by on November 2, 2008

My and Russ’s friend Pietro Poggi-Corradini, a mathematician with a deep appreciation of Hayek, sent the following e-mail to us a few weeks ago:

Research
on inequality usually keeps track of percentiles. So let’s look at the
following simple example. A society at the beginning consists of 10
individuals, 9 of which make 1 dollar and 1 who makes 10 dollars.
Social scientists decide to keep track of the top 20%. So the top 20%
makes an average of 5.5 dollars while the bottom 80% makes an average
of 1 dollar. Now suppose that after 1 year there are now 8 people
making 1 dollar and 2 people making 10 dollars. The top 20% now makes
an average of 10 dollars. Dividing 4.5 by 5.5 this represents an 82%
increase for the top quintile. The bottom 80%  on the other hand sees a
0% increase in income. One would like to conclude that "inequality has
risen".  But  if you were given a choice to live in a society like the
earlier one with 9 people making the same income of 1 dollar and one
very rich person making 10 dollars, or live in the latter society where
less people make 1 dollar and more people make 10 dollar, what would
you choose? A simple calculus of probability tells me that the latter
society might be more appealing to most people.

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Neal W. November 2, 2008 at 3:03 pm

In the second scenario, you have increased the money supply by \$9. So, ceteras paribus, those making \$1 are poorer than they were before.

Daniel Yokomizo November 2, 2008 at 3:31 pm

Forget about money and think about the example as increasing productivity. Money is just a medium anyway.

tarran November 2, 2008 at 3:37 pm

I believe that the dollars represent the amount of wealth produced.

Thus, the economy has gone from generating 19 dollars' wealth to 28 dollars' worth.

It's not a question of 28 dollars chasing 19 dollars' worth of production in some steady state economy.

LowcountryJoe November 2, 2008 at 4:10 pm

Like muirgeo, I don't really care what the allocation of income became. I just want the government to take all of it and issue (and perhaps ration) to us those things of which we are entitled to. If anyone has to have the \$10 income, let it be those wise bureaucrats who decide who gets what and when. And for the liberty minded folks…to the re-education center with them — if some happen to die along the way; so be it. Our (muirgeo's and mine) way actually promotes more freedom/liberty.

kurt November 2, 2008 at 4:50 pm

A simple calculus of probability tells me that the latter society might be more appealing to most people.

You can't really say this, because the risk of feeling more envied in the latter society goes up as well. I liked the example from the Munger podcast much better, where one's first hunch is that the padre obtained an advantage over his campmates, but that it was in fact equally possible that the campmater were better off as well, because they could have increased the satisfying of their wants after the padre went around the camp.

Martin Brock November 2, 2008 at 5:01 pm

In the second scenario, you have increased the money supply by \$9. So, ceteras paribus, those making \$1 are poorer than they were before.

Pietro can rebut this argument simply by writing "real" beside "income" in this hypothetical scenario. He can't fix reality so easily.

Wealth, Savings and Debt

Half Full or Half Empty?

If this web site has any scientific integrity, as opposed to political purity, it will refresh the statistics cited in these posts back in February. A politician prefers empiricism when facts support his assertions and idealism when they don't.

For my part, the issue has less to do with the merits of liberty than with how liberal our proprietarian framework really is. If it really isn't so liberal, then I have little interest in moralistic lectures about the propriety of statesmen's titular authority or their income.

I'm certainly not ignorant enough of history to believe that "statesmen" exist only since the biannual plebiscites we're about to celebrate. Paulson is a statesman now, and he was a statesman when he was the CEO of Goldman Sachs, in the nominally "private" sector, too. His income is not sancrosanct, and questioning it is not "immature".

Historically, classical liberalism precedes our precious plebiscites altogether.

rich November 2, 2008 at 5:06 pm

To add to this example, what if \$1 is a subsistence income? Increasing "inequality" is then inevitable. (Or the people are vanishing.) "Inequality" is a loaded word…

Consider Stephen Jay Gould's "Full House: The Spread of Excellence from Plato to Darwin" where he makes the point that mutations from bacteria had to create more complex organisms. There is no other direction to go…

MattYoung November 2, 2008 at 6:09 pm

First example, the top earner gets 10/19 of the total income.

The second example the top earners make 20/28 of the income.

I choose the first example.

Sam Grove November 2, 2008 at 6:16 pm

The example is a weak argument against envy.

A better question is about what kind of economy makes all ten better off. Supposing that all are able, when you have an economy of ten people, everyone is more or less aware of who contributes and who does not.

