The Left is at war with economic reality.
By Kevin D. Williamson
The Left is at war with economic reality. The intellectual poverty of the Left — which is also a moral poverty — is evident in the fact that its leaders are much more intensely interested in incomes at the top than those at the bottom. Examples are not difficult to come by: Senator Elizabeth Warren is visibly agitated by Jamie Dimon’s recent raise, the AFL-CIO maintains a website dedicated to executive compensation, Barack Obama avows that “at a certain point, you’ve made enough money,” et cetera ad nauseam. The entire rhetoric of inequality is simply an excuse to rage about incomes at the top, a generation’s worth of progressive shenanigans having failed to do much about those at the bottom.
It is the case that incomes at the top have gone up while those in the middle and at the bottom have stagnated or declined in real terms. It is not the case that incomes at the top have gone up because those in the middle and at the bottom have stagnated or declined, nor is it the case that incomes in the middle and at the bottom have stagnated or declined because incomes at the top have gone up. There is a relationship between the two phenomena, but it is not the relationship that progressives imagine it to be.
Neither the American tax code nor other features of our economic policy are notably generous to high-income and high-wealth people by the standards of the developed world. American businesses labor under the highest business income-tax rate in the world and one of the business tax codes most riddled with political favoritism. At 40 percent — compared with an OECD average of 25 percent — our business income-tax rate is nearly double that of Sweden, and more than twice that of Switzerland, which does not tax capital gains. Our top personal income-tax rate is higher than that of New Zealand, which manages to finance an effective national government out of the proceeds, and much higher than that of very competitive countries such as Singapore. Taken together, our tax and entitlement systems are about as redistributive as typical European welfare states. What is unusual about the United States is not that the rich are taxed so lightly but that the middle class is taxed so lightly, at least relative to European practice.
Which is to say, those who endorse policies such as higher taxes on the wealthy as an antidote to income inequality are missing the picture. The American rich are not getting richer because of the American tax code. Income inequality in the United States is increasing. It is also increasing in Sweden. And Norway. And Finland. And the Netherlands. And Canada. And Germany. Pick your European welfare state and throw in Japan, too, and you’ll find much the same story.
Incomes are up at the top, stagnating or down elsewhere — but there is no “because” between those two facts. The cause is what some people call “globalization,” but is rightly called “progress,” which is of course what so-called progressives oppose. Nearly 1 billion people were lifted out of extreme poverty in 20 years. We have not abolished war and disease, but we have made great — what’s that word? — progress. (A sobering fact for foreign-policy thinkers: There are seven ongoing conflicts in the world in which more than 1,000 people a year are killed. One — the second-deadliest — involves Mexican drug cartels, the other six involve Islam.) That progress has been made possible by human cooperation on an unprecedented scale in the form of the integration of worldwide markets and worldwide supply chains. Bigger markets mean bigger opportunities, which means bigger rewards, not just for executives like Mr. Dimon but for line workers at successful firms. Integrated markets mean more competition, too, which puts pressure on wages in rich countries, especially on the wages of less-skilled labor. Thus the divergence in wages.
The Starbucks-vandalism faction of the Left likes to rail against globalization, but to do so is like railing against the fact that it is cold in the winter. Winter is an important part of the natural cycle, but it can be unpleasant — even deadly. It is something that must be prepared for, and instead of Ned Stark to warn us that winter is coming, we had Lyndon Johnson, a vicious and corrupt man who presided over the building of a vicious and corrupt welfare state. There are things we should have done to prepare for the future that is now our present, reforming the education system and our labor practices, among other things. (GM went bankrupt paying its workers half of what their German counterparts make: the worst of both worlds.) But we did not do those things. We can rail against the tyranny of winter, or we can start gathering firewood.
— Kevin D. Williamson is roving reporter for National Review
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