The selection of Paul Ryan as Mitt Romney’s running mate sent a powerful message – that the economy will be the key issue of this election. As I go back and forth arguing with my lefty pals we naturally disagree over what ails our economy. Their arguments are that we’re not doing enough to tax the wealthy and put it in the hands of our government to spread the wealth around and get our economy moving again. I always point out things like our trillion dollar debt, looming entitlements collapse, ever increasing regulation, and continuous threats of higher taxes from an economically illiterate president that are hurting our economy. The more I think about it though, they have a point – in the US the wealth concentration has become a serious problem and trickle down economics aren’t working.
First off, I immediately separate from the leftists on the issue of wealth concentration. They are more concerned about the concept of the 1% – a group whose membership always changes and statistically must always exist. “The rich get richer and the poor get poorer” argument is bunk, as we’re enjoying higher living standards today than at any time in history, and that is across our society. Here is an illustration of how growing income inequality is not necessarily a problem:
You’re living on your own for the first time, and money is tight. So you find a guy with a room to rent in his house (who we’ll call Bob) and you go to live with your new roommate. Bob has far more money than you do and knows this, and it turns out you are both huge pizza fans. Knowing that you’re strapped for cash when you two decide to order a pizza you decide to share a seven inch pie, and he pays for most of it. In fact, he pays for the whole pie and asks that you only tip the delivery driver. The pizza is not distributed equally, as Bob has a massive appetite for pizza. He eats six of the slices and you only get two, but for tip money this is a good deal. Then one day a breakthrough technology in pizza ovens hits and your local pizza shop can now sell you an 18 inch pizza for what a seven inch pie had cost, and you both eagerly jump on the deal. Of course, Bob is disproportionately benefiting from this deal, but he is still paying the bulk of your tab. Now you have two choices – are you happy that you are now enjoying more pizza than you did before or do you resent that fact that there is a growing gap in pizza distribution in your household?
I’m not as concerned about who the wealth gets distributed to as where the wealth is getting distributed geographically. Where our country’s money is flowing should tell you where the most productive parts of our country are, right? So I looked at the top fifteen counties for household income in the United States, and nine or ten of them are all in the metropolitan are of one city. And what is this city’s chief industry and it’s contribution to our economy? High tech? Auto manufacturing? Mining? Gas drilling? Farming? Nope, this place’s top industry is… government. Of course I am talking about Washington, DC, the city that’s chief contribution to society is taking wealth from the rest of the country and redistributing it (after getting its cut) and providing us with rules to curb economic expansion.
Before any lefties reading this get out their blow torches to attack the obvious straw man, no I am not arguing for the abolition of government. There are functions that we need and want it to do, but it needs to be done intelligently. $16 Trillion in debt is, to quote one of the great orators of modern times, “irresponsible and unpatriotic.” When your nation’s top growth region is one that can only exist off of what it takes from the economically productive ones you have a problem. Or to use a favorite word these days, it is nor sustainable.
Of course, once it has our money the government then proceeds to “spread the wealth”. Or a better way of putting this is having the wealth go up to the government and then “trickle down” to the rest of the economy. Given the high household incomes and high property values in this area it looks like a lot of that money isn’t trickling very far (1). As a result we have a disturbing concentration of wealth that has the power to tax and regulate even more income to it from the rest of the country. It’s not quite Panem from “The Hunger Games”, but it’s still not healthy.
As for how effective the money that Washington trickles down to the rest of the country, we can look at the spectacular results of where the government decided to pick winners of its stimulus funds – unprofitable car companies, poorly planned energy companies whose business model centered around producing inefficient, expensive energy, and other various groups who earned that money by providing that important, critical contribution to our economy of helping President Obama get elected. In fairness to the president this is a bipartisan issue. For all of President Bush’s critics, I almost never hear about the one truly damaging thing he did to this country during his two terms in office – allowing lobbying to take off as a massive growth industry.
Even if the lefties misfired in their analysis, they are on the right track. Personally, I prefer that extremist approach of living within one’s means, allowing wealth to naturally flow to people who contribute to society, and government keeping to basic needs and otherwise allowing us to live freely. So I guess I am alongside the left on this one – down with income inequality and down with trickle down economics!
Cross posted from Brother Bob’s Blog
1. In the interest of full disclosure I happen to work for a contracting company in the DC area whose main income is from government contracts. And yes, I do look forward to eventually returning to the private sector.