What Would Jesus Say About Inequality?

Source: AP Photo/David J. Phillip

How you answer the question “What would Jesus say about inequality?” depends on how you define the “words of Jesus.” Many “scholars” limit them to no more than “Love your neighbor as yourself.” Others include only the quotations in the Gospels attributed to Jesus. Most Christians see the entire Bible as the words of Jesus because, being God, he wrote it.

Let’s start with the Gospel quotations. One passage that comes close to dealing with inequality is the parable of the Ten Talents (Matthew 25:14-30). In it, a rich man gave one servant five bags of gold, one two bags, and the third got one bag of gold to invest, “each according to his ability.” Jesus recognized that different abilities will result in different outcomes, although he is vague about the rewards they receive.

Another Billionaire Bites The Invisible Hand That Feeds Him

Source: AP Photo/Michel Euler

Hayek wrote in Intellectuals and Socialism that, “The main task of those who believe in the basic principles of the capitalist system must frequently be to defend this system against the capitalists--indeed the great liberal economists, from Adam Smith to the present, have always known this.”

The Death Gap: how socialists deceive

For some reason David Ansell, MD, thinks dropping the names of two famous socialists will add legitimacy to his book, The Death Gap: how inequality kills:

In many ways my insights about premature death in the neighborhoods along Ogden Avenue follow directly in the footsteps of Friedrich Engels and Rudolf Virchow, both of whom wrote in the mid-1800s about social conditions and health...This book is written in the spirit of Engels and Virchow.

Anyone who knows real history understands that Engels flat out lied about factory working conditions in his day as well as the “blissful” lives of peasants before the Industrial Revolution. Ansell doesn’t have the courage to lie as blatantly as Engels did. As a magician uses sleight of hand to make the audience think he really is cutting the half-naked assistant in half while distracting them from the deception happening inside the box, Ansell fixes the readers’ attention on certain facts without allowing them to see other facts that would give them a different opinion of matters. For example, he wrote,

A greater proportion of Americans lived in poverty in 2015 – a staggering 45 million – than in the late 1960s.

The real Gilded Age - The US economy's best performance ever

Libertarians looking for the cause of the younger generation’s infatuation with socialism need look no further than the PBS series American Experience and the episode aired in February, “The Gilded Age.” A press release described the age this way:

By the end of the 19th century, the richest 4,000 families in the country — less than one percent of all Americans — possessed nearly as much wealth as the other 11.6 million families combined. The simultaneous growth of a lavish new elite and a struggling working class sparked passionate and violent debate over questions still being asked today: How is wealth best distributed, and by what process? Should the government concern itself with economic growth or economic justice? Are we two nations — one for the rich and one for the poor — or one nation where everyone has a chance to succeed? A compelling portrait of an era of glittering wealth contrasted with extreme poverty...”

Jobs were abundant, but employers often expected everyone —including children — to work 12-hour days, six days a week.

Throughout the Gilded Age the economy grew at a furious pace, but financial markets were wracked by instability. On May 4, 1893, Wall Street investors saw much of the nation’s wealth disappear. As many as a million workers lost their jobs. People starved to death.

Macron tries extortion on Merkel

French President Emmanuel Macron pressured German Chancellor Angela Merkel recently to bail out the failed southern conference of the Big EZ. According to a Dow Jones Newswires report,

The French leader said the eurozone has deepened disparities, loading indebted nations with yet more debt and making competitive countries even more competitive.

France's public debt stands at more than 96% of economic output, compared with 68.3% in Germany at the end of last year. Unemployment is above 9% in France but closer to 4% in Germany.

Mr. Macron is calling for a shared eurozone budget that could be used to for a variety of reasons, including helping currency members in economic distress, believing that would help address flaws revealed by the 2010 debt crisis.

For the eurozone to have a future, the French leader said, it must have "powerful solidarity mechanisms."

The French leader said Germany should assist with a stimulus of public and private investment in Europe and work with France to find "the right macroeconomic plan."

