by Rand Paul
These facts are unknown to Representative Alexandria Ocasio-Cortez (AOC). She opined to an audience of millennials, “Capitalism, to me, it’s an ideology of capital—the most important thing is the concentration of capital and to seek and prioritize profit. . . . And to me, that ideology is not sustainable and cannot be redeemed. . . .[W]e’re reckoning with the consequences of putting profit above everything else in society. And what that means is people can’t afford to live.”3
Could that possibly, in any universe, be true? Does capitalism’s profit motive somehow create wages that make it impossible to buy the basic staples of life?
Marian Tupy at HumanProgress.org examined this question and found the opposite. Tupy found that “for the same amount of work that allowed an unskilled laborer to purchase one basket of 42 commodities in 1919, he or she could buy 7.6 baskets [of consumables] in 2019.” Instead of capitalism impoverishing workers, the free market actually allows workers to buy more than seven times as much stuff for the same amount of hours worked. No apologies for capitalism necessary—only accolades and amazement at the progress that comes with capitalism.4
Even the liberally biased Washington Post fact checker gave AOC three Pinocchios for her statement: “I think it’s wrong that a vast majority of the country doesn’t make a living wage.”5
For the WaPo fact checker to even question AOC is extraordinary. It is an event worthy of my father-in-law’s favorite wry observation that “even a blind squirrel sometimes finds the acorn!” For this particular Washington Post hack, “fact checking” actually means “I’m an apologist for the left who will infuse my bias with a feint at the truth.”
For example, the same writer once gave me four Pinocchios for saying that I respected Eisenhower’s warning that small wars could lead to big wars.6 I have never quite understood how one could be caught “lying” about his own opinion. This supposed “fact checker” held the deluded belief that somehow Eisenhower belonged to the war crowd and was therefore indignant that I dared quote him to promote peace. No matter what the fake news tells you, Eisenhower was not some robotic cog in the war machine. He was a somber, reflective, and experienced hand at war. There is one Eisenhower quote that nation builders, regime changers, and other promoters of endless war should read and contemplate: “I hate war as only a soldier who has lived it can, only as one who has seen its brutality, its futility, its stupidity.” Remember those words when you think of Eisenhower.
But back to AOC and her claim that the poor millennials are all in line at the workhouse waiting for “one more bit of porridge, sir.”
Who could possibly be gullible enough to believe her claim that capitalism prevents workers from having a livable wage? Clearly she has an admirer in Time magazine’s Charlotte Alter, who tweeted her agreement with the AOC bromide: “People our age have never experienced American prosperity in our adult lives—which is why so many millennials are embracing Democratic socialism.”7
Never experienced prosperity? Where would they get such an idea?
Maybe from the government. Statistics from the Bureau of Labor have for years fed into this narrative that workers’ real wages haven’t risen in over forty years. By one measure, nominal wages have risen 483 percent since 1972, but inflation, as measured by CPI-W (the Consumer Price Index for Urban Wage Earners and Clerical Workers), has also risen 483 percent, which supports the democratic socialists’ argument that workers’ wages haven’t risen while the rich have gotten richer.
Former senator Phil Gramm and John Early, however, point out that this statistic fails to reveal that “by virtually any definition of economic well-being, Americans are substantially better off today than they were a half-century ago.” Gramm and Early explain that labor statistics make two big errors in asserting that wages have stagnated. First, the statistics fail to include employer benefits like health care, pension, and family leave in average hourly earnings. Second, labor statistics fail to account for consumer substitution and changes in how and what people spend their money on.
From bigger houses to more bathrooms to central air-conditioning to high-speed Internet (often for free, at the local coffee shop), not to mention virtually everyone on the planet owning a smartphone, everyone’s standard of living has improved. Americans are living longer. Three times more millennials get college degrees as did their counterparts in 1972. You name it. It’s almost impossible to find a standard of living measurement that hasn’t improved dramatically in the past fifty years.
Statistics that argue wages are stagnant and the poor are getting poorer can’t explain away the dramatic improvement in standard of living that comes from 224 million people with smartphones. It’s nearly impossible to measure “inflation” in terms of the power of holding a mini computer in your hand that provides instant communication and access to unlimited information, education, and entertainment, and will even guide you to your destination anywhere on the planet. It replaces your need for a camera, a video camera, a physical music collection and stereo system, a calculator, a watch, a tape recorder, a flashlight; the list goes on and on. How do you compute the standard of living chasm between having that and a flip phone?
Frankly, anyone arguing that millennials are not the richest, most privileged young people ever is just not paying attention.8
David Harsanyi responds to the irresponsible AOC platitudes:
The idea that millennials have toiled in uniquely grueling economic conditions exhibits a delusional and extraordinarily narrow understanding of history. Whether the majority of millennials believes this myth or not, I don’t know. I tend to doubt it. . . . But, historically speaking, the only thing millennials have seen is relative prosperity, most of it provided by free markets and American political stability.
