Who did Sin?

“And as Jesus passed by, he saw a man which was blind from his birth.  And his disciples asked him, saying, Master, who did sin, this man, or his parents, that he was born blind?  Jesus answered, Neither hath this man sinned, nor his parents: but that the works of God should be made manifest in him.” John 9:1-3

One of the friendly readers of this blog asked why a wealth gap is bad thing.   After all isn’t it just the natural byproduct of an open free market economy?  In other words, the rich get richer and to poor get poorer.  The other implied point is that wealth is how we keep score.  Those that work hard and make the sacrifices to accumulate wealth shouldn’t be “punished” for their efforts through higher taxes because others were unwilling to make the same sacrifices.  In other words, the only reason the poor are poor is because they aren’t willing to work as hard as the rich.

So let’s take a look at some of these concepts.

It’s good to have a wealth gap because that indicates that the free market economy is working.

When you dig into this from an economic point of view, a wealth gap is not a good thing.  Economists talk about “human capital” as a component of every economic model.  In theory, free markets will allocate human capital to the best use by placing a premium on the work that the market values most.   But that theory assumes equal access.  In other words, economies thrive when access to training, education, and opportunities is freely distributed across the “human capital”. 

In the real world of our economy, however, there isn’t equal reward or access to opportunity.  Women get paid less than men.  The tall get paid more than the short.  Light-skinned people get paid more than dark-skinned people.  The better educated get paid more that the less educated, but even access to education isn’t fairly distributed.  The wealthy have access to the best education.  The poor get the worst education. 

The wider the wealth gap becomes, the wider the opportunity gap becomes, and the less efficient the economy becomes in maximizing the talent in the population.

Wealth is how our economy fairly rewards effort, talent, and skill.

The wealth of half of the richest people in our society is based on inheritance according to Dennis Gilbert in The American Class Structure in an Age of Growing Inequality.  In Outliers, Malcolm Gladwell dissects success and by inference self-made wealth.  What he discovers is that it is basically being in the right place at the right time with the right skills and resources.   The great wealth generated by the PC revolution, for example, is concentrated in a cohort of men born within three years of each other.  Those that were older than that were already working for other companies when the window opened for starting the new companies that became the foundation of an industry.  Those younger than that ended up working for the foundational companies like Microsoft, Sun, and Apple. 

So while it may appear that wealth is an incentive for hard work by our best and brightest, it is in fact the reward for good fortune either through birth or being in the right place at that right time when disruptive events occur.    Billionaire Warren Buffett put it succinctly when asked why he opposes eliminating inheritance taxes. Doing so, he said, would be like “choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics.”

Now let’s look at the other end of the equation. 

Poverty is the appropriate punishment for an unwillingness to work hard.

When you look at the statistics, what you discover is that most of the poor are working.  In fact they are working harder (if you term the physical effort and hours) than the wealthy.  The problem is that the jobs they have are seasonal or part time.  The other problem is that their wages, even if they were able to work 52 weeks a year, are not sufficient to raise them out of poverty. 

From an economic perspective, the poor are better consumers than the wealthy, only because they spend all of their money buying basic necessities.  Providing opportunities for the poor to have better skills and find better jobs provides an immediate boost to the consumer economy.

So, contrary to what the wealthy would say, an expanding wealth gap is evidence of an increasingly inefficient economy.

The bigger problem is that the wealthy have unequal access to power.  They use that power to bias the system in their favor.  That bias comes in the form of government support at all levels with the intent to preserve and expand their position.  The poor don’t have this access, though some could certainly argue that the social safety net programs are an equivalent.   The last two decades, however, have seen a significant reduction in aid to the poor and an incredible increase in aid to the wealthy.

You can’t fault the wealthy from using their influence to their own benefit, but the risk to governments increase when wealth and power concentrate in fewer and fewer hands.

History documents that inequitable distribution of wealth and power eventually drive the disadvantaged to revolt either at the ballot box or in the streets.   In this country the wealth gap has come at the expense of the middle class which further destabilizes the country by slowing upward economic mobility.  If this continues over time, our best and brightest will  leave for other economies with lower barriers to advancement.  We will begin to experience the same brain drain that has plagued third world countries for centuries.  We’re already seeing the flow of foreign students to our universities slowing.  The next step will be an increased flow of American citizens looking to Asia for education and opportunity.  

From an economic point of view, our country’s best years were during that period of time when the wealth gap was the smallest. 

From a moral point of view, there seems to be an opinion not unlike the Jews during Jesus time.  The Jews believed that sickness, injury, or any other disabiliity was God’s punishment for some sin.  So it was easy to find the sinners, just look around.  Similarly those that had the good fortune to be born to rich parents could point to their wealth as evidence of their virtue.  In a similar way, there is a conservative point of view that suggests that the rich got that way because they were willing to work harder than everyone else.  The thought of taxing them more than others amounts to punishing good behavior and rewarding bad. 

As is often the case, reality does not line up with this narrative.  The majority of the rich are the benefit of good fortune.  That isn’t to say that they aren’t hard working – but hard work in and of itself is not how most of the wealth in this country is acquired.  From this point of view, it makes perfect sense to tax the wealthy at a higher rate.  First, they can afford it.  Second, it is the responsibility of government to make sure that our economy has full access to all of the talent in our population through easy access to things like education, health care, and good jobs.  The result is an efficient economy where all have access to opportunity and those few who are fortunate enough to be in the right place at the right time don’t end up dictating the destiny of everyone else.