OECD wants every nation to be Greece

Greece's financial troubles have slipped from the headlines lately, but the financial apocalypse that began there with the Great Recession continues. Now the Organization for Economic Cooperation and Development has made it clear it wants the rest of the developed world to imitate Greece, as it stated in a recent report:

Fiscal redistribution through taxes and transfers plays a crucial role in containing the impact of market income inequality on disposable income… Policies aimed at promoting growth should consider how growth will have an impact on many other outcomes, and how to ensure that those policies avoid the “grow first, distribute later” assumption that has characterised the economic paradigm until recently. It is now clear that growth strategies need to consider from the outset the way in which their benefits will be distributed to different income groups. … Inequalities tear at the fabric of our societies. Inequality of incomes translates seamlessly into inequality of opportunities for children, including education, health and jobs, and lower future prospects to flourish individually and collectively. …inequalities are reaching a tipping point.

Strengthening inheritance and gift taxes can support inclusive growth. … Inheritance taxes can…help achieve intergenerational equity goals. …In order to be effective, inheritance taxes must also be combined with taxes on gifts and wealth transfers during the taxpayers’ lifetime, as well as with measures to address avoidance and evasion.

Sufficiently generous unemployment benefits and social-assistance systems with a wide coverage are also a key.

The rich are getting richer - Baptists and bootleggers

Hillary and Bernie dusted off and hoisted aloft the old medieval standard “the rich get richer while the poor get poorer” during their primary contest. Republicans tended to respond with, “So?” During the Olympics, Hill promised to make the rich pay their fair share in her TV ads. Hill and Bernie imply that the rich have become wealthy at the expense of the rest of us, another medieval economics principle.

Attacking the wealthy always inflames envy, draws a crowd and extorts campaign contributions. That’s why politicians use it so often, as Helmut Schoeck noted in his masterpiece, Envy: A Theory of Social Behavior.

The truth is that Bernie and Hill are half right: inequality is growing. They're just wrong about the reasons. However, free marketeers do a lot of damage to the cause by ignoring the issue or denying that anything is wrong. Worse, some even defend growing inequality. 

This ratio signals recessions and inequality

In past articles I have reviewed sound models signaling the Fed’s money printing has made the economic expansion unsustainable. Those included Spitznagel’s Misesian Index, Shiller’s Cyclically Adjusted Price Earnings (CAPE) ratio, and others. I just discovered a new one, the ratio of asset prices to income.

I found the ratio in a report on inequality of wealth in the world published by the Credit Suisse Research Institute. Referring to the ratio, the report says on page six:

...the ratio is now at a recent record high level of 6.5, matched previously only during the Great Depression. This is a worrying signal given that abnormally high wealth income ratios have always signaled recession in the past.

Fed Inflates Capital Markets!

In an email newsletter sent out by the Wall Street Journal called Macro Horizons, Michael J. Casey appears to grasp a point about monetary policy that few other mainstream economists can get a grip on, while Austrian economists have taught it for decades: inflationary monetary policy benefits the rich. He wrote,

Easy money translates into gains for those who are rich in assets, especially financial assets, and that excludes a large swath of the population [italics in the original].

I assume Casey is a mainstream economist because the main point of his post was the need for central banks to maintain monetary “stimulus.” The quote above follows this:

The subject of disinflation is the focal point of Wednesday’s data, where we are being reminded of its nonexistence in the industrialized world and of the risk that it could morph into outright deflation. This is most evident in Wednesday’s CPI data out of Europe, which is why the notoriously stimulus-shy Deutsche Bundesbank insiders even came around to telling the Journal Tuesday that they were considering backing actions at the European Central Bank’s June meeting to attack the disinflationary trend. But we’re likely to see the same later in the U.S. producer price data and in the U.K., whose economy is otherwise growing strongly, the Bank of England indicated that it still sees no great impetus for inflation to breakout. There was a time when this scenario of growth, coupled with low inflation, was seen as a “Goldilocks” scenario, a perfect not-to-hot, not-too-cold combination where policy would stay accommodative but gains could be had in the economy and markets. But the longer we flirt with deflation – which translates most directly into near-zero wage growth – the more that the adoption of hyper-accommodative policies tends to exacerbate the other great scourge of our age: inequality. 