. . . . since Ocasio-Cortez graduated from college—her “adulthood”—she has only seen a single quarter of negative growth, and 13 quarters of more than 3 percent growth. The quarter she graduated, the United States economy grew by 4.7 percent. Her formative adult experience with the economy is far better than most.9
During AOC’s adulthood, Jim Geraghty, at National Review, reports that “the U.S. economy has added jobs for 100 consecutive months, and there are seven million unfilled jobs in the country.”10
Scott Lincicome points out that the American family has more disposable income because from 1980 to 2015, the average family spent 8 percent less of their household budget on food, clothing, shelter, and utilities.11
Just look at college. When I was born, fewer than six million Americans went to college. By the time Ocasio-Cortez came around that number had more than doubled. Today, more than 20 million kids are entering college.
Yet AOC complains, “millennials have lower earnings, fewer assets, and less wealth,” to which Harsanyi responds, yeah . . . “because many of them are still young.”12
It’s virtually impossible to find statistical evidence that today is somehow worse for the beleaguered young. Derek Thompson writes at the Atlantic, “spending on food and clothing went from half the family budget in 1900 to less than one-fifth in 2000.”
Thompson reports, “Over the next 100 years, the U.S. family got smaller, more reliant on working women and computers, less reliant on working children and farms, and, most importantly, much richer. About 68-times richer, in fact. Household income (unadjusted for inflation) doubled six times in the 20th century, or once every decade and a half, on average.”13
Thank you, capitalism!
Ignoring the incredible gains that have occurred as consumer prices dropped dramatically and focusing just on income inequality leaves an incomplete and distorted picture of reality.
Historically, when income inequality was a consequence of a caste system or associated with hereditary nobility, complaints about inequality were valid. As Ben Domenech at the Federalist explains: “inequality of outcome was historically driven by hardened class systems—not so in a free market economy.”14 In America, our founders allowed us to escape the rigid clas
s systems of Europe. Many historians, Barbara Tuchman among them, argue that what makes America unique is that for the first time an entire country based its economy on merit, not heredity.
Indeed, the history of America is distinguished by unprecedented income mobility. Domenech cites Kevin Williamson, who makes this point succinctly:
Far from having the 21st-century equivalent of an Edwardian class system, the United States is characterized by a great deal of variation in income: More than half of all adult Americans will be at or near the poverty line at some point over the course of their lives.15
Mark R. Rank and Thomas A. Hirschl looked at adult income distributions over a forty-four-year period among American adults and found that 73 percent will join the top 20 percent of wage earners for at least one year. Thirty-nine percent will achieve top 5 percent in income for at least one year. Perhaps most remarkable, 12 percent will actually make it to the top 1 percent in income.16
When you dig deep into the debate over income inequality, you discover that the preachiness of Piketty and others is really about a moral conclusion they’ve made that unequal outcomes are evil and should be regulated by government. Domenech points out that “the left continues to operate on an a priori assumption that income inequality/wealth concentration is a bad thing, because of those riches backstroking through their money. But that’s just a jealousy trope. Upon closer inspection, you’ll see that income inequality and wealth concentration don’t inhibit economic mobility; they don’t inhibit economic growth; and they are not detrimental to democracy or to human liberty.”17
Chapter 6
Income Inequality Does Not Ruin the Economy or Corrupt Government
The argument that increasing income inequality hampers growth is a widespread belief with little evidence to support it. The economist Joseph Stiglitz, along with a string of liberal pundits from Paul Krugman to Alan Krueger, claims that with “inequality at its highest level since before the Depression, a robust recovery will be difficult in the short term, and the American dream—a good life in exchange for hard work—is slowly dying.”1 These same crepehangers chorused that economic growth would be stuck below 2 percent for the next decade.
The truth, however, is much different. The Republican tax cut of 2017 ushered in gross domestic product (GDP) growth above 3 percent in the midst of continued “income inequality.” In fact, a study by Christopher Jencks, Dan Andrews, and Andrew Leigh found no correlation between inequality and economic growth among developed countries. Actually, for the period between 1960 and 2000, increased income inequality corresponded with increased economic growth.2
In examining income inequality and poverty, Alan Reynolds of Cato found the opposite of what the liberal choir is preaching, namely that the numbers of those living in poverty actually tend to decline even as the top 1 percent of income earners expand their share of income. And that poverty tends to increase when the top 1 percent lose their share of income.3
Scott Winship admits that “there is, of course, a rich literature on the relationship between inequality and growth. . . . Although there are many conflicting views, there is ample evidence that inequality can, in fact, hurt growth under many circumstances. But this literature focuses mostly on the experience of developing countries, and its applicability to the challenges currently facing the United States is not entirely clear.”4
Even proponents of the theory that income inequality stifles economic growth, such as the Center for American Progress’s Heather Boushey and Adam Hersh, admit that the empirical evidence is, in Winship’s words, “inconclusive and largely inapplicable to America’s circumstances.” In fact, Winship goes even further to conclude that “there is simply no clear evidence that this slower growth is being caused by rising inequality.”5
This whole liberal tale of a zero-sum economy where, when the rich get richer, the poor must get poorer is nothing more than fantasy. The deeper you look into the statistics the less believable the tale becomes. Winship points out that a study by “sociologist Lane Kenworthy also finds that, since 1979, higher growth in the share of income held by the top 1% of earners has been associated with stronger economic growth across several countries.”
