Rising Income Inequality: An Excuse for Bigger Government: Part III

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Link to Part I of Rising Income Inequality: An Excuse for Bigger Government

Link to Part II of Rising Income Inequality: An Excuse for Bigger Government

Although much public opinion claims that the rich aren’t taxed enough, empirical data shows otherwise. According to Steven Horwitz, an economist at St. Lawrence University, Warren Buffett, one of America’s richest, contributes more than his fair share. Calculating Buffet’s total tax receipts corresponding to his income’s percentage of total taxes paid (in the US), Horwitz found that “[the millionaire’s] income was about 0.00065 percent of total income. Total income taxes paid by Americans in 2010 was about $900 billion. Nine-hundred billion multiplied by 0.00065 percent is $5.85 million, hence, Buffett’s ‘fair share.’ Except Buffet paid $6.9 million” (Horwitz).

There is no sound economic reasoning or data proving that taxing the rich more will help people’s standard of living. Art Laffer, a famous economist, made the argument that because people don’t work to pay taxes, but work to earn money for themselves, they will change where they earn their income, how they earn it, how much and when they earn it just to escape paying more taxes. Statistics show that federal revenues have rarely fallen to 17% or increased to over 20% ever since the 1960s, suggesting that the rich are adjusting to their tax burden. Increasing their taxes actually may not help others (Stossel).

The real causes of the income gap is people’s ability to choose according to the conditions around them. As previously mentioned, more people going to college, early retirements, and having more income mobility are causes of income inequality rising; but they are effects of people making decisions by way of free market capitalism. If taking into account these real causes, income inequality may be rising, but in reality is just offset by the gains society is overall making by these increases in educated people, people able to retire early due to innovations in healthcare, and overall living standards due to income mobility (Smith & Freeman).

The correctly presented data also proves that income inequality is not increasing if looking at the big picture of after-tax income, average market income, the adjusted cost of living index, and the Gini coefficient. In addition, the fallacy of taxing the rich in attempt to improve living conditions for the poor and overall decrease income inequality is proven by the destruction of increasing taxes on the rich using as an example famous economist Thomas Piketty’s tax plan. 

Redistribution programs to the poor do not help either. Social Security and Medicare, the two largest transfer programs, send most of the funds to the elderly – who are mostly not poor. These two government bureaucracies make up 1/3 of federal spending – mostly going to the well-off, contrary to what is normally believed. And ironically, the programs that do send most of the funds to the poor just stagnate the poverty. “When the poor make an effort to improve their skills and work hard to increase their incomes, the government money and benefits they receive are reduced by a large percentage of their additional earnings. Sometimes it’s more than 100 percent, leaving them with less take-home income than before” (Lee). Government trying to redistribute the wealth is going about incentives all wrong (Lee).

And really, is government capable of deciding what is best for the poor? After all, we can’t group every poor person into one group and determine what they all need – it becomes mostly wasteful and likely can’t solve all the problems that contributed to the person’s poverty. The best solution to help the poor is the freedom to help themselves and/or get help from private charities, organizations, churches, and communities. Private funds means that the people who are in charge of and/or gave those funds want to see that the money gets used correctly and not wastefully. A private charity is able to give much more than money as well. They can give opportunities for the future in addition to human care and compassion. A church is able to give spiritual help. Private help to the poor aligns incentives to make sure the people are actually helped, while government misuses money because it was not “the government’s” money in the first place (Hebert).

Reducing poverty should be the focus rather than on income inequality between the rich and poor. The best solution to reduce poverty is to allow more economic freedom. Nathan J. Ashby and Russell S. Sobel of West Virginia University “found that increasing the economic freedom of a state by one unit (equivalent to moving from 40th-freest state to 7th-freest-state) increased the incomes of its poorest residents by 11 percent. By contrast, the same change increased the incomes of the richest quintile by just over a third of that (4.3 percent). The middle class also saw increases, greater than the rich but less than the poor. Increasing a state's economic freedom by reducing taxation and regulation creates broadly shared prosperity across all quintiles” (Adorney). By enabling more people more economic opportunity, more people, especially the poor, are able to move up into higher incomes (Adorney).

