Even a well-publicized crisis that turns out to be more hype than fact can serve a noble purpose. This is the way it should be with the well-publicized widening gap between the rich and the rest of the populace. Wealth inequality is said to threaten the ties that bind our society together. Based mostly on the work of economists, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, the expanding gap is menacing not only the United States but all of the rich world. The latest addition to this argument is presented in the new book by Saez and Zucman, “The Triumph of Injustice.” These two advisors to Elisabeth Warren’s Presidential campaign, are revered across the progressive world. The widening disparity between rich and poor is taken as gospel, bringing forth demands the rich “pay there fair share.” Unfortunately, much as it was with Piketty’s 2013 book “Capital in the Twenty-First Century,” this book is riddled with false assumptions and poor methodology leading to erroneous conclusions. Don’t take our word for it; recent articles in the Wall Street Journal, the Economist, and by the Cato Institute, among others, do an excellent job of dismantling this thesis brick by brick. Just leaving out the effect of transfer payments and taxation was bound to have it go off the rails. Apparently, you can find academics to back up any point of view no matter how far out, if you look hard enough. Logic and experience needn’t get in the way of currying political favor. How else can you explain Trump’s trade advisor, Peter Navarro?
Yet, increasing the general individual wealth is a worthy goal. It’s just taking it from the successful and giving it to others after the government takes a healthy processing fee that’s self-defeating. That idea relies on a deadly sin, envy. We’re better than that. In any case, this never works. Any community is far more vibrant top to bottom with more wealthy entrepreneurs. Any community adopting policies and taxes that force them to leave can only be more impoverished. Remember our rule, “if people are clamoring to get in, you’re doing something right, and if they’re rushing to get out, you’re doing something wrong.” Instead of beggaring your more affluent neighbor, it would be better to consider ways to make you wealthier. Does the government assist you in finding better economic conditions, or does it in fact work against you?
Wealth equals net worth. That is your assets minus what you owe. For many, especially the young, that figure is actually underwater. Student debt puts many underwater before they even get started. Car loans and/or mortgage payments paint anything but a positive picture. For many, this reverses over time. Are there things we can do to speed up this process? Acquiring assets earlier and controlling debt properly is an excellent place to start.
Dave’s Plan (series on this site) was conceived as a way to provide universal health coverage in a workable idea. While it does this better than any other plan, it does much more. The Personal Benefits Account (PBA) automatically starts asset acquisition at the earliest possible age. We have a mountain of evidence showing the earlier you start saving regularly, the better the outcome. Our existing savings plans, such as the 401K, can work in theory if you start early and invest consistently, but fail many in practice. Consistency is lost, moving between jobs offering plans and ones that don’t. Sudden significant expenses, often medical, cause early withdrawals. Even penalties fail to deter the taking balances before they have a chance to grow. Because it is yours with money is continually flowing in, and covers medical with no withdrawals other than for medical on the first $10,000, these detriments cease to exist.
The plan’s blessings don’t stop there. Even though we know job mobility leads to higher wages, people are increasingly reluctant to change employment. Fear of losing medical coverage and finding the dreaded “pre-existing condition explains some of the reluctance. Financially stable people are more willing to take advantage of a possible better opportunity. Dave’s plan reverses these drawbacks. With only money and a chance to compare, it makes choices more evident. All of this can lead to higher incomes and more wealth.
As we have seen with “Dave’s Plan,” the government can provide the structure to increase individual wealth. By merely combining existing tax-favored plans and using the IRS to facilitate the application. More can be done by refraining from policies favoring those already owning assets over those seeking to acquire them. Most of our leaders on both sides, including our present President, have supported what is known as “Quantitative Easing .” This the policy where the Federal Reserve buys debt. This is done by creating money to buy up to the point where interest rates are abnormally low. The purpose is to push people out of safe-haven investments and into risk assets. As these assets, such as stocks and real estate, rise in value, it creates a wealth effect. The idea is people feeling affluent will spend more and boost the economy. As the asset owning upper 10% does almost 40% of the consuming, this is a good bet. Unfortunately, it does nothing for those without much in the way of assets. Small savers earn nothing. First time home buyers encounter pumped up prices. In short, those that have assets make out, but those that don’t pay the price. Yet, this low-interest-rate policy has been in effect through both Democratic and Republican administrations, favoring the wealthy over others. Who is really looking out for the less affluent? Worse, when the Federal Reserve tried to pull back, they got it from all sides, especially the President. The next downturn will find little in the way interest rates to lower and with our vast and growing debt little in the form of a stimulus other than wildly printing money. This leaves us with no bullets in the guns of either the Federal Reserve or government. While low-interest rates are of some help to the asset poor, consumer rates such as credit cards never fall as much as the rates for financially well-positioned. If the wealthy are actually doing better, it may be because they’re getting a big boost from the government and the Federal Reserve.
However, the biggest government failure is the inability to provide K12 education for all. Forget about the high price of college. If you can’t read properly, you have little chance. You must learn and continue to learn in this changing world. We spend more than other nations on education and get much less. If you’re behind, the best thing is to open things up to the competition. What meager gains we’ve made have been due to introducing some choice via charters and vouchers. We need to open the system up where people “are free to choose.” Sweden does much better than we do, and they have a total voucher system.
Rather than penalizing the successful, we should center our efforts on helping everyone to gain their own wealth. That is a much surer way to narrow the gap. Rather than playing into the covetousness of some, the government should provide structure. A framework for each of us to lead successful lives. In short, we need to work at building our own wealth rather than finding ways to take it from thew affluent that created it.