In an economy of 200 plus million, this discernment becomes impossible unless people do perceive that people have in accordance with their contribution.

But having a political class renders a different perception, that those with the most may have obtained advantage that exceeds their actual contribution.

For some, the mere fact of large possession is evidence enough, and even for those of us for which that is not enough, we shall have to remain skeptical as long as the market is loaded with politically obtained advantage.

Some assume that because we champion freedom of enterprise, that we also champion the unfair advantage that wealth obtains in a politically infested market.

It is interesting that while we can detail the mechanism by which this advantage operates, our critics are unable to detail how such advantage may be obtained in a market absent the opportunity to obtain such advantage via the influence that wealth may obtain.

kurt November 2, 2008 at 6:28 pm

MattYoung, the income expectancy in the second example is higher.

Martin Brock November 2, 2008 at 7:16 pm

But having a political class renders a different perception, that those with the most may have obtained advantage that exceeds their actual contribution.

When a few people consume a hundred times more than than the median consumption, this level of consumption practically implies a political class, a class of people consuming largely by writ of forcible entitlement. If you want to persuade me otherwise, you must show me.

Clearly, if people on Mars consume a hundred times what people on the Earth consume, the difference in consumption proves nothing about forcible entitlements, but we don't ordinarily discuss differences of this sort. On the Earth, I need to know why a hundred people would freely choose to produce what one other person consumes without producing anything for themselves.

Martin Brock November 2, 2008 at 7:17 pm

And I see all these men walking around with guns on their belts as a matter of fact.

Martin Brock November 2, 2008 at 7:36 pm

Here is an interesting discussion of Enron at Cato, focusing on the pursuit of "political capital" by Ken Lay and "political capitalism" (or rent seeking) more generally.

Ken Lay became a very rich man this way at one point. He had a very high income, placing him in the top one percent if not the top one percent of the top one percent.

So why would anyone simply defend the top one percent of income earners as a class without reservations? I know for a fact that Ken Lay was a "political capitalist", if I believe this speaker at Cato, so I know that at least one income earner in the top one percent fits this description. How am I supposed to know that others don't?

And what is "political capitalism" exactly, other than a label we pin on ventures that ultimately fail catastrophically?

Gil November 2, 2008 at 7:44 pm

Or better yet how about dismissing this argument as a cheap 'utilitarian'-outcome argument? What if the second scenario is inflationary and politicised whereas the first was a free market? Inevitably income equality rises as wealth rises because there are plenty of people who generally maintain marginal productivity and a handful have accelerated productivity growth. Income equalitiy has to grow as the rich get richer because plenty of poor people don't bother to expand their productive ability. A poor person wants a 'job for life' is saying they want to be flatly productive and will fall 10% per year to a business owner who seeks to grow his business 10% per year. Or to put it another way those who 'live on less than a dollar a day' are living in a way that would have been considered relatively 'normal' in 1000 AD ('bare-bone subsistence farmers') but 'weird' in 2000 AD ("people still do that?") yet the same people could hardly complain in '3000 AD' ("we can travel all around the galazy and there are some weirdos who are bare-bone subsistence farmers and are barely feeding themselves and have the nerve to complain about 'income inequality'?! Why can't they learn to 'get with the times' and be superproductive just like us and have a really high standard of living?").

Sam Grove November 2, 2008 at 9:30 pm

When a few people consume a hundred times more than than the median consumption, this level of consumption practically implies a political class, a class of people consuming largely by writ of forcible entitlement. If you want to persuade me otherwise, you must show me.

I wouldn't try. The existence of such people may inevitably imply a political class, however, we are not able to observe alternate realities while we are in this one.

We have a political class and we have very wealthy people.

The only way we could be certain such disparity in wealth can only exist if there is a political class is to minimize government, have a free market, and see what happens.

I suspect that if there were a free market, wealthy people would be much more common and labor costs would rise to the point that most anyone willing to produce value would be satisfactorily wealthy also.

I also think that ostentatious consumption would become seen as weird, to be looked down upon, rather than envied.

Who knows?

Oil Shock November 2, 2008 at 9:58 pm

First example, the top earner gets 10/19 of the total income.

The second example the top earners make 20/28 of the income.

I choose the first example.

MattYoung,

It is the idea that matters, not the numbers. The numbers were picked arbitrarily, different numbers would give a different results.

In the example, one more person is better off in the second year compared to where he was in the previous year.