Economic research clearly proves over and over again that income inequality is not rising; even accounting for rising numbers of college students, more people retiring early, and rising income mobility show that income inequality is not a problem, but rather a feature of a free market economy. If all people were equal, their incomes and their standard of living would be low. People living in countries like China and Germany in the past under Mao Zedong and Adolf Hitler respectively, had low standards of living under their rulers because taxes were high on the rich and income inequality was attacked (Robinson). 

Free market capitalism is the solution to allow the opportunity for people to flourish, and make their own decisions according to opportunities that arise from their own work and of the interactions of people and businesses in the market. America was founded upon being a land of opportunity, not on being a nation of people that are given equal results by way of redistribution programs or taxes (Reed). Thomas Sowell says it best: “Life in general has never been even close to fair, so the pretense that the government can make it fair is a valuable and inexhaustible asset to politicians who want to expand government” (Sowell).

Adorney, Julian. "Free the Poor." The Freeman 7 March 2014: 1. Web. 15 April 2015.

Freeman, Daniel J. Smith and Rachel H. "Income inequality may actually be good news." AL.com 6 February 2015: 1. Web. 6 February 2015.

Hebert, David J. "The Paradox of Public Assistance." The Freeman 24 January 2014: 1. Web. 15 April 2015.

Horwitz, Steven. "The Tax-the-Rich Truth Squad." The Freeman 22 September 2011: 1. web. 7 February 2015.

Lee, Dwight R. "Reducing Income Inequality at the Expense of the Poor." The Freeman 5 February 2013: 1. Web. 15 April 2015.

Robinson, Ron. "#43 – Income Inequality Is the Great Economic and Moral Crisis of Our Time." The Freeman 6 February 2015: 1. web. 7 February 2015.

Sowell, Thomas. n.d. Web. 20 April 2015.

Stossel, John. "Taxing the Rich." Townhall 29 September 2010: 1. web. 7 February 2015.

Rising Income Inequality: An Excuse for Bigger Government: Part II

Flickr image by mSeattle.

Link to Part I of Rising Income Inequality: An Excuse for Bigger Government

The argument that rich people need to be taxed further to prevent income inequality from rising further doesn’t make sense economically. According to the Michael Schuyler of the Tax Foundation, if esteemed economist Thomas Piketty’s tax plan to change the face of equality in America were put into place, it would be ineffective at preventing income inequality from increasing and would not help the poor at all. “The basic version of Piketty’s wealth tax would impose a tax rate of 1 percent on net worth of $1.3 million and $6.5 million and 2 percent on net worth above $6.5 million. Piketty contemplates additional tax brackets, including a bracket of 0.5 percent starting at about $260,000” (Schuyler).

Schuyler completed two case studies about Piketty’s wealth tax. Both find that it does nothing to help the poor. The first: the basic plan of “1 percent on net worth between 1 and 5 million euros, and 2 percent on net worth above that.” Using purchasing power parity and rounding up a little, in US dollars $1.3 million is the starting point for the 1% tax and $6.5 million is the starting point for the 2% tax. The second: “Piketty’s recommendation for a more comprehensive wealth tax, adds a starting bracket of 0.5 percent on net worth between 200,000 and 1 million euros. Converted into dollars and slightly rounded up, the bracket runs from $260,000 to $1.3 million” (Schuyler).

Those seem like small tax percentages, but in reality will augment the possibility of injury to the economy. A wealth tax is equal to a much higher income tax – an example being “if the pre-tax return on an asset is 8 percent, a 1 percent wealth tax on the asset would take away one-eighth of the income. That is the same tax bite as a 12.5 percent income tax rate” (Schuyler). Also, a majority of some people’s wealth is capital; its accumulation is delicate to expected after-tax returns. This wealth tax would hit capital hard, and in turn, job formation, productivity, and innovation (Schuyler).

The first case “estimates that after the economy has adjusted to the wealth tax, the stock of private business capital will be down 13.3 percent, the wage rate will drop 4.2 percent, there will be 886,000 fewer jobs, and the economy’s total output of goods and services (GDP) will be 4.9 percent lower than otherwise” (Schuyler). The poor will obviously not been helped, but hurt by the supposed wealth tax that was meant to decrease the income gap. The standard of living overall will decrease, not just for the poor. (Schuyler).