QE to Infinity and Beyond and Cantillon

Mainstream economics denies that Cantillon Effects exist. Cantillon Effects are one of those insights that Austrian economics offers followers that help us avoid nasty surprises like the Great Recession. Recently, McKinsey and Company provided research that supports the Austrian view of Cantillon effects from QE. Here is one of their charts:

The Great Stagnation Explained

A few economists are worried about the great stagnation, the apparent plateauing of wages and economic growth. Some attribute the malaise to rising inequality or technology having picked all of the low hanging fruit, or other causes. Any time someone identifies a problem every person with an ideology to promote offers their pet ideology as the cause or cure. Here is my take on it:

The industrial revolution caused per capita incomes in the West to rocket from $3/day in 1700 to as much as 130 times that amount today. A graph of incomes produces a “hockey stick” as this graph from the Atlantic that demonstrates:

Chicago economist Deirdre McCloskey’s explains in her book Bourgeois Dignity: Why Economics Can’t Explain the Modern World that the innovation caused the rapid take off in incomes, but innovation requires that society value business and innovation and adopt “bourgeois values.” She devotes a large portion of the book to slaying zombie explanations for the rise in incomes, including thrift, capital accumulation, greed, the Protestant ethic, colonialism, education, transportation, geography, energy, trade, slavery, exploitation, commercialization, genetics, institutions, and science.

How is it possible for innovation to benefit all of society and not just the inventor? After all, successful inventors become very wealthy. The answer is that innovators capture merely 2% of the total benefit of their inventions according to Yale economist William D. Nordhaus in his paper “Schumpeterian Profits in the American Economy: Theory and Measurement.” 

Obama inflames envy

"I believe this is the defining challenge of our time," Obama said in a speech at an event hosted by the Center for American Progress, a pro-Obama think tank. "It drives everything I do in this office,” 

“The growing gap between rich and poor can be closed by actions ranging from an increase in the minimum wage to better education to following through on his health care plan, Obama said.”

The quote above was from an article in USA Today. If people care about the poor, they will give their own wealth and encourage others to voluntarily do the same. Focusing on inequality is more than just a legitimate concern for the poor: it’s an attempt to inflame envy, as the sociologist Helmut Schoeck explained in his book “Envy: A Theory of Social Behavior.” Schoeck demonstrated that almost all intellectuals, poets, historians and philosophers through the ages condemned envy and feared it as a persistent threat to society. Organizing society to assuage envy kept humanity poor and on the edge of starvation until Christianity tamed it in the 17^th century, which led to the industrial revolution.

Questions for Free Market Moralists

All Souls College, University of Oxford, philosopher Amia Srinivasan, wrote in the New York Times Opinionator that defenders of the free market and classical liberalism must answer “yes” to four questions to remain consistent. She thinks her four questions rope and tie free marketeers like a calf in rodeo: if we answer ‘yes’ to all four we prove what disgusting immoral people we are, but if we answer no to any of them then we don’t support free markets. 

However, like most debates with socialists, Amia’s success in roping and tying us free marketeer calves depends upon us accepting her definitions of words and her economic assumptions, which she cleverly keeps hidden from the sleepy rodeo fan. So before I answer her four questions and still maintain that I support free markets, let me clear out some of the manure that people are stepping in. 

First, no one has to accept Rawls’ definition of justice. He spun it and wove it from his own imagination. It’s an interesting one, but that’s all. His entire argument hinges on readers accepting his definition. If we don’t, the rest of his argument collapses. So why did Rawls feel compelled to invent a new definition for justice? Because he didn’t like the results produced by the definition that dominated the West for 300 years.