8 Responses to “Who did Sin?”

  1. Keith says:

    http://hosted.ap.org/dynamic/stories/U/US_CENSUS_RECESSIONS_IMPACT?SITE=MIDTN&SECTION=HOME&TEMPLATE=DEFAULT

    Throw Obama out…he is clearly for the rich. The gap has reached record levels under his watch. He’s only for the rich!!!!!

    Those that work hard and make the sacrifices to accumulate wealth shouldn’t be “punished” for their efforts through higher taxes because others were unwilling to make the same sacrifices. In other words, the only reason the poor are poor is because they aren’t willing to work as hard as the rich.

    The man born blind was was to “bring Gloty to God.” the widow who put in the two mites” had to be very poor for that to be significant. No one sinned. I would never suggest that the poor are poor because they dont want to work as hard. That is true in many cases though and you know that to be true. Alos the dependency we’ve created encourages this also. MANY, will not return to work until unempolyment benifits run out if the trade off isn’t significate to them. I’ve dealth with this a few times while trying to hire recently….this is true my friend.

    Lets all quit keeping score and allow everyone to reach what ever level they can.

  2. Jeff Beamsley says:

    Keith,

    The whole purpose of this post was to point out that the wealth gap is not only bad for the poor, it is bad for the economy.

    If you’ve got some statistics that you’d like to share to refute that, please I’d be interested in seeing them.

    Instead you suggest that we’ve created a culture of dependency and as evidence, you suggest that unemployment benefits discourage people from finding a job based on your personal experience. I don’t doubt that you have had the experience you reference, but it just doesn’t show up in the statitics. If what you say is true, in the broader sense, you would see a difference between the number of weeks those who were receiving benefits were out of work compared to those who were not receiving benefits. The reality, at least in this economy, is that they are virtually identical – right around 40 weeks if I remember correctly. What is also true is that unemployment benefits are regarded as the single most effective economic stimulus we have.

    During times of high employment, the economy needs workers and I can appreciate providing an incentive to get another job quickly by reducing the amount of support provided to the unemployed.

    But when you have five people out of work for every new job being created, this discussion of the culture of dependency is only self-serving and cruel.

    The wealth gap is not about keeping score. It is about recognizing that the wealthy have an inordinate influence on government policies. They have used that influence to widen their advantage at the expense of the middle class and poor.

    The result is that we have the widest gap between rich and poor of all industrialized countries. That means that their economies are doing a better job of utilizing their human capital than we are. That’s why this isn’t something you can just pass off as liberal soft headedness. The conservative government policies of dramatically reducing the tax burdens of the rich have not only created huge deficits, but also dramatically weakened our ability to compete globally.

  3. keith says:

    and getting wider under obama……

    he’s a friend of the rich. (you should be calling for his ouster)

  4. Jeff Beamsley says:

    Keith,

    The Bush administration tax giveaways to the rich are the primary reason that the gap has continued to widen.

    That’s what this whole post was about.

    It’s a pretty clear line. The Republicans (and some conservative Democrats) want to extend them. The Obama adminstration wants to allow them to expire.

    If Obama were the friend of the rich that you say he is, why would he do that?

  5. keith says:

    Jeff,

    That was a joke…..(although it is getting wider)

    Foolish is the person who thinks the President can do a whole lot. Bush didnt cause the problem, Clinton didnt cause the “great 90′s” we all did. And there’s little Obama can do to get us out of this troubling time. (and Tax cuts won’t do it either) There are so many things that need to be corrected that just flat out take time. We built too many houses and paid way to much for them….in fact we built too much of EVERYTHING. It will take years for this to play out, dare I say another 10 -15 years. Interesting study is one on our demographics and the economy. The boom is downsizing and leaving way to much capacity in its wake. It will be 10 -15 years before the eco-boom begin entering their peak earning, spend and debt phase to outstrip this capacity. Nothing will change that in any significate way. In our business, which is metals for all consuming industries, we have about 65% – 70% of previous demand with 100% of competitors fully in place.

    The only thing i will comment on about Obama on this is that he is using class warefare on this tax issue, calling them tax cuts for millionaires and billionaires…..its $200k for a single person and $250k for married couples.
    Hardly millionaires and billionaires. He knows this, you know this, and I know this. So why the class warefare?

  6. Cindy D says:

    Very insightful piece. Thank you.

    Keith,

    The tax increase will be on any income over $250k, so if you make $1 over $250k you will pay the higher tax on the $1. Personally, I think $250k is doing pretty well even in California where the cost of living is high.

  7. Keith says:

    Hi Cindy,

    My comment wasn’t on weather $200k for a single and $250 for a married couple is doing pretty well. Might be and might not be depending on circumstance and where you live.

    My comment was Obama classifing THOSES groups of people as “millionaires and billionaires.” (not even close) I think you can at least agree that is classwarefare?

  8. Jeff Beamsley says:

    Keith,

    Someone with income of $250K could easily be a millionare if that income were the result of their investments. The reality is that income distribution is not smooth.

    This is the number that the census department uses as the top income category in the country. As of 2005, there were only 1.5% of the filers in the country who had annual incomes of $250K or more.

    I don’t think it is class warfare at all.

    That was the whole point of this post.

    The economy does best when the income gap is small. It does worst when the income gap is widest. As a result, increasing taxes on the wealthy historically produces better overall economic growth than reducing taxes for them.

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