The second case increases the number of people having to pay the wealth tax dramatically. It estimates, after adjustments, that “the capital stock will be 16.5 percent smaller than otherwise, wages will be 5.2 percent lower, 1.1 million jobs will be lost, and the overall economy will produce 6.1 percent less output than otherwise” (Schuyler). The severity of the effects of the tax has just increased, not the overall effects. Piketty is but an example of someone coming up with a plan that is believed to decrease inequality if implemented, but in reality, would lead to big problems and big losses if put into action. “The Tax Foundation model estimates that the GDP loss, expressed in terms of the 2013 economy, would be about $800 billion annually under a two-tier wealth tax of 1 and 2 percent. The estimated loss would rise to about $1 trillion annually if a half-percent bracket on smaller wealth holders were also imposed” (Schuyler). The attempted fix to income inequality is estimated to decrease the supply of services and goods, decrease the number of jobs, and lower wages. Everyone would be affected and hurt (Schuyler).

Real factors of income inequality are good news of increasing standards of living. For example, more people going to college causes inequality. The Tax Foundation’s Alan Cole found that in 1968, there were 7 million college students in the US and now there are over 200 million (Cole). Because many college students either delay working or earn very little money at low-skilled jobs, this shift in the number of students increases income inequality. However, a more educated American population is great news for everyone (Smith & Freeman).

In addition, healthcare innovation enabling elderly to have longer retirements is a factor of “rising” income inequality. Mark Perry of the Tax Foundation found that the number of active workers per retired worker has decreased almost 32% since the 1970's (Aging Population). Most retirees using their savings instead of income after retirement results in less wealth for the elderly. The Economist says that since the 1960s, the average number of years people spend in retirement has doubled (The Economist). However, retirees not living from direct incomes primarily doesn’t make them poor nor do retirements hurt productivity (Smith & Freeman).

And most importantly, another reason for income inequality “increasing” is increasing income mobility (Smith & Freeman). Almost 60% of taxpayers who began in the lowest income group in 1999 moved up to a higher income group by 2007. The myth of the population decline of the middle class is busted. Because of increasing income mobility, everyone will have a better standard of living (Hodge & Lundeen).

Interestingly, 40% of people in the highest income group dropped down to lower income groups within eight years of the time that they moved to the highest income group. This is a direct denunciation of the misconception that rich people stay rich and take up a large share of the nation’s wealth for long periods of time (Hodge & Lundeen).

Cole, Alan. "Income Data is a Poor Measure of Inequality." 2014. Web. 1 April 2015.

Freeman, Daniel J. Smith and Rachel H. "Income inequality may actually be good news." AL.com 6 February 2015: 1. Web. 6 February 2015.

Hodge, Scott A. and Andrew Lundeen. "Americans Are Economically Mobile." 2013. Web. February 6 2015.

Perry, Mark J. "Can Aging Population Explain Income Stagnation?" Carpe Diem 23 October 2011: 1. Web. 6 February 2015.

Schuyler, Michael. "The Impact of Piketty’s Wealth Tax on the Poor, the Rich, and the Middle Class." 2014. Web. 8 April 2015.

Rising Income Inequality: An Excuse for Bigger Government: Part I

Flickr image by mSeattle.

Concerns for the low-income portion of America is not unjustified – but rather it would be callous to pretend that everyone in America is well-off and is “dealt a fair hand.” However, the cause of fighting rising income inequality leads to an increased desire and need for more government intervention resulting in erosion of freedoms (McCloskey). Misinformed Americans thinking that income inequality can be solved by government is a larger problem than it seems at first glance. “Free people are not equal, and equal people are not free” (Reed).

According to a 2014 poll by Pew Research Center, 78% of people in the US saw the income gap in our country as a big problem (Weldon). Wherever the opinion of income inequality being a major problem came from cannot be narrowed down easily. Where the problem really lies is how the public can be so misinformed as to believe in a false opinion – really just propaganda. 57% of people in the US think that the distribution of wealth is unfair, according to a 2011 Gallup poll, and a CBS news poll found that 69% think that the income gap is increasing (Weldon). A majority of people who are misinformed about such an important issue as equality is not to be taken lightly at all.

