A simple lesson

The harvest.

It was a chilly morning in New York one day this week, and a truly integrated cluster of homeless persons slept on a grate as it noisily vented warm air from Penn Station below. Rolled in roiling, tangled blankets, black and white and brown limbs intermingled, seeking warmth from the roaring vertical wind. Passersby rush on, each busily on a mission, with disapproving glances. 

Later, lunching at a well-known chain restaurant across the river in Hoboken, a small, hunched man with a wild white beard and simple knit hat and rumpled, soiled clothing, eats standing up. Looking like a creature from “The Hobbit,” he performs quick, obsessive, ritualistic manipulation of his food and drink, finally eviscerating the sandwich and devouring the filling. He is closely watched but outwardly ignored by other diners, cautiously watchful nearby. 

It is a matter of great, learned, debate, whether God exists, and if so, which one.

But it matters not. These people, the least among us, are equally imbued with human rights. Whether God-given or inherited from the Universe, these are fully human creatures, not less than any of us.

At the other end of the privilege spectrum are the highly educated, the trained, the cultured, the deep thinkers. And they care, deeply. And know that they can improve the lives of us all, if only we’d listen, and obey.

These are they who prescribe, command, compel. The new Ten Commandments. Thou shalt not live on the street. Thou shall not consume large sugary drinks. Thou shalt wear seat belts, and not smoke, and a thousand other things. 

Because they are educated and enlightened. Because the are concerned. And because they think themselves our betters.

But they are not.

This country was a grand experiment, splintered from the regencies and monarchies and religious shackles of mother Europe. It was founded on the principle that "all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the Pursuit of Happiness." Sound familiar?

So let us consider one early example of the power of individual freedom. It resonates yet today, though greatly muted.

In November of 1620, a group of Separatists left England on the Mayflower seeking religious freedom and economic opportunity. The first several years were extremely difficult, near famine, with poor crop yields and perilous scarcity.  Nathaniel Philbrick, author of “Mayflower,” takes up the tale:

“The fall of 1623 marked the end of Plymouth’s debilitating food shortages. For the last two planting seasons, the Pilgrims had grown crops communally – the approach first used at Jamestown and other English settlements. But as the disastrous harvest of the previous fall had shown, something drastic needed to be done.”

“In April, [William] Bradford had decided that each household should be assigned its own plot to cultivate, with the understanding that each family kept whatever it grew. The change in attitude was stunning. Families were now willing to work much harder than they had ever worked before. In previous years, the men had tended the fields while the women tended the children at home. ‘The women now went willingly into the field,’ Bradford wrote, ‘and took their little ones with them to set the corn.’ The Pilgrims had stumbled on the power of capitalism. Although the fortunes of the colony still teetered precariously in the years ahead, the inhabitants never again starved.”

A mystery. Or perhaps not – simply human nature. When treated as free persons, owners of their own labor and the fruits thereof, the Pilgrims prospered. And as they prospered individually, so did the colony.

A small, hoary example, perhaps, but timeless.

The lesson is simple. Our "betters" are so only in their imaginations and inflated egos. Let each choose their own path. Offer your advice if you must, but restrain the impulse to impose. As an equal, you do not have that right.

Equality in the age of doubt

Freedom index vs. Per Capita GDP (Wealth)

Il Papa Francesco, Pope Francis, is a profoundly compassionate man. He cares deeply for the people  and abhors inequality.

In his apostolic exhortation, “Evangelii Gaudium,” Il Papa excoriates free market capitalism:

Just as the commandment “Thou shalt not kill” sets a clear limit in order to safeguard the value of human life, today we also have to say “thou shalt not” to an economy of exclusion and inequality Such an economy kills.

The Holy Father goes on to give a hiding to trickle-down economics:

In this context, some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.

While the Pope is a good man, a holy man, he would flunk Econ 101.

First, let’s address inequality.

Our economic system, based on the concepts of individual liberty, private property rights, and free markets, does not guarantee equal outcomes. It does, however, offer equal opportunity. According to the US Census Bureau, the top 5% of black families now make over $148,000 per year. Is that immoral? Or did they strive to earn it?

Let’s take an honest look at inequality. Does anyone who knows anything at all about football resent the fact that Tom Brady makes more money than you do? Are you exercised that Taylor Swift has a seaside mansion and you don’t? Does it keep you awake at night that Kim Kardashian is worth $85 million? (OK, that last one stings a bit).

Are you unhappy that Elizabeth Warren, Hillary Clinton, and the Obamas are all wealthy? You are simply ungrateful.  They want nothing more than your vote and will give you a small stipend in exchange.

On the other hand, Tom Brady made his own fortune based on personal talent and equal opportunity. So did Taylor Swift. As did the top 5% of black families. Hillary? Not so much – she had connections and the Clinton Foundation.

Let’s get back to our Holy Father, Pope Francis. He writes that trickle down theories “have never been confirmed.” This is possibly due to his exposure only to the twisted capitalism of Argentina, where political connections are the key to success. But there is proof that free markets work, and more poignantly, are the single strongest force on Earth to raise the poor from their shackles of poverty.

Please note the graph nearby. It relates two variables: GDP per capita (individual wealth) and freedom of markets. To the upper right we have countries ranking high in freedom and high in wealth. To the lower left are those with little wealth and less freedom. The relationship could not be clearer – less freedom, less wealth. And the corollary – less control, more wealth.

Regarding the nearby chart, countries to the upper right have a high rank of free markets and per capita GDP. These are wealthy countries like the United States, Singapore, Norway, and Switzerland.

At the other end of the spectrum, the lower left, are Zimbabwe, Ethiopia, Central Africa, and the Congo, with highly controlled markets and an excess of poverty.

We have made great progress in raising people from poverty. And we know how to do it. Governments that foster and protect free markets. Governments that pursue and eliminate corruption. Governments that focus on infrastructure and education. The opposite, in fact, of Zimbabwe.

There is so much innumeracy in our electorate, every election is a sad event. If only we could educate each other. The reality, the logic, is so simple. And the outcome, if we were to only reason, would be so much better for us all.

Would you rather work for Apple?

 

Apple Corp. Headquarters

The common wisdom in American political debate is that CEOs make hundreds of times more than their workers --  331 times according to the AFL-CIO ($11.7 million for the CEO vs. $35,293 for the average worker). And that this inequality is due to evil, greedy, capitalist CEOs being awarded outsized compensation packages by their cronies on boards of directors.

But there are a couple of things going on here which may require a re-think.

There is one small issue with the $11.7 million comparison. One must cherry-pick the CEOs to get such enormous earnings (the AFL-CIO selected the 350 most highly paid CEOs to get this number). If we use Bureau of Labor Statistics data for all firms, the average earnings of all CEOs (approx. 250,000 of them) is about $175,000. This is a ratio of roughly five times the average worker, a number that more closely tracks the truth of mid-sized manufacturing firms and plumbