Saturday, January 23, 2021
- Advertisement -

Letter to the editor: On Meredith Shea’s ‘Obama-Romney video wars’

There are a couple of issues in this piece that I want to address from an economic perspective. I will try to keep these in the order they were raised in the comment.

1. Redistributing wealth is the defining feature separating socialism from American capitalism. Redistributing wealth has also been unsuccessful in promoting prosperity throughout history.

The Republican Party has seemingly succeeded in associating every kind of policy designed to help the poor with terms like class warfare and socialism as practiced in the countries mentioned in the comment.

Now as a starter, I see no reason why we should evaluate redistributive policies only according to socialist countries of present and past times.

Non-socialist countries have made extensive use of policies that can be described in this way as well. (In fact, this seems to be what the author of the comment argues against, so I do not understand why she does not just evaluate the success of such policies in the U.S.).

If we want to evaluate such policies now, we would need to define what we understand by ‘prosperous.’ If we narrow our focus solely to economic growth as shown by the change of the gross domestic product (GDP) of a nation, then the answer will be unclear.

Ask three economists and you will get five answers.

In my opinion, it is likely to have an positive effect as, to put it simply, redistributive policies tend to move income from folks who use a comparatively small amount of income for consumption to people who spend a large portion.

Consumption expenditure makes up roughly 70 percent of U.S. GDP, so changes to consumption are of vital importance to economic growth. Additionally, if companies are faced with robust sales, they are likely to be upbeat about the future and will tend to invest more, which is another important part of GDP. Lastly, one might also note that the evolution of large scale redistributive policies in the U.S. responding to ” is historically associated with:

A) Getting the U.S. out of the Great Depression and

B) Leading to a long period of robust income growth.

Apart from that, one might add that it has to be asked what constitutes prosperity. If we do not only concentrate on the quite arbitrarily selected measure of economic growth but have a look at social figures as well, one can see that (e.g. Fullbrook 2012) countries with more redistributive policies than the U.S. are healthier, more educated, and have a higher degree of gender equality besides the more obvious effect of more income equality (which, in itself, is a positive thing if we consider negative psychological effects of inequality on individuals (Wilkinson/Pickett 2009).

2.People are unemployed, because they are lazy. Taking away their welfare benefits will make them more self-dependent by working

Two things are to be said about this: first, we are currently experiencing the worst economic crisis since the Great Depression.

The problem here is certainly not a lack of supply of, but demand for labor.

Secondly, the notion that large numbers of people would willingly be content for a prolonged period of time with a lifestyle that is associated with an income in the amount that the U.S. welfare system pays is just beyond me. In fact, the famous Cato Institute studies (e.g. 1995, 2012) purportedly showing that there is no incentive to work is largely negated by the ubiquity of people actually receiving welfare and working.

If we want to reduce welfare spending and get people to live dignified lives with stable employment, we need to make sure that employment opportunities associated with incomes sufficient to let people live such a life actually exist. As long as the private sector does not provide these jobs, we might have to look elsewhere.

3.The 53 percent are subsidizing the 47 percent.

This is a point that has been pointed out over and over again in the discussions following the leakage of the Romney video. Since the author is reiterating this in her comment, the critique needs to be reiterated again as well: First, the above statement is based on the assumption that only the 53 percent are paying taxes. In fact, the 47 percent are paying taxes that are hugely regressive in nature (meaning that poorer income brackets pay more taxes in percent of their income than richer income brackets), like payroll or sales taxes. Add to that the preferential tax rate on capital earnings vis-a-vis normal income taxes and you get a totally different picture on who is providing the money that is subsequently distributed as ‘subsidies’.

Also, the 47 percent are not the only ones receiving subsidies. Estimates of corporate welfare (government handouts subsidizing companies) amounted to nearly $100 billion for fiscal year 2012, according to the Cato Institute.

4.Whatever income people receive by participating in the economy is the amount that they deserve.

I am not sure whether the author of the comment actually shares this notion (her application of the Jefferson quote leads me to think that this is indeed the case though), but since this idea has also been a prominent one in the political debate of the past couple of months I am tempted to include it anyway.

Completely setting aside the issue of power relations within the economy and assuming that the income to the individual forthcoming through the market process is, in fact, the “just” one, there is still the issue of the economic and social conditions you are born into.

Mitt Romney did not “build that” all by himself. His career was, to a considerable degree, made possible by his father’s wealth.

The so often cited “American dream” is, apart from a few chance events, largely a myth.

There is hardly any country in the Western hemisphere that has less upward social mobility than the U.S. (NYT/De Parle, 2012), meaning nothing else than the education and income of your mother and father is an excellent predictor of the education and income of yourself. So if you want to provide every American with equal opportunity at achieving success, there is no way around at least a certain degree of redistribution.

I think it is important that we as an academic community do not let us get fooled by blatant ideology, and instead try to stick to the facts and endeavor to find out why things are how they are and what should or should not be done about it.

Regards,

Christian Spanberger

First year graduate student and GTA at the Economics Department of UMKC

Citations:

DeHaven, Ted (2012) : “Corporate Welfare in the Federal Budget)”, Cato Institute Policy Analysis no. 703, accessible here http://www.cato.org/publications/policy-analysis/corporate-welfare-federal-budget

Fullbrook, Edward (2012): “Decline of the USA”, Real World Economics Books, accessible here http://www.paecon.net/RWEBooks/USA/USA1.pdf

DeParle, Jason (2012): “Harder for Americans to Rise from Lower Rungs”, article in the New York Times 1/4/12, accessible here http://www.nytimes.com/2012/01/05/us/harder-for-americans-to-rise-from-lower-rungs.html?_r=1&sq=mobility&st=cse&scp=1&pagewanted=all

Tanner, Michael; Moore, Stephen; Hartman, David (1995): “The Work Versus Welfare Trade-Off: An Analysis of the Total Level of Welfare”, Cato Institute Policy Analysis no.240, accessible here http://www.cato.org/pubs/pas/pa-240.html

Tanner, Michael (2012): “The Welfare State: How We Spend Nearly $1 Trillion a Year Fighting Poverty – and Fail”, Cato Institute Policy Analysis no. 694, accessible here http://www.cato.org/publications/policy-analysis/american-welfare-state-how-we-spend-nearly-$1-trillion-year-fighting-poverty-fail

Wilkinson, Richard; Pickett, Kate (2009): “The Spirit Level. Why More Equal Societies Almost Always Do Better”, Allen Lane

Must Read

Related Articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here