The Reticulator November 2, 2008 at 10:02 pm

"I suspect that if there were a free market, wealthy people would be much more common and labor costs would rise to the point that most anyone willing to produce value would be satisfactorily wealthy also. I also think that ostentatious consumption would become seen as weird, to be looked down upon, rather than envied."

Somebody ought to take a look at ancient Greece as it changed from an agricultural to a capitalistic society and determine whether or not the markets were free. Wealth became more unequal. I'm not aware that ostentatious consumption was considered weird. But I don't know to what extent you could say the markets were free.

muirgeo November 2, 2008 at 10:04 pm

The latter scenario is ripe for revolution resulting in a need for a new economy;

"The necessaries of life occasion the great expense of the poor. . . . The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. . . . It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."

-Adam Smith, quoted in the New Yorker, October 27 2008

And the new economy prospers.

2 earners making \$2
6 earners making \$3
1 earner making \$5
1 earner making \$8

total \$33 …… wow look at that. Productivity increased when you made a middle class with some money to re-circulate into the economy.

That's the economy I'd like to see and I don't think it results from going in the direction of laissez faire but instead from promoting democratic equality and shared prosperity.

If you wanna live in a Charles Dickens novel go for it but history shows those economies are inefficient and the 8 on bottom consistently and rightly crash the gates making them all the more unstable.

Greg November 2, 2008 at 10:13 pm

I think you guys are overinterpreting the example. The only real point I take from the post is that the average of a percentile range is not very informative. That's a good point.

The Reticulator November 2, 2008 at 10:32 pm

"I don't think it results from going in the direction of laissez faire but instead from promoting democratic equality and shared prosperity."

So how do you promote that without turning our country into a hellhole like Sweden?

Martin Brock November 2, 2008 at 10:50 pm

"It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion." – Adam Smith, Wealth of Nations

Smith said so, but I doubt that any "public expense" is necessary for the realization of what I take to be your goals, if by "public expense", we mean central authorities collecting rents and spending them. We only need to limit the consumption of the wealthiest, not to transfer their wealth to central authorities for more central expenditure. Central authorities are concerned with their own consumption. They'll spread entitlements among themselves, but they'll care for "the public" only as far as "the public" will resist their forces.

Oil Shock November 2, 2008 at 11:07 pm

Free Market economy of 10 people will look like this.

20, 10, 5, 3, 2, 2, 1, 1, 1, 1,

Socialism with the same 10 people will look like this

10, 0.5, 0.25, 0.25, 0.1, 0.1, 0.1, 0.1, 0.1, 0.1

tarran November 2, 2008 at 11:10 pm

Muirgeo, swetie,

Since you have such a hard on for income equality – I should point out to you that the size of the middle class correlates with how free an economy is.

Free countries have a large middle class. Why? Because of something Ben Franklin noticed, workers who aren't paid sufficiently tend to quit and start their own businesses. As a result, a person selling labor services tends to sell his labor for a profit at about 50% – 80% of the profits he would earn running his own business.

Income inequality, a small wealthy class and a large class of peasantry is dependent on people being prevented from exercising economic freedom, in other words the government intervention in the economy you have such a hard on for.

Sam Grove November 2, 2008 at 11:49 pm

Somebody ought to take a look at ancient Greece as it changed from an agricultural to a capitalistic society and determine whether or not the markets were free.

You might note that I made no reference to "capitalism".

I doubt that ancient Greece is very comparable to the modern world, in a number of ways.

Sam Grove November 2, 2008 at 11:56 pm

Look at American Indian tribes. They didn't have any preternaturally wealthy individuals.

That guy is so good a slaying straw men, he should get a job in the field.

He seems to be unaware that we live in a modern fiefdom. Thanks be to progressive government.

The Reticulator November 3, 2008 at 12:04 am

"I doubt that ancient Greece is very comparable to the modern world, in a number of ways."

I'm sure there are many ways in which it is not comparable, but I'm talking about the ways in which it IS comparable.

The Reticulator November 3, 2008 at 12:10 am

"Look at American Indian tribes. They didn't have any preternaturally wealthy individuals."

As a matter of fact, I spend a lot of time looking at that very thing, and thinking about how the conquest of free market society by the socialist left has a lot in common with the way the relatively regimented, hierarchical society of Euro-Americans conquered the egalitarian, free, individualistic societies of the Native Americans.

Randy November 3, 2008 at 6:47 am

Martin,

"When a few people consume a hundred times more than than the median consumption…"

Is that even possible? I mean, the human body can only consume so much food, live in so much space, watch so many TVs, and drive so many cars. That the wealthy pay more for their food, live in large and luxury laden houses, watch enormous screen TVs, and drive a half million dollars worth of cars, is not evidence that they consume more – but evidence of a form of redistribution.