Though even capitalists such as famous economist Ludwig von Mises admit that income inequality is an effect of capitalism, he makes the great point that inequality is everywhere in a free market and is the price to pay for such immense overall wealth that makes even the poorest in a capitalist society richer than the poorest in a statist society. Overall, free-market capitalism is a blessing, as the American people can see if they just look around their home at the goods that would not have been possible without innovation and free trade. A free market enables people to quench the desire to make something of themselves using their unique abilities. This has made possible the wealthy society that we know today as the United States of America, the land of opportunity where people are unequal, but have equal opportunity (Boudreaux).

Contrary to popular belief, income inequality is only increasing if you look at before-tax income, which is how highly-esteemed economist Thomas Piketty showed that income inequality is increasing. Measuring before-tax income and using that data to prove that there is a rising income gap doesn’t make sense because people do not consume their tax deductions. Their real income is after taxes and so if you’re going to study income inequality you have to use realistic data – and the fact is that “if one looks at after-tax income, the increase in income inequality over time is greatly reduced. If one goes further and factors in the government’s attempts to redistribute income, income inequality is not increasing in the U.S. at all” (Dorfman).

According to Mark J. Perry, a scholar at the American Enterprise Institute and a professor of Economics and Finance at the University of Michigan’s Flint campus, “After adjusting for both government transfers and federal taxes paid, the average household in the top quintile received less than 8 times more after-tax income ($188,200) than the average household in the bottom 20% ($24,100)” (“Adjusting for transfers and taxes”). When accounting for federal taxes and government transfer payments, income inequality almost halfway disappears (“Adjusting for transfers and taxes”).

Also, by using a single price index for cost of living, income inequality is exaggerated. Between 1994 and 2005, prices of low-end products that low-income households consume were falling. “This implies that non-durable inflation for the 10th percentile of the income distribution has only been 4.3 percent between 1994 and 2005 (0.4 percent per annum), while the non-durable inflation for the 90th percentile has been 11.9 percent (1.0 percent annually), and 13.4 percent (1.2 percent annually) for the richest 5 percent of households in the sample” (“Rising Income Inequality"). According to Perry, this adjusted cost of living index says that real incomes are gradually rising, instead of the income gap between the rich and the poor becoming larger (“Rising Income Inequality").

A method of measuring inequality, the Gini coefficient (ranges from 0% complete equality-100% complete inequality), also proves that income inequality is not rising. Throughout the 1960s-1980s, the Gini coefficient was rising, but leveled out starting in the mid-1990s through 2010, the most recent Gini coefficient data; again, clear-cut evidence that we should not be worried about the income gap rising (“The ‘Imaginary Hobgoblin’ of Income Inequality”).

Another flaw that rising income inequality data is founded upon is that increased capital is a cause of the increasing gap. According to classical philosopher Aristotle and modern-day French economist Piketty, capitals gains that usually exceed the economy’s growth will cause the share of returns in national income to increase because the wealthy people who have the capital will continue reinvesting in interest income, therefore causing rich people to have a larger share of overall national income. However, if capital gains are an unfair advantage to the wealthy as assumed by the above way of thinking, then other assumptions may also be made, such as “the rich always reinvest their returns”, “only rich people have capital”, “there is no such thing as human capital”, “most rich people inherit their wealth”, “the rich never lose money – no creative destruction”, and that “people care most about income inequality and don’t care about the working class”. Those assumptions about the rich don’t make economic sense, or common sense, for that matter (McCloskey 12-13).

A nation having a large amount of capital is not a problem, anyway. Capital is key to innovation, and innovation in a free-market economy means an overall better standard of living for us all, because not just the rich use capital. For example, small business owners in the middle class must have capital to begin their business. They must always have some capital to remain successful as well. Bad investments are also made, signaled by the “invisible hand” of market forces of supply and demand to weed out what is not profitable or necessary. Yes, most people who have capital are rich, however, but the fact that they are “rich” is beside the point because most rich people in a capitalist society accumulate their wealth not by cronyism but by their own work, which is beneficial to others in society (Borders).




Borders, Max. "#1 -- Income Inequality Arises From Market Forces and Requires Government Intervention." The Freeman 15 April 2014: 1. Web. 1 April 2015.
Boudreaux, Donald. "Equality and Capitalism." The Freeman 1 September 2002: 1. Web. 1 April 2015.
Dorfman, Jeffrey. "Dispelling Myths About Income Inequality." Forbes 8 May 2014: 1. Web. 1 April 2015.
McCloskey, Deirdre Nansen. "Measured, Unmeasured, Mismeasured, and Unjustified Pessimism: A Review Essay of Thomas Piketty's 'Capital in the Twenty-First Century'." Erasmus Journal for Philosophy and Economics 2014, Autumn ed.: 56. Document. 1 April 2015.
Perry, Mark J. "Adjusting for transfers and taxes reduces income inequality between highest and lowest quintiles by 50%." American Enterprise Institute 17 November 2014: 1. Web. 5 April 2015.
—. "Rising Income Inequality Has Been Exaggerated: 2X." Carpe Diem 20 September 2010: 1. Web. 1 April 2015.
—. "The 'Imaginary Hobgoblin' of Income Inequality." Carpe Diem 31 October 2011: 1. Web. 1 April 2015.
Reed, Lawrence W. "The Quackery of Equality." The Freeman 30 May 2012: 1. Web. 1 April 2015.
Weldon, Kathleen. "If I Were a Rich Man: Public Attitudes About Wealth and Taxes." Huffington Post 4 February 2015: 1. web. 7 February 2015.

The Rich Already Give Back Enough

Successful business people in America are “under the gun” by TV shows, movies, academia, and the media more than business people have ever been in the past, even under such “propaganda machines” as China’s Red Guards under Mao Zedong, Germany’s National Socialists under Hitler, and Cuba’s Committee for Defense of the Revolution under the Castro brothers (Robinson). It’s not surprising then, that the majority of US public opinion is that income inequality is a big problem (Weldon). “In a 2014 Pew poll, a large majority saw the current gap between rich and poor as a moderately or very big problem (78 percent). A smaller majority (57 percent) in a 2011 Gallup poll said that the distribution of wealth in the country is unfair. Furthermore, most think the problem is getting worse. A solid 69 percent majority in a CBS News poll in January thought that the gap between rich and poor is getting larger” (Weldon). 

Flickr image by Chris Potter.

The popular idea to fix the “income gap” between the rich and poor in America, is instituting higher taxes on the wealthy (Weldon). It then seems that President Obama’s policies would please the American public: “The top 1% are now paying an average tax rate that's 6 percentage points higher than when Obama first took office … to an estimated 33.8% today, according to the Tax Policy Center” (Sahadi). The taxes that would hit the rich the hardest is the higher top income tax rate of 20% up from 15% and the higher capital gains and dividends tax rate of 24.2%. In addition, taxpayers subject to the 3.8% Medicare surtax would add that tax to the other above-mentioned taxes for a 28% top rate on some of their investment income (Sahadi). 

A part of Obama’s justification for more taxes on the rich is that rich people have an unfair advantage over the middle class and poor of America – and therefore, should be taxed more (Miron). Since Warren Buffet was taxed less than his secretary, it seems that he is not paying enough taxes; but in reality, it is hard to define someone’s income like Buffet’s and from there find the taxation rate. Though Buffet pays himself a low salary, he obtains most of his income through his capital gains earned through speculation. Capital gains are taxed at 15%, while his secretary pays a top tax rate of over 30% (“The Tax-the-Rich Truth Squad”). “The reason the capital-gains rate is so low is that those gains are taxed first at the corporate level — at  35 percent — before being taxed again as Buffett’s income at 15 percent.  In addition, it’s not clear what Buffett included in his secretary’s taxes and income” (“The Tax-the-Rich Truth Squad”). 

In reality, rich people like Warren Buffet are being taxed not only more than what politicians claim, but also more than their “fair share” (“The Tax-the-Rich Truth Squad”). A 2008 Tax Foundation report found that “The top 1 percent earned 20 percent of all income but paid 38 percent of all total income tax receipts.  The top 10 percent earned 46 percent of all income and paid 70 percent of total taxes” (“The Tax-the-Rich Truth Squad”). To prove that a millionaire like Buffet is overtaxed, Steven Horwitz, an economist at St. Lawrence University, calculated Buffet’s total tax receipts corresponding to his income’s percentage of total taxes paid (in the US). So, he concluded that “[The millionaire’s] income was about 0.00065 percent of total income. Total income taxes paid by Americans in 2010 was about $900 billion. Nine-hundred billion multiplied by 0.00065 percent is $5.85 million, hence, Buffett’s ‘fair share.’ Except Buffet paid $6.9 million.  So by that standard, Warren Buffett is overtaxed!” (“The Tax-the-Rich Truth Squad”).

Higher taxes are supposed to alleviate the burden of the middle class and poor families of America (Sahadi). The problem is that taxing the rich cannot solve income inequality, nor can it help (“The Tax-the-Rich Truth Squad”). A New Models Poll from 2008 found that 66% of the country believes that increasing taxes on the rich would not hurt the economy, while 32% said they believed it would (Weldon). However, taxing the rich hurts the middle class and poor in addition to not helping the economy (Stossel; “The Tax-the-Rich Truth Squad”). 

Rich people in a free market society usually do not become rich through dishonest tactics, but rather through the use of their human capital – ideas that revolutionize to new technologies that result in better lives for us all. Wealthy entrepreneurs, businessmen, and other such people have provided far more than the lower classes have given them (“Giving Back”).

The perception that rich people should give back just because they have plenty is absurd. Why should someone who worked for his or her wealth be forced to redistribute what is rightfully theirs to people who have no right to the wealth? “The only reason one would ‘give back’ is that one has ‘taken’ something inappropriately from others. The ‘back’ in ‘give back’ assumes that the thing in question rightfully belongs to someone else” (“Giving Back”). 

When taxes are raised on the rich, they will go lengths to minimize the effects of those taxes (Stossel). Art Laffer, a famous economist, explains: “It's just economics. People don't work to pay taxes. People work to get what they can after tax. They'll change where they earn their income. They'll change how they earn their income. They'll change how much they earn, when they receive the income. They'll change all of those things to minimize taxes” (Stossel). Statistics show that federal revenues have rarely fallen to 17% or increased to over 20% ever since the 1960s, suggesting that the rich are adjusting to their tax burden, so increasing their taxes actually may not help others (Stossel). 

So do Americans really want a country that discourages wealth creation? Because, according to John Stossel of the Fox Business Network, taxing the rich does exactly that (Stossel). “Donald Trump, who knows something about making money, says of course the rich will leave when hit with higher taxes. ‘I know these people. They're international people. Whether they live here or live in a place like Switzerland doesn't really matter to them’” (Stossel). Discouragement of wealth creation seems to imply America’s loss of some wealthy entrepreneurs and businessmen due to tax hikes would hurt productivity, technology, and innovation – in addition to the number of job opportunities in “big-money” industries (Stossel; “Giving Back”; “The Tax-the-Rich Truth Squad”).

Prior evidence strongly suggests that our government should not hinder rich people from creating wealth and opportunities for us to flourish. Therefore, the portion of the American public who is jealous of the wealthy, and wants to redistribute their wealth with taxes seem statistically proven to be quite mistaken in their thinking. “Expecting more from the rich is nothing but class envy, a call for punishment of the successful” (“Giving Back”).

Horwitz, Steven. "Giving Back." The Freeman 11 August 2011: 1. web. 7 February 2015.
—. "The Tax-the-Rich Truth Squad." The Freeman 22 September 2011: 1. web. 7 February 2015.
Miron, Jeffrey A. "The Tax Code Should Not Redistribute Wealth." The New York Times 4 February 2015: 1. web. 7 February 2015.
Robinson, Ron. "#43 – Income Inequality Is the Great Economic and Moral Crisis of Our Time." The Freeman 6 February 2015: 1. web. 7 February 2015.
Sahadi, Jeanne. "Taxing the Rich: The Record under Obama." CNN Money 30 January 2015: 1. web. 7 February 2015.
Stossel, John. "Taxing the Rich." Townhall 29 September 2010: 1. web. 7 February 2015.
Weldon, Kathleen. "If I Were a Rich Man: Public Attitudes About Wealth and Taxes." Huffington Post 4 February 2015: 1. web. 7 February 2015.

"Income inequality may actually be good news": Op-ed authored by Daniel J. Smith and Rachel Freeman

http://www.al.com/opinion/index.ssf/2015/02/income_inequality_may_actually.html#incart_river

Why Should We Not Want Welfare?

Most people would probably ask what is wrong with welfare. We've had it a long time ever since the 30's. Why not? It helps people.

Actually, in the long run, if you look closer, welfare does not help people. It actually hurts them.

First, welfare is an incentive not to work. This incentive increases every time the government increases the recipients' checks. This is just common sense: like if your grandmother gave you $5,000 this month and then increased the check to you next month to $5,500, you probably wouldn't want to work very much, and eventually not at all if the increases kept coming. The point is, the incentive to work fluctuates negatively as welfare increases. The incentives just keep piling up not to work as is evident by the truth that what many middle-class people earn today is less than what some people who have welfare receive. The result is that work is discouraged and relying on others is encouraged.

Flickr image by Internet Archive Book Images.

Since work is discouraged, productivity also falls. This argument is made clear by Richard Fulmer in his article in The Freeman: "As benefits and benefit recipients multiply, and as the number of taxpayers declines, the latter will be less and less able to bear the ever-growing burden. Many of the most productive and adaptable will move to countries that allow them to keep more of their earnings ... While productivity increases can help offset falling production due to a declining workforce, any such increase requires either capital investments or innovative process improvements. As previously explained, however, welfare states discourage capital formation by discouraging savings. Innovation is similarly discouraged by taxes that reduce or eliminate any profits that such innovation might generate." 

It is ironic that in a country such as the United States, that we should continue to support the idea of welfare when unemployment is such a hot topic and is at the top of the list of objectives to control by the government, as well as the constant cry of inequality among classes.

Not only does welfare hurt people, but it doesn't help the economy either. In his article "Paying the Unemployed Does Not Stimulate the Economy," in The Freeman, James C. W. Ahiakpor makes a valid argument: "Many in Congress as well as the President and some of his economic advisers have argued that extending the period for paying the unemployed will stimulate the U.S. economy out of its sluggish performance. Would any of them consider as valid an argument that giving money out of their own pockets to an unemployed member of their household would promote the financial prosperity of that household? Would they not correctly see such financial contribution as merely a transfer within the household? Would they also not be eager to nudge the unemployed to get up quickly and find a job? ... So why don’t they apply the same logic to the economy as a whole? The only tenable answer is that they are under the spell of the economic miseducation inflicted on the minds of economists and many among the general population by John Maynard Keynes. They believe that consumer spending drives the economy, without having stopped to consider from where consumers get the means to spend."

Welfare itself stems from a good intention, but it does not bring good outcomes in the end. Welfare means dependence, falling productivity, and as Bono of U2 aptly stated, "a Band-aid. Free enterprise is the cure." In other words, free enterprise brings more opportunity and a higher standard of living than any government can promise or give.

Why It's Important for My Generation to Understand the Financial Crisis

Since reading John A. Allison's incredible perspective of the Financial Crisis, I have learned just how important it is for not just me to know the causes, but for my whole generation.

I plead with you to take the time to find out exactly what happened, by doing some research on the Internet (other than Wikipedia) and/or reading at least a part of John Allison, President and CEO of the Cato Institute, and retired Chairman and CEO of BB&T's excellent book The Financial Crisis and the Free Market Cure. You will not only discover what happened and why, but discover a whole new outlook on the problems of our world today, and discover the possible solutions that is ultimately: less government and more freedom. If Americans can understand that, then we have hope to not make these mistakes that caused the Financial Crisis in the future.

To me, this is the most powerful part of the book, and when I say powerful, I mean that it struck me as the root of many of the problems that exist today in the world. The following is an excerpt from the chapter entitled "The Deepest Cause is Philosophical."

"The deepest cause of the Financial Crisis is not economic policy. The fundamental cause is philosophical. The financial crisis is a result of the philosophical ideas that have been taught in the liberal arts departments of the most prestigious universities in America for more than 50 years.

The fundamental cause of the financial crisis is a combination of altruism and pragmatism. Altruism does not mean kindness toward others; it literally means 'other-ism.' Altruism is defined as selflessness, that is, believing that everyone else is more important than you are. The good of the individual is irrelevant. It is only the good of 'others' that matters, and this is interpreted by liberals as being the good of 'society.' This assumes that society is a living entity and that the effect on actual individuals does not matter. In reality, however, there are only individuals. There is no entity as society.

The 'common good' (or the 'public interest') is an indefinable concept. There is no such thing as the public. The public is only a number of individual people. When the common good of a society is regarded as something apart from and superior to the individual good of its members, the good of some people takes precedence over the good of other people, with those others consigned to the status of sacrificed animals.

Altruism should not be confused with benevolence. Altruism means that other people (society or the tribe) are more important than you are. Altruism is an unquestioning duty to others. It is not about being nice to people. It is self-sacrifice.

A classic economic error made by liberals is to assume that good intentions produce good outcomes. Economic theory unquestionably demonstrates that so-called good intentions often produce very bad outcomes. This is the 'law of unintended consequences' that is so relevant to policy makers and others who not only fail to achieve their aims, but also cause results that are directly opposed to their aims – as when central banks and regulators seek to ensure 'safe and sound' banking, but instead make banks and the system more dangerous and precarious. However, if you are an altruist, moral good is defined by your intentions to help others, not by the actual outcome. In fact, altruism often serves as an excuse for bad behavior (and bad intentions)."

To summarize, Allison goes on to make the point that by being an altruist, you could make the claim that everyone has the right to health care, a home, etc. etc... all free. And because of those "rights" then you then must also have the "right" to steal a house away from someone just because everyone should have a house, even though that person may have worked very hard for it. This logic is opposite to what the Founding Fathers believed, that we have a right to what we work for, not for something someone else worked for.

Altruism suggests that we should all try our hardest to make sure everyone is equal – if you're productive you need to give away your wealth even to those who are nonproductive. Allison sums it ups further "In fact, it implies that no one has a right to her own life. Everyone is everyone else's property. This is a rejection of the concepts of rights."

Business people cannot be altruistic if they want to maintain successful businesses. But what if business people instead were pragmatists? Pragmatists argue that nothing is for sure. You must always act for short-term, never consider the long-term consequences. Some business people of today were/are altruists, or pragmatists, and because of their erroneous philosophies, contributed to the fall of their companies and the decline of our economy. 

"The combination of altruism and pragmatism leads to the 'free lunch' mentality... that leads to a lack of personal responsibility, which is ultimately the death of democracies." 

Income Inequality for individual Americans has been flat for more than 50 years

http://www.aei-ideas.org/2014/06/sorry-krugman-piketty-and-stiglitz-income-inequality-for-individual-americans-has-been-flat-for-more-than-50-years/#mbl

Thomas Sowell Clarifies Income Inequality

http://www.realclearpolitics.com/articles/2007/11/the_transient_income_classes.html

Middle Class is Not Disappearing

http://econlog.econlib.org/archives/2014/05/the_middle_clas.html

Income Equality is not Feasible

A common cause fought for in today's world is equality. Politicians everyday seem to take a stand for the poor of America, and commonly state that the middle class has declined in our country.

But is this really true that the middle class has declined, and that income inequality should be a real issue that we must amend?

What has really happened is that more Americans are making more money and so there has been in increase in the number of Americans in the top income percentiles. The income for everyone else, also has seen increases as well with time. 

And according to the Census Bureau, in 2012, the percentage of households with no earners ranges from 61% in the lowest fifth income quintile to 3% in the highest fifth income quintile. This means that the number of people in households directly affects the amount of income earned. Also, in this same study, it has been proven that the marital status, age, work status, and education impacts the amount of income people earn. Some of the main causes for inequality of income in America have to do with not staying in school, not getting married, families not staying together, and work status. 

Also, inequality, under a free market, is only natural. People have the freedom to choose where they want to work and what opportunities they would like to take advantage of. 

There is no way possible that our federal government could survive by giving everyone the same income. If you just look around you today, at the US economy in action, you can tell that people are being more careful with their money than they were before the recession. This is due to the increased taxes, and inflation, along with other factors of the recession. 

The downfall of Social Security, in addition, will be because too many people in the coming years will be older Americans looking for pension. But the system cannot afford it. With the rise of the older population, this also means fewer of the younger population, who is the working population that pays for the social security payments made today to retirees. For these reasons and others, distributing the wealth can only cause the downfall of our economy.