits have been decreasing

Overall employment costs have been rising, in large part because of growth in the cost of medical benefits.

With a medical field who has caused runaway price increases.

Cost disease. Look it up. Education faces many of the same problems. When productivity rises raggedly, costs increase in some industries.

Also, the poor management of reimbursement rates in public payer programs has led to practice-level cost shifting. The privately insured or uninsured end up paying for the publicly insured.

When taxes are higher, like during the communist regime under Reagan, investors have to actually work hard and create value to accumulate wealth. It’s really quite simple.

I know you’re trying to be ridiculous here. You’re succeeding but not in the way you think. I guess you figure we should tie 50-pound sandbags to the legs of marathon runners, too, so we’ll really be rewarding genuine effort.

DrSteve on October 27, 2011 at 1:02 PM

Let’s pay teachers and professors based on the economic success of their students. A direct measure of their abilities to educate and worth to society.

NotCoach on October 27, 2011 at 9:55 AM

Let’s privatize education so that it is responsive to the needs of the market rather than subject to the sclerotic machinations of government.

Kafir on October 27, 2011 at 1:07 PM

Rainsford on October 27, 2011 at 12:43 PM

Wow! You said a lot there but it was devoid of any sense at all. When you post a comment you boldly show how much of an undereducated, liberal twit you are. You just make this stuff up and pretend like you know what you are talking about.

I am flabbergasted at your ignorance and your lack of respect for this forum. What makes you think your tripe merits posting here?

Vince on October 27, 2011 at 1:41 PM

Keep spinnin’, tho. The polls aren’t looking so good for the Tea party, tbh.

Rainsford on October 27, 2011 at 12:43 PM

The day the Tea Party is worried about polls is the day I’m worried about it. We need to have some hand in policy that isn’t worried about spin and image.

The facts are thus: the press complained daily about the “violent” and “scary” and “out of control” Tea Party protests…who picked up after themselves. OWS are violent, picket private homes and the best that the press can do is talk about how “heartfelt” this all is.

It’s funny that you say something about spin and offer polls as some sort of refutation. What do you think they spin things for?

Axeman on October 27, 2011 at 1:47 PM

Steve Jobs hated FNC.

Rainsford on October 27, 2011 at 12:43 PM

How’s that even relevant to anything? It’s anecdote. Ben and Jerry are libs, too. It really doesn’t bother free-market conservatives that liberals can participate in it and benefit, too.

It sounds like “innovators” is a special class of rich people–like entertainers–that libs can justify protecting. You guys ARE about picking winners and losers. Yet, no principled conservative wants to see Ben & Jerry’s go under–or even wished their benefit packages were smaller.

Okay, conspicuous “innovators” get to keep their money. So is “innovation” a binary switch? Is there no distribution of innovation? Where some fall in the middle of the pack and some in the 90th-percentile? That’s what’s wrong with making Jobs a special class of person.

That’s why conservatives will cite Steve Jobs in defense of a free-market system. It has nothing to do with Jobs’ likes and dislikes. And if you think that has some relevance, it only illustrates the tradition of liberal tradition of non-thought demonstrated in the hoards of libs who parrot Gates’ and Jobs’ “likes and dislikes”.

Axeman on October 27, 2011 at 2:04 PM

In our economy, income inequality is largely a result of innovation. Steve Jobs was rich because he created things.

Yes, and when you devalue teaching your young people that innovation and hard work is honorable, and devalue teaching them the skills to to those things, and devalue their pride in their own society, you get more income inequality! Doh!

Now ask yourself, what political philosophy is prevasive and utterly dominant throughout our educational system, from top to bottom: conservatism or liberalism?

Liberals want to start a class war over the conditions they have created! And it hasn’t happened by accident.

drunyan8315 on October 27, 2011 at 2:30 PM

What he was saying was blowing the interviewer’s mind.

scotash on October 27, 2011 at 2:39 PM

Does anyone doubt that income inequality exists in communist China, or existed in the Soviet Union?

Of course it did, but that was due to the “party apparatus”… When a communist party rules, it controls all of the assets. That is why the people who were members of the “party” had more privilege & wealth that those who were not.

As Power Line says, someone at PBS screwed up by allowing Richard Epstein to explain why the current sturm und drang over “income inequality” misses the point.

Absolutely… Whoever at PBS (Pravda or Party Broadcasting System) allowed Epstein to be interviewed was a moron. But as we also understand, when you argue rationally with someone who argues emotionally, by the debate’s end, who do you think will be bleating the loudest? The emotional moron.

Note how the emotional moron after asking Epstein (I paraphrase) if he cares for those not well off, Epstein responds yes. However, the emotional moron doesn’t ask Epstein what he does about it (e.g. donate, volunteer, offer pro bono services, etc.)…

F’in liberal morons.

Danny on October 27, 2011 at 2:50 PM

The whole notion of “increasing income inequality” is specious.

Take a ten-inch rubber band. Mark “Poor” on one end, “lower 10%” about an inch from that end, and “top 1%” near the other end. Clamp the “poor” end in a vise — no matter what you do, some people are going to be broke — then stretch the rubber band until it’s 20 inches long.

The “poor” is still poor, the “lower 10%” moved only an inch, and the “top 1%” moved almost 10 inches!!!! What a shock!!!!

cthulhu on October 27, 2011 at 2:56 PM

I don’t know the American stats but in Canada even up to the early ’70s a small percentage (2% IIRC) still didn’t have indoor plumbing let alone the ‘poor’ having multiple TV sets etc.

andycanuck on October 27, 2011 at 3:52 PM