–A partial solution for the gap between rich and poor: Education

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Mitchell’s laws:
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The more federal budgets are cut and taxes increased, the weaker an economy becomes. .
●Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
●The single most important problem in economics is the gap between rich and poor.
●Austerity is the government’s method for widening the gap between rich and poor.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Everything in economics devolves to motive, and the motive is the Gap.

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The debt hawks are to economics as the creationists are to biology.
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AFASDF
Graph of United States income distribution from 1947 through 2007 inclusive, normalized to 2007 dollars. The data source is “Table F-1. Income Limits for Each Fifth and Top 5 Percent of Families (All Races): 1947 to 2007”, U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements.

In Closing the financial gap, I showed how direct money transfers don’t close the gap, and I asked, “Is closing the gap economically wise? That is, would our economy grow better, and would our population live better, happier, more rewarding lives overall, if there were little or no gap?”

I believe attention paid to closing the gap, by bringing down the rich, is a diversion from the real economic and moral questions that surround poverty. Concern about the rich feeds on that commonly felt class jealousy to which politicians respond with counter-productive laws, which do nothing for the poor or for the economy.

Classic example: Inheritance taxes. They have little effect on tax collections, and to the degree they would affect tax collections, they also would reduce economic growth. And they do nothing to improve the lot of the poor. These, and all other attempts to reduce the gap, by punishing the rich, tend to hurt the economy and the people who most want the gap reduced.

Punishing the rich should not be the goal, but rather we should try to lift our poorest, regardless of whether or not that closes or even opens the gap. In the previous post I suggested that just as government pays for elementary school, middle school and high school, why not have the government pay for college and even advanced degrees? This would give the poor a better opportunity to lift themselves.

One reader expressed concern this actually could have an adverse effect on the economy: “The world still needs ditch diggers,” he wrote.

My response: “The world does not need ditch diggers. The world needs ditches to be dug. Slowly, inexorably, society is moving away from dumb human labor and toward smart machine labor. Those people who do not have an education will not just be relegated to the lowest jobs. They will have no jobs at all. There simply will be no ditch-digging work available.”

While I agree with Modern Monetary Theory (MMT) in many ways, one of my disagreements is its dual goal of price stability and full employment. MMT calls for the government to be the employer of last resort, so that everyone who wants a job, has a job. But MMT ignores job quality in its quasi-charity approach. Giving jobs to everyone surely would devolve to giving money to everyone for little or no work at all.

While unemployment seems to correspond with recessionary times, I see no evidence that unemployment causes recessionary times. Some might even say that unemployment helps stimulate the prevention and cure of recessions just as hunger feelings help stimulate the prevention and cure of starvation. In fact, that is the very purpose of hunger feelings.

In short, unemployment may be only a symptom, just as hunger is a symptom of starvation. Curing the hunger symptom does not cure the starvation disease, as any anorexic should know. Focusing on the symptom may divert attention from the fundamental problem, which is acquisition ability (AA)– people’s ability to acquire what they want.

MMT may claim full employment is not a symptom, but rather a path toward the AA goal. MMT wants the government to achieve full employment by providing a job to anyone who wants one, and apparently the job can be anything. But I suspect a nation of Walmart greeters is not desirable.

So what about a nation of college grads? Is that better? Despite the typical “Who-will-dig-the-ditches?” questions, the answer may be, “Yes.”

A college grad, digging ditches, may be more likely to think of better ditch-digging methods, to the benefit of society. This is an extreme example, and I’ve left the psychology of job satisfaction out of the mix, but I speculate that education will lift the economy, meaning MMT’s focus on jobs is fundamentally wrong.

Rather than the government being the employer of last resort, perhaps the government should be the educator of first resort. That might do more to lift the poor and lift America, than giving people low level, dead-end jobs.

In summary, the problem is not specifically the gap, but poverty. The partial solution is not low end jobs, but education.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity

Published by Rodger Malcolm Mitchell

MBA Northwestern, business turnaround expert, economist

Published

16 thoughts on “–A partial solution for the gap between rich and poor: Education”

  1. For some people that believe an increasing stock in money could influence inflation, they may also view taxes as a way to reduce inflation. Thus, the inheritance tax is a way to remove newly assessable money that wasn’t currently floating around in the system from being introduced in to the economy by the person who just now got rich. Much like why the Feds take an extra hit on your 401k if you cash it out. They don’t want you overheating the economy with that newly minted money in your pocket.

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  2. As for education for everyone, I would say that there are probably some people who are poverty stricken that would be good candidates for college education. I’m not arguing with that.

    What explains the drop-out rate of college students who have plenty of money via student loan programs? It’s been a long time, but I doubt things have changed when I went to school. That saying where the professor tells the student to look to the left and then look to your right. One of you three will not be here at the end of the semester.

    Just giving access to education doesn’t mean people will do the most with that opportunity.

    So how do you keep students interested in school so that they graduate? How do you give a college education to those students who will actually complete it? Who decides what school, what program, what classes a student can take? Are only certain degrees backed up by this free education? Can someone go to college for Music, Philosophy, or English and still get their degree paid for by government?

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    1. “Just giving access to education doesn’t mean people will do the most with that opportunity.”

      Some people will benefit; some won’t. As I said, it’s a partial solution. You ask good questions. Any ideas for solutions?