Keith November 3, 2008 at 6:54 am

Quote from muirgeo: "That's the economy I'd like to see and I don't think it results from going in the direction of laissez faire but instead from promoting democratic equality and shared prosperity."

What does this mean exactly, "promoting democratic equality and shared prosperity"? Will this be spontaneous, planned, enforced? If somebody has more wealth than is "democratically equal" what will happen? How will you decide if there is enough sharing of properity, and who gets to decide?

It sounds like wonderful propaganda, but I think you need to fill in some details.

Martin Brock November 3, 2008 at 8:08 am

Is that even possible? I mean, the human body can only consume so much food, live in so much space, watch so many TVs, and drive so many cars.

It's possible, though it probably doesn't happen much. A few very wealthy people own private jetliners. One of the Saudi Princes recently bought himself a "flying castle", essentially a personal Airbus. He has staff flying around with him too, I suppose, but the Airbus literally is his castle in the sense in which your private home is your castle, not to mention being a "castle" in the more statist sense.

That the wealthy pay more for their food, live in large and luxury laden houses, watch enormous screen TVs, and drive a half million dollars worth of cars, is not evidence that they consume more – but evidence of a form of redistribution.

The wealthy don't pay more for their food. They consume different food requiring more resources. More expensive food involves more costly ingredients, ingredients that are scarce because they're more difficult to find, cultivate, harvest, deliver to market and so one. Most costly dishes also are more costly to prepare. If a wealthy person consumes the same food that you consume, he pays the same price for it.

I'm not suggesting a labor theory of value here, but labor is the most valuable resource as a matter of fact. The labor theory of value wasn't wrong as much as it was an over-simplification.

Randy November 3, 2008 at 9:34 am

Martin,

"The wealthy don't pay more for their food. They consume different food requiring more resources."

Actually, its both. They pay more because it uses more resources. But the primary resource it uses, the primary reason it is more expensive, is manpower (restaurant proprieters and staff, production and preparation specialists, etc.), and this resource must be paid. Those who spend more on such things as high quality foods do cause resources to be allocated in ways that suit their desires, but then so does the political class to the extent that it controls the allocation. The consumption is going to occur one way or the other. The only question is who controls and profits from the allocation.

Hammer November 3, 2008 at 9:36 am

Martin, there are a few things I think your theory leaves out.
Firstly, all that those rich folks consume is produced by someone who isn't as rich, but is better off making those things than he would be otherwise. That guy hand crafting a Masserati (I know, I spelled it incorrectly) isn't likely pining for a job at Ford. The fellow farming organically raised cattle that are beer fed and massaged every day isn't secretly wishing he could raise cheap beef by the thousands. The cows probably are not wishing that either, in so far as they can. So the very fact that there is a ruch guy who has the resources to fund such consumption means that there are people getting paid to do so. You might think that sounds something like a broken window fallacy, but bear in mind that those producers are still innovating, and their increases in demand do not imply that something was destroyed elsewhere.

Secondly, you forget that the very things that are luxuries today enjoyed only by the rich generally become fairly common place a few years down the road. Think of who had a tiny cell phone 10 years ago, or a car with leather seats and a quiet ride in the 80's, or even a college education in the 50's. In the electronics industry such people are referred to as "early adopters", which is a group generally made up of people who are willing to spend the rather large amounts of cash on new tech, either out of lust for new things or simply the fact they have the cash. Without such folks, however, new innovations would have a much harder time flourishing. We are all better off because of such "excessive" spending.

Thirdly, you correctly state that human efforts are the most valuable resource, but forget that not all efforts are equally valuable. A guy digging a ditch is not as valuabe as a guy running a company. The fact is that while some CEOs are overpaid or screw up etc., most really do add value consummate to their contributions.
Likewise, just because someone has earned a lot of money does not imply that their money was ill gotten. One may as well imply that just because someone has a nice car, they must be a drug dealer.
Alternately, consider the fact that compared to some guy living in Zimbabwe, or some other dictatorial African hell hole, any given American middle class secretary is better off than even the high ranks of thier kleptocracy. However, in that case it is pretty obvious which one acheived their wealth by the morally correct ways. The thug telling the secretary that her level of consumption is excessive and shameful compared to his is simply madness.

