Latest bad idea from right-wing economists: cure wealth inequality with more policies that make us unequal

By Marc Jampole

Now that conservatives and their academic factotums realize that they can no longer deny that we have become a world in which inequality is growing, they are beginning to fight a rear-guard action by declaring that the way to reverse the trend of greater inequality is to promote the very policies that created it.

In a Wall Street Journal article titled “The Blue-State Path to Inequality,” Stephen Moore, chief economist of the right-wing Heritage Foundation, and Richard Vedder, an economics professor at Ohio University, compare the inequality of income in red states and blue states and finds that there is a greater spread in the blue states, which they aver without proving have greater social safety nets. 

Moore and Vedder cook up a stew of bad math and faulty logic to try to prove their point.  Their reasoning is so laughably inept that I think I’ll refer to them as the “Keystone Profs,” in honor of the Keystone Cops, a fictional crew of incompetent police officers from the silent movie era.

Let’s start with the bad math. To demonstrate that inequality of income is greater in the blue states, the Keystone Profs use the Gini coefficient, a single number cooked up by an Italian statistician Corrado Gini more than a century ago.  The Gini coefficient takes a set of raw data and tries to turn it into a single number that can be compared to similar sets of raw data of other populations; the lower the Gini the less inequality of income exists in the population being measured. 

The problem is that the Gini coefficient is highly inaccurate. One of the first things that Thomas Picketty does in his Capital in the 21st Century is to discredit the Gini coefficient as a viable tool for measuring wealth inequality.  Even the Keystone Profs admit there are many flaws in the Gini coefficient.

We cannot assume the Gini coefficient sorts out the states accurately. The differences in Gini coefficients in the red and blue states the article references are slight; all are in the .400s. For example, the difference between red state Texas (.477) and blue state California (.482) is slight—certainly within the margin of error of a Gini coefficient comparison.  We cannot depend on a Gini ranking of the states to reflect reality. Yet the Keystone Profs persist in using it.

But even if we accept the flawed Gini coefficient as our tool for measuring inequality of income, Moore and Vedder’s argument doesn’t hold water for two reasons. First of all, they assume that the wider social welfare net in blue states causes inequality when in fact social welfare programs are a response to inequality.  Large inequality of wealth developed earlier in the blue states, which industrialized and urbanized first and include those two big-wealth magnets, New York City and California. While the wealthy and ultra wealthy live everywhere, no one can deny that more of them make their money or end up living in New York City and the state of California.  The large 19th and early 20th century fortunes were made in or transferred to New York and Chicago. Today’s high income professions are focused in New York and California—entertainment, banking, high tech. New York and California have always spawned multimillionaires at a higher rate than other states. No wonder blue states communities recognized the problem of inequality earlier than red states and have done more about it.

But while the blue states do more than red states to foster equality of income and wealth, it isn’t much more on the world’s scale. All states are providing less support to public school and university education than 30 years ago and all have put the lid on or cut property and state income taxes. All have suffered from lower federal taxes, a federal policy that has been anti-union or neutral for more than three decades and the decline in local jobs generated by the federal government.

The bigger mistake, then, is to limit the comparisons between blue and red states. That’s like reciting the alphabet from C to E. 

There isn’t that great a difference in what blue and red states do to counteract the tendency of free market capitalism to create wide inequalities of wealth when compared to what governments do in western Europe and Japan, which take more taxes from the wealthy and provide better educational, healthcare and retirement benefits to everyone.  While wealth and income inequality have grown in western Europe and Japan (see Picketty’s book for a great analysis) over the last 35 years, the populations of these countries still enjoy more income and wealth equality than we do in the United States. By excluding western Europe and Japan in the discussion, the Keystone Profs cook the books.

Vedder and Moore follow Picketty in saying that economic growth removes inequality, but they advocate policies that are not pro-growth, but pro-corporation. They assume that unions, minimum wages and high income taxes are bad for economic growth when in fact the economic history of not just the Unites States but the entire world proves that high taxes on the wealthy and high incomes for workers lead to high growth because more of the wealth circulates to people who will spend it as opposed to accumulating it in overvalued assets, which is what the ultra-wealthy do with all of the extra wealth they have from lower taxes. 

And all you Wall Street Journal subscribers in the audience thought it was the fish bones that stank so putridly when you entered the kitchen this morning. No, it was the newspaper you wrapped them in!