      Rodger Malcolm Mitchell

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  3. As an educator in a low income area, I understand the need for education to help students rise out of the poverty they are in. A HUGE part of the problem I see with education is also a disparity in the quality of teachers, funding and access between wealtheir suburban areas and poorer urban areas (hence the education “gap”). The bottom line is, an education, while not a ticket to a well paying job, is a necessity in this day and age. You MUST graduate from high school and get a college degree OR graduate from some sort of techinical school that teaches a specific skill that is necessary in society.

    PS–I love the line “Perhaps the government should be the educator of first resort.” Maybe if politicians actually believed in that, we may eventually not have an “education gap” in this country. One can only wish.

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    2. Vouchers might go a long way towards decreasing the gap between low and high income neighborhoods. Give inner city kids’ parents a voucher and let them choose to send their kids to better schools. However, a certain union fights this tooth and nail.

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      1. So called vouchers are, in reality, discount coupons, which do not let poor parents choose where to send their kids.

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        1. Also the reality is that if vouchers were given to parents in the poor urban area I teach in, they would have to find a way to get their kids to the “better” suburban schools. How do you do that when those schools are miles and miles away? And why shouldn’t children have quality teachers, clean schools and proper necessities (i.e.–textbooks, computers etc.) in their own neighborhood schools? And do you honeslty think that parents in these suburban schools want these children to go to their schools? I would guarantee that if the children coming weren’t academically solid and needed mroe resources, they would be screaming. It’s much more complicated than just handing out a piece of paper.

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  4. Sorry I didn’t get to this earlier…I think this post is in the right direction, but the difference is the MMTers are calling for ditch jobs right now. Many also call for investments in education (which isn’t as easy at it sounds). I think the solution is a both-and: jobs now, education now so we don’t need make-work jobs later.

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    1. Nick,

      Unemployment is a symptom, and curing a symptom is a good stopgap. Aspirin for a headache helps. But the MMT emphasis on the symptom doesn’t address the fundamental problem.

      I wish rather than focusing on, “The government should be the employer of last resort,” they would focus on “The government should be the educator of first resort.”

      Rodger Malcolm Mitchell

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      1. “Unemployment is a symptom, and curing a symptom is a good stopgap. Aspirin for a headache helps. But the MMT emphasis on the symptom doesn’t address the fundamental problem.”

        Right now unemployment is a causal factor, not just a symptom.

        Even in normal times, high unemployment is not good for the economy. Especially as there are plenty of public works that go undone. Remember Harold Stassen? A perennial Republican candidate for President, he advocated ongoing public works projects. Not a bad idea.

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  5. Min, it’s a semantic and philosophical question.

    Anyone can get a job. Merely announce you are willing to do anything, anywhere, anytime for no pay, and jobs will fall in your lap. Few people want jobs. Generally they want money, and the job is the means.

    Unemployment can be a symptom of unemployability. That is, you don’t have a job, because you don’t have the right skill set for the current economy.

    So, curing the symptom by giving everyone a job, does not motivate them to acquire the necessary skill sets. However, paying people, not for going to work, but rather for going to school, will provide both the money and the improved skill sets.

    Perhaps the government can give people a choice: Go to school or do a blue collar job. That might have the most benefits for the economy, long-term and short-term.

    Rodger Malcolm Mitchell

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  6. Another interesting argument against narrowing the gap is the effect an equal wealth would have across various professions. Of course I agree that poverty should be avoided, but follow me on this thought exercise.

    Imagine that everyone in America made the same annual job income: $45,375 (the mean US non-family household income in 2008). For purposes of analogy, let’s say that this is accomplished by taxing the rich so much that the total income in the US can be split upon every person of working age. Let’s look at some of the different people in this system.

    Of course the homeless man unquestionably benefits, and is finally able to pay for shelter and more nutritional food. Perhaps this benefit alone would merit the drastic income change. He may not have a job at first, because he’s guaranteed to make his $45,375 regardless. Come to think of it, he may not get a job at all, depending on his values.

    Now take the McDonald’s worker, who is suddenly seeing an influx of previously homeless people lining up at her register. She’s now making triple her previous minimum wage income, so she doesn’t mind the extra work. She is awfully tempted to quit her job one of these days, however — she never liked flipping burgers anyway, and she’d still make her $45,375.

    Let’s look at the previously middle class software developer. His previous $90,000 salary is looking pretty good compared to his new salary, but he has to admit that a lot of good was done by helping the poor. So he keeps plugging away at his computer code, though maybe not at the same pace as before — it’s hard to be motivated when you’re only being paid half of yesterday’s salary.

    Now look at the veterinarian. She started her own practice several years ago and still has $120,000 of student loans to pay off. She was previously able to earn extra income by answering emergency calls after hours, but any money she makes from these calls is immediately distributed to others. As a result, she has stopped taking emergency calls, and is getting complaints every day that pet owners’ animals are dying or becoming very ill or injured.

    Look at the surgeon. He is now paid $45,375 a year to hold the lives of his patients in his hands every day. He often wonders why he went through 14 years of post-high school education to take such life-changing risks every hour of his work day, for such low pay. The easy McDonald’s job is looking pretty good right now.

    Now look at the upcoming job market: the teenagers who are trying to decide which profession to pursue. Think: how many new doctors would we see? How many veterinarians? How many software developers? How many McDonald’s workers?

    Of course this is an exaggeration, and it doesn’t account for the fact that money isn’t the sole motivating factor for people. But here’s a question for you: would you want your doctor to be paid as little as your McDonald’s server? I would contend that it’s GOOD that we compensate different professions differently.

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  7. I see the inheritance tax more as field leveling tool rather than something intended to help the poor. Without it, over time, huge amount of wealth (and power) could be accumulated by very few individuals.

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