Tag: closing the financial gap

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

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

–Some thoughts on closing the financial gap.

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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Whether for moral or for practical reasons, most of us would like to see the large gap between the rich and the poor reduced. But how? We could try the “Robin Hood” approach: Take money from the rich and give money to the poor. The progressive income tax code already is a take-from-the-rich device. Taxes on highest earners could be raised even further, as President Obama wishes to do. But, all taxes remove money from the economy. So if higher tax rates were effective money collectors, they would slow the economy, which ultimately hurts then poor.

Taxes could be increased on inheritances and on high-end purchases (furs, jewelry, boats, luxury cars, expensive homes). But, this too removes money from the economy, and past attempts have impacted the businesses supplying these luxury goods, which has impacted employment. The property of the rich simply could be confiscated and distributed to the poor. This has been attempted in several countries, most recently in Zimbabwe, to disastrous results for the poor.

All things considered, take-from-the-rich does not seem to be an effective device for closing the gap between rich and poor.

Alternatively, the federal government can deficit spend. This can lift the poor, though it probably does not close the gap, as it would lift the rich, too. We could eliminate FICA, which falls most heavily on the lower-paid employed, though this also would help the rich who own the businesses paying FICA. We could raise the minimum income for federal taxing. This would help lift the poor, but help the rich business owners by giving the poor more spending money. We could increase federal assistance to Medicaid, food stamps, “affordable” housing, etc. This would help lift the poor, and also help the rich owners of pharmaceutical companies, groceries, builders, etc.

In all, perhaps no attempt to transfer money directly from the rich, or directly to poor, does much, if anything, to close the wealth gap. Giving money to the poor helps the rich. Taking money from the rich, hurts the poor. And the gap remains.

If the gap is to be closed, the poor themselves may have to close it, and I suspect the device is education. Of all the differences between rich and poor, perhaps none is more important than level of education. Today, primary and secondary education are available free to everyone. Sadly, the quality of this education differs markedly, between rich and poor. A college education and an advanced degree are not feasible for a poorly educated child, and despite scholarships, they are not affordable for most poorly financed families.

Affordability might be accomplished if the federal government were to pay for college just as the states and cities pay for primary and secondary education. Even then, some parents want their children to go out into the working world, to bring back support for the family, which can doom the child to a life of menial labor. This problem might be addressed by offering federal support to families who allow their children to attend college. Universal college might put all young people on a more even footing, and help close then financial gap.

There have been many attempts to address differences in educational quality among primary and secondary schools, with NCLB (No Child Left Behind) being the most obvious. The program has supporters, detractors and difficulties. Many teachers’ unions resist quality evaluations. Many families do not have an educational ethic. Many children come from dysfunctional families and neighborhoods. The problem is not just one of poor schools. It is a community-wide problem, requiring a community-wide solution.

School administrators must be given the power, the motivation and the know-how to bring principals, teachers, parents and students — the entire neighborhood population — together as one cooperative force to improve educational quality. Private schools, magnet schools and some religious schools demonstrate that education of the poor can be improved.

The problem is difficult and far beyond the scope of this post and the expertise of this writer. But, assume we could create a nation of outstanding primary and secondary schools, motivated families and free colleges. Let’s say we could close the financial gap. Is this 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 hope to write more about this, and meanwhile I welcome your thoughts.

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

No nation can tax itself into prosperity