Really, there is little more insidious and small than the envy that suggests that we should tax people more simply because they have more money. I am all for ending the government powers that allow politicians to steal from some folks to give to others, but you seem to refuse to even make the distinction between those that earned their wealth and those that stole it.

Martin Brock November 3, 2008 at 10:44 am

That guy hand crafting a Masserati (I know, I spelled it incorrectly) isn't likely pining for a job at Ford.

So? He probably drives a Ford or its equivalent. My work at NASA often was more interesting than work I've done since. I might be happiest if some rich gay guy just paid me a lot to watch porn, so he could watch me masturbate, but if lots of rich gay guys could pay lots of other guys to masturbate, I think we'd have a problem.

The fellow farming organically raised cattle that are beer fed and massaged every day isn't secretly wishing he could raise cheap beef by the thousands.

He may wish he was eating beer fed, massaged cattle every day, though he probably can't. Maybe he can eat beer fed, massaged cattle only on Sundays. Maybe most other people could too, if that were their preference. So it's fine with me.

The cows probably are not wishing that either, in so far as they can.

I suppose the cows would choose not to be grown for beef at all, if they really had a choice. So what's your point?

So the very fact that there is a ruch guy who has the resources to fund such consumption means that there are people getting paid to do so.

Obviously. Socialist central planners pay people to do things too. A socialist state could have a "free market" in labor, in the sense that people choose freely among available jobs, but the central planners determine the availability of jobs for their own purposes.

You might think that sounds something like a broken window fallacy, but bear in mind that those producers are still innovating, and their increases in demand do not imply that something was destroyed elsewhere.

No. It's not about destruction. It's about ordering capital to satisfy the demands of a few versus ordering capital to satisfy the demands of many, specifically organizing the labors of many people to produce goods for many people rather than organizing much of this labor to produce goods for a few people. It's about the entitlements of statesmen.

Secondly, you forget that the very things that are luxuries today enjoyed only by the rich generally become fairly common place a few years down the road.

No. I haven't forgotten it. I understand this process. It's beside the point. I'm not advocating equality in consumption. I'm often an early adopter myself. I bought the first Creative Jukebox, the first mass market mp3 player with a hard disk, produced by the Creative corporation in Singapore long before Apple introduced the IPod. I paid a lot for it too. My income is three or four times the median. I don't oppose myself.

We are all better off because of such "excessive" spending.

I don't consider the early expenditures on cell phones "excessive" at all, particularly since many of the early expenditures were investments rather than consumption. I wouldn't tax these expenditures at all.

Thirdly, you correctly state that human efforts are the most valuable resource, but forget that not all efforts are equally valuable.

No. I haven't forgotten this fact either. Possibly, you've forgotten that no one really needs a 10,000 square foot private residence or a private Airbus for any useful purpose. We could discuss the expenditures that I would call "excessive", but you simply aren't doing that.

A guy digging a ditch is not as valuabe as a guy running a company.

Maybe. Ken Lay ran a company, but according to the lecture I link above, he was a rent seeking political capitalist. Are rent seeking political capitalists more valuable than ditch diggers? Frankly, I doubt it.

The fact is that while some CEOs are overpaid or screw up etc., most really do add value consummate to their contributions.

Do they? How do you establish this "fact"? Isn't it really an assumption you're making, sort of like the Muigeo's assumption that his wonderful, Democratic representatives create so much value for the folks they nominally "represent"?

Likewise, just because someone has earned a lot of money does not imply that their money was ill gotten.

I don't want to take anyone's money away from him, even if he's Ken Lay. I want a progressive consumption tax. This tax simultaneously limits Ken Lay's entitlement to consume the income and dissuades him from handing it to central authorities to spend. Then I want to end corporate income taxes, insider trading laws and a vast assortment of other impediments to useful, productive organization.

One may as well imply that just because someone has a nice car, they must be a drug dealer.

Is a drug dealer's money ill gotten? How do I know this?

Alternately, consider the fact that compared to some guy living in Zimbabwe, or some other dictatorial African hell hole, any given American middle class secretary is better off than even the high ranks of thier kleptocracy.

So I have no sympathy with Mugabe's kleptocracy whatsoever, but I don't live in his kleptocracy. I live in a different kleptrocracy. I prefer my kleptocracy to his, but I have objections to my kleptocracy regardless.

However, in that case it is pretty obvious which one acheived their wealth by the morally correct ways.

