On April 16th, the New York Times ran an article on United States tax policy and economic inequality in America as observed by two leftist French economists.
As outlined below, there were a number of facts that the NYT and Frenchmen excluded from their reporting and analysis. In their stead were numerous specious explicit and implicit claims.
Invalid assumption #1: Deficits are a taxing problem
• Versus 2000 (before “Bush tax cuts”), 2011 total tax fed tax receipts are up 48%
• Versus 2000, 2011 total fed spending is up 100%
• Versus 2000, 2011 GDP is up 50%
• These are the facts. The problem is spending.
Invalid assumption #2: Government is better at allocating resources than markets
• Allocating capital efficiently creates value, grows the economy, creates new technologies and inventions and creates jobs.
• Not allocating capital efficiently destroys value directly and indirectly by depriving the world of those benefits.
• There are two ways to allocate resources: government and markets.
• Inherent in the decision to tax is the decision to chose for government to expropriate and then allocate resources.
• There’s a plethora of real world data on the performance of government vs market allocation of resources. Compare the track records of statist nations to relatively free nations. Compare the performance of government programs and entities to private enterprise. The relative success of free markets to central governments is not open to debate.
• Momentarily setting aside the empirical data and history, take logic. How can the group of people in a central government ever begin to outsmart or out maneuver a market of hundreds of millions of individuals, millions of groups, hundreds of thousands of enterprises. It’s impossible. The central group loses on innovation. It loses on talent. It loses on speed. They don’t have a chance.
• That’s why a billion people ate dirt and rode bicycles in Red China for decades while they suffered under 5 year plans and now as China toys with freedom and free markets, Chinese begin to drive cars and eat steak.
• That’s all true before even considering corruption. The hell with absolute power. Power corrupts. Period. It’s everywhere. GSA. Solyndra. Secret Service. Charlie Rangel. Anthony Weiner. The Barnes Foundation.
Invalid assumption #3: America has classes – “the rich”
• America does not have castes, trade guilds, or other societal structures that materially and universally prohibit success and accumulation of wealth.
• Americans regularly move from rich to poor and poor to rich.
• This is one of the reasons why Americans who are not “rich” oppose (more) soaking of the rich. Americans know they have the opportunity to succeed and earn high incomes and a great many aspire to do so and indeed will. They don’t want to establish high tax rates today that they will be coerced into paying tomorrow.
Specious claim #1: Redistributing wealth will elevate the poor
• We’ve been doing this for generations now. We have 50 million people on food stamps today.
• Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime. This isn’t a secret.
• We’re literally giving people $2 trillion a year worth of fish. It’s not working.
Specious claim #2: Redistributing wealth will grow the economy
• With this tax hike, the plan is to take more resources from the most productive – the individuals who create – and give more to people who do not create. Literally, that’s the plan – to destroy more value.
• Obviously, destroying value does not grow the economy and does not create opportunities for anybody – the poor included.
• We’re already reallocating $2 trillion a year (13% of GDP). Implicit in the statists’ argument is that’s not enough; we’ll all achieve “success” if only we have a few hundred billion more to transfer.
• Could you imagine what would happen if an additional $2 trillion a year were instead invested by the free market? What would the labor force participation rate and wages be (and inflation)?
Specious claim #3: Income disparity caused the Great Depression
• I was on the train recently and sat next to a woman who worked for an “Occupy” group. She claimed an absence of labor unions and low wages caused the Great Depression (AFL formed in 1880s).
• Statists rely on ignorance because they cannot rely on facts. The facts prove them wrong. Cuba fights the Internet and North Korea is an information vacuum because their successful statists know that the facts would literally get them killed.
• I don’t remember the exact figures, but the Fed shrank the money supply by something like 30%, the feds massively raised taxes and passed the Smoot Hawley tariff. A credit cycle caused a recession. The government caused the Great Depression. Foregoing a discussion of the latter two colossal mistakes, let’s just quickly take the Fed’s part. GDP = Money Supply (M) x Velocity of Money (V). V drops in recessions (especially credit induced ones). Ignoring that, by itself, the Fed’s shockingly embarrassing decision to destroy M would have tanked GDP by 30%. 30%! That’s the math. These facts are not open to debate or interpretation.
• Income disparity had absolutely nothing to do with the cause of the Depression. Period.
Specious claim #4: The rich don’t pay their “share”
• The top 1% of income earners earn 20% of income and pay 38% of income taxes.
• The bottom 50% of income earners earn 13% of income and pay 3% of income taxes.
Specious claim #5: Success prevents success
• How does the success of the rich person prevent success of the poor? Conversely, how does restricting success of the former create success for the latter?
• These are not gratuitous rhetorical questions. I do not understand this.
• All I can come up with is Marx’s surplus-value argument. Marx was wrong. Soviet Union, Red China, North Korea, Cuba. China succeeds today as it introduces free markets, freedom, and capitalism. Marx was wrong.
• Economics is not a zero sum gain. It’s not about slicing the pie. It’s about growing the pie. One person’s creation of wealth creates new opportunities for other people. What does the rich person do with his wealth? He doesn’t swim in it like Scrooge McDuck. He invests it or spends it.
• Google employees don’t complain about their chains or bemoan Page and Brin’s astronomical wealth. They cash out their options and strike out on their own to create new companies and new jobs. Opportunity begets opportunity. Government begets government.
To me, this about two things. The first is politics. Obama is using this as a diversion to distract from his failed policies. He can’t run on 8%+ unemployment (more to the point, the lowest labor force participation rate since the 80’s recession), $1 trillion deficits, 2% GDP growth, and falling home prices. Instead, he riles people up to hate a minority. He’s using the rich as a scapegoat and in creating the scapegoat, he’s vilifying the de facto protectors of the scapegoat. The second thing this is about is power. The “rich” have power that threatens the statists’ desire to hold the individual subordinate to the government. Expropriating the resources of the “rich” for its own, the government and the statists increase their power.
That all said, sure, we should of course be concerned about those who could be doing better. It is in fact on their behalf that many of us watch the dark comedy of the statists with disgust. While those Americans who are successful live not as well as they could and should because of the statists, it is the American poor and the less capable who are most fully affected by statist policies and who in turn suffer the most.