The argument that today’s middle class is worse off than the same family in 1960 is frankly not true. According to Winship, “the median family today has nearly twice the purchasing power of its counterpart in 1960. The basic well-being of today’s family is significantly better than that of a family living in the supposed golden age.”6
Even when the left admits this truth, they still argue that today’s middle-class family income is growing more slowly than in the past and that the incomes of the rich are growing more rapidly than in the past.
So, the middle class is better off now than in the past, but the left is dissatisfied because the rich are getting richer faster than the middle class is getting richer. Really? We’re all getting richer, but the left is unhappy because some are getting richer faster? It seems that the Democrats’ critique is more an exposé of envy than a valid scientific enterprise.
Winship points out that restraining income accumulation among the rich doesn’t necessarily mean those riches wind up in the pockets of the poor. “The gains made by those at the top could not have accrued to people lower on the income ladder in any event,” he writes. “For instance, had Chinese investors not enriched bankers in New York, their money would surely have gone to bankers in London or Frankfurt—not to workers in middle America.”
The facts, if the left cares to consider them, are that everyone has gotten richer over the past few centuries. As Winship continues, “What has looked like gains for the wealthy coming at the expense of the poor and middle class turns out to be, in historical context, an enduring victory for workers in an 80-year tug of war with capital. The notion that inequality is stifling economic growth or suppressing the wages of the middle class is simply not supported by the available evidence.”7
If you look at the historical data, the ability to ascend the income ladder is not getting harder. Winship found that men born in 1950 had about the same progress in ascending the income ladder as men born in the 1980s. “Among those raised in the bottom quarter of the family-income distribution, the fraction escaping the bottom fourth of earnings as adults fell from 63% to 60%, a decline too small to be reliably different from zero. They may have experienced greater mobility than men born in the early 1960s, when only 54% escaped the bottom fourth.”
Piketty asserts that inequality is so pervasive that democracy itself is threatened. Starving Venezuelans might argue that lack of elections and dissolution of parliament are a more immediate threat to democracy. Socialism and capitalism both ultimately result in one percenters. But in capitalism, when uncorrupted by government cronyism, the one percent is, to a large degree, based on merit. In a true free market, you become rich only when you sell a service or a product at a price that people will voluntarily pay. Hence, you get legitimate and well-deserved billionaires like the Walton family, who founded Walmart, which offers quality goods at low prices.
For all the negative press Walmart has received for providing low-paying jobs, consider that in their 2019 Environmental, Social & Governance Report, Walmart reported that its average store manager salary was $175,000 annually. It also reported that 75 percent of its U.S. managers began working as hourly employees.
Admittedly, there are one percenters who gained their billions by using government cronyism to prevent competition, such as some in the drug industry. But that is not capitalism. It is government paternalism, which tilts toward the complete control of business that comes with socialism.
Under socialism, you still have one percenters, but they gain their lofty position not through merit but through party nepotism. In socialism, the one percenters are party members or bureaucrats or government planners who gain power not by giving the consumer what they want but by commanding the consumer to accept what they decree.
As Winship describes it, more
than a few political scientists suggest “that growing income divides may reduce voting or other forms of participation that require time and money, and have expressed fear that these disparities will allow the rich to buy elections or make elected officials unduly responsive to those with deep pockets.”8
The opposite argument is as likely to be true. Namely, that when lower-income folks are removed from the tax rolls, they still vote but they vote with particular abandon and unconcern for the punishment of taxes since they no longer suffer that punishment. The same can be said for spending. Why care about overspending or its corresponding debt if you know that you will not be sent the bill?
True, big money floods the political marketplace, but both sides seem to have their cash cows: George Soros, Howard Schultz, Bloomberg, big unions, and climate alarmist money on the left and Sheldon Adelson, the Koch brothers, the NRA, and the Chamber of Commerce on the right.
If you look objectively at our constitutional republic, we’ve actually held up pretty well considering that close to half of the electorate no longer pays any income tax.
Really, political science is ill-suited to prove or disprove sweeping statements that allege that income inequality is destroying democracy. Political science is not a field of mathematics, and twenty experts will give you twenty opinions looking at the same data.
Is income inequality destroying democracy? Winship concludes, “The truth is that political science has only begun to consider these questions and has yet to reach any consensus. Many in the field are well aware of this inconclusiveness.”
Even the American Political Science Association Task Force on Inequality and American Democracy agrees: “We know little about the connections between changing economic inequality and changes in political behavior, governing institutions, and public policy.”9