My ethics are utilitarian. We discuss morality if you want, but I'm more concerned here with the utility of particular proprieties. Is it useful to entitle a few people to consume the produce of many others by virtue of their entitlement to govern resource organization. I suppose it is useful to entitle some people to govern many more resources than others, but the utility of this entitlement to invest is distinct from the utility of an entitlement to consume.

Really, there is little more insidious and small than the envy that suggests that we should tax people more simply because they have more money.

Well, if you want to call Adam Smith "insidious and small", you can do that, but I don't want to transfer money from people with more money to people with less money. I only want to limit the entitlement of people with more money to consume rather than invest, so I could call Adam Smith "insidious and small" too, though I wouldn't.

I am all for ending the government powers that allow politicians to steal from some folks to give to others, …

Politicians don't "steal". They define "steal".

… you seem to refuse to even make the distinction between those that earned their wealth and those that stole it.

Nonsense. You simply prefer some other politician's definition of "stealing".

Sam Grove November 3, 2008 at 11:35 am

… the distinction between those that earned their wealth and those that stole it.

The question is how to make the distinction in a system polluted by political entitlement.

How many people are wealthy because they own entitlement to the returns from "defense" contracts supporting an empire with over 750 military bases in over 130 countries around the world?

Or companies that get huge subsidies to grow ethanol targeted corn?

Peanut or orange crop marketing orders?

Sugar protections.

Wealthy people getting payments to not grow wheat on farms they buy for just that reason?

Our economy is thoroughly polluted with such entitlements, and the middle and lower economic classes are essentially relatively well off serfs in the progressive kingdom, the U.S. of A.

vidyohs November 3, 2008 at 12:02 pm

As usual the discussion has "left the building" along with Elvis – so to speak.

For the village idiots aka socialist evangelicals:

Back to the discussion of "income inequality", discussing income inequality is like discussing fairies (of the Tinker Bell variety). Since none have ever been seen and are only figments of men's imagination we can dream up and frame any debate in any terms we want.

But, we have seen circumstances that produce poverty and ensure that the mass of the people will be included in that poverty. How does that work? Well let's look at some quotes from an impartial observer, Fareed Zakaria.

The topic is India, a nation that has shed its socialist pretensions after decades of ruin and is now pursuing capitalism and free markets.

"India's growth is taking place not because of the government but despite it. (Wow, that sounds familiar – almost an exact use of a phrase I have been saying for some 35 years.) It is not top-down but bottom-up – messy, chaotic, and largely unplanned. The country's key advantages are a genuine private sector, established rights of property and contract, independent courts, and the rule of law (even if it is often abused). India's private sector is the backbone of its growth. In China, private companies did not exist twenty years ago, in India, many date back a hundred years. And somehow they overcome obstacles, cut through red tape, bypass bad infrastructure – and make a buck. If they cannot export large goods because of bad highways and ports, they export software and services, thing you can send over wires rather than roads. Gurcharan Das, former CEO of Proctor & Gamble in India, quips, "The government sleeps at night and the economy grows."

"Yet even if great infrastructure pleases foreigh travelers and investors and signals a country on the move, its economic impact can be exaggerated. When China was growing at its fastest, in the 1980s and 1990s, it had terrible roads, bridges, and airports – far worse tha India does today."

"If the Indian state has succeeded on some dimensions, however, it has failed on many others. In the 1950s and 1960s, India tried to modernize by creating a "mixed" economic model between capitalism and communism. The product was a shackled and overregulated private sector and a massively inefficient and corrupt public sector. The results were poor (of course), and in the 1970s, as India became (even) more socialist, they became disastrous. In 1960, India's per capita GDP was higher than China's and 70 percent that of South Korea: today it is less than two-fifths of China's. South Korea is twenty time larger." (Think of how shackled and overregulated our own markets have been since FDR, and how the potential incoming democrat majority will take it even more socialist. Maybe make it even worse aka India's experience?")

"In the 1980s, Prime Minister Rajiv Ghandi estimated that, of every ten rupees that was supposed to be spent on the poor, just one actually got to the person in need." (intelligent people fought against the great society of LBJ and foreign aid for just this reason. Enormous sums of money goes into the pockets of the intermediate bureaucrats and almost none gets to the intended receipient. Much like a Nationa Health Care System will work.)

"Can these problems be blamed on democracy" Not entirely…….Democracy in India too often means not the will of the majority but the will of organized minorities – landowners, powerful castes, rich farmers, government unions, local thugs. These organized minorities are richer than most of their countrymen, and they plunder the state's coffers to stay that way. Indias Communist Party, for example, campaigns not for the economic growth to benefit the very poor but rather to maintain the relatively privileged condisiton of unionized workers and party apparatchiks. in fact, India's left-wing is largely opposed to the policies that have finally reduced mass poverty." (Just think of the organized minorities represented by the Democrat Party who care not at all about lifting any one up – only about tearing the successful down.)

"The architect Norman Foster pointed out to me that in the time it took for the environmental review process for one(1) new building at Heathrow, Terminal Five, he will have built – start to finish – the entire new Beijing airport, which is larger that all five of Heathrow's terminal combined."

Look at what information that is contained in those quotes. Over and over we see, not just in India, around the world that those countries that are shaking off socialism and communism are beginning to generate the tide that raises all boats.

And, we see here in America those who have ridden in those high floating boats, now want to go down to the bilges and open the cocks to the sea and sink the ships.

To accomplish what? To ensure that all drown equally dead? How stupid.

The only equality of nature is the equality of opportunity, and that depends upon the individual not nature and not a group.

Martin Brock November 3, 2008 at 12:10 pm

Trying to close the italics.

Martin Brock November 3, 2008 at 12:11 pm

Trying again.

Martin Brock November 3, 2008 at 12:31 pm

The topic is India, a nation that has shed its socialist pretensions after decades of ruin and is now pursuing capitalism and free markets.

India has a progressive income tax similar to the U.S. system, so I guess that's "capitalism and free markets" now?

And, we see here in America those who have ridden in those high floating boats, now want to go down to the bilges and open the cocks to the sea and sink the ships.

Actually, I don't see anyone wanting to go down to the bilges and open the cocks to the sea and sink the ships. I see politicians describing the politics of other politicians this way.

So the rigidly authoritarian, central planning model of 20th century socialism failed catastrophically. I know that. I don't know so well what succeeded more fruitfully elsewhere. I do know it wasn't any Rothbardian, anarcho-capitalist utopia.

I suspect that limiting the authority of planners, including the proprietarian planners of market Capitalism, is still a useful prescription. Capitalism is not now, has never been and could never be a stateless system. We still need a healthy skepticism of the state, and we still need checks and balances. We don't need more authority in the most central organs of government, but we err by assuming that Henry Paulson was "outside of the center" when he was CEO of Goldman Sachs.

vidyohs November 3, 2008 at 1:24 pm

Martinduck,

You could drive your car into a bridge pier and all you'd be able to see is the crumpled front end of your car and be in total incomprehension as to how it got that way.

I see few with your ability to look right past a point and stare directly into irrelevancies.

But, then most of what you write is volumnous and irrelevant to the thread and peoples postings about the thread.

Eric Tyndall November 3, 2008 at 1:54 pm

Martin, in absence of government intervention, you can’t have a private plane without producing something of value to pay for it.

All human action is investment; some good, some bad. Unimpeded, individual actors use the knowledge and capital they possess to make themselves better off. Sometimes they make bad decisions. They pay for those decisions and try to make better decisions in the future. For some, a luxury plane makes them better off. For others, like me, that would be a decidedly poor investment.

Your progressive consumption tax is designed to change human behavior by distorting free market prices, but you haven’t yet laid out an argument why behavior needs to be changed.

Randy November 3, 2008 at 2:16 pm

Eric,

Actually, he has, though perhaps not recently. Martin is a Utilitarian…the greater good and all that…

Martin Brock November 3, 2008 at 2:24 pm

Martin, in absence of government intervention, you can’t have a private plane without producing something of value to pay for it.

In the absence of government, I don't expect planes at all.

Unimpeded, individual actors use the knowledge and capital they possess to make themselves better off.

Define "unimpeded". If I want to walk across some parcel of land titled "Tyndall's property" to reach a stream on the other side, because a path across this parcel is the shortest, do you "impede" my passage by forbidding me to cross or charging me for the right?

Your progressive consumption tax is designed to change human behavior by distorting free market prices, …

Forcible propriety always affects market organization, but a progressive consumption tax does not constrain market transactions. It only limits the authority that proprietors may exercise and thus the authority they may exchange with other proprietors. A "free market" is a market in which we may exchange whatever we have however we please. Precisely what we have to exchange is a matter of propriety, not the market.

… but you haven’t yet laid out an argument why behavior needs to be changed.

I have. You simply ignore the argument. I can as easily ask you to lay out an argument for a right to forbid my passage across some parcel of land, but you simply take this right of a proprietor for granted, because it existed before you were born, or you believe it existed anyway.

In fact, this sort of unlimited right is not legal "property" at all and never has been. Your impression of this "property" is more a matter of your territorial instinct. This instinct is a natural foundation of property rights to some extent, but it is not the foundation of civil government in the classically liberal tradition.

"… as a man had a right to all he could employ his labour upon, so he had no temptation to labour for more than he could make use of. This left no room for controversy about the title, nor for encroachment on the right of others; what portion a man carved to himself, was easily seen; and it was useless, as well as dishonest, to carve himself too much, or take more than he needed."

John Locke, Second Treatise of Civil Government

Sam Grove November 3, 2008 at 2:25 pm

but you haven’t yet laid out an argument why behavior needs to be changed.

I'll take that. It's because of the human tendency to create a political class.

Don't know if Martin's approach is the only or best approach, but it may be an improvement on what we have now, with taxation on productive activity.

Martin Brock November 3, 2008 at 2:28 pm

You could drive your car into a bridge pier and all you'd be able to see …

This premise is false, so everything following it is meaningless.

Randy November 3, 2008 at 2:58 pm

Sam,

"Don't know if Martin's approach is the only or best approach, but it may be an improvement on what we have now, with taxation on productive activity."

How have you concluded that Martin's approach is anything other than taxation on productive activity? No matter the method, a restriction on the reward for productive activity is a restriction on the reward for productive activity, and therefore a restriction on the incentive for further productive activity.

vidyohs November 3, 2008 at 5:04 pm

"If I want to walk across some parcel of land titled "Tyndall's property"

This premise is false, so everything after it is irrelevant.

Martin Brock November 3, 2008 at 5:21 pm

So I don't want to walk across some parcel of land titled "Tyndall's property"? How do you know this?

You don't know what I'd see after driving my car into bridge. You can say you know, but you clearly don't, because you aren't omniscient as a matter of fact. Pretending that you know what goes on inside my head only proves that you can't distinguish what you know from what you don't know.

Martin Brock November 3, 2008 at 5:31 pm

How have you concluded that Martin's approach is anything other than taxation on productive activity?

What productive activity? I've discussed entitlement to invest and consume, not productive activity. People are entitled to invest and consume for many reasons other than their own productive activity.

Why do you imagine that income is all about the recipient's productive activity? Do you deny the existence of Henry Paulson's trillion dollar handouts? Am I imagining that?

Entitlement to govern capital is not equivalent to producing the yield of capital. Attributing productivity to a parcel of land or a piece of machinery or a bill of credit makes a lot more sense to me than attributing the productivity to a man whose name appears on a piece of paper also naming the land, machine or bill of credit.

Your theory that income is everywhere and always a sign of individual productivity is manifestly false. You're asserting a labor theory of value that classical economists have rejected since Ricardo.

Randy November 3, 2008 at 5:41 pm

Martin,

Okay, I can play that game. So there is no productive activity and all wealth is politically generated. Then what is the point of a consumption tax? First, if all wealth is the result of political activity then the issue has already been settled. Second, any redistribution and/or restrictions would be nothing but more political activity and no productive activity would result from it.

Lou Carabini November 3, 2008 at 5:51 pm

While I can’t argue with Pietro Poggi-Corradini’s math, it seems we miss the point when we use math to demonstrate why widening earning gaps are exaggerated, meaningless, misleading, or statically wrong.
If one person (“Joe”) in a world of 10 individuals has earned \$10, it means that the other persons must have benefited by an amount greater than \$10, as a result of Joe’s contribution. If Joe did not exist or if he had earned only \$1, as did the other nine persons, the nine persons would have been that much poorer as a result. In other words, if Joe did not exist, the others may have earned only \$.50. Society’s prosperity, after all, is the sum of each person’s productivity. If Joe were the only person in the world, he would earn only that which he produced (self sufficiency). Now with 9 more people, he and they will each prosper to an amount greater than the amount each would have earned in the absence of the others (division of labor). Joe is in the top quintile because all or some of the other nine people have selected him to occupy that position. He would not have been able to get to the top quintile without those in the other quintiles pushing him there. The very statement by many that the earning gap is worsening implies that gaps are bad. Also, it implies that by hampering those at the top from earning so much, those at the bottom will benefit, because equality is paramount. Yet, it’s the billionaires in the top quintile who raise the living standards of those in the lower quintiles. Instead of honoring them as heroes and humanitarians, they are scorned as villains. What nonsense!

Of course, if Joe were a thief, he could simply take the earning of others…but then we would call that theft, not earnings, unless, of course, he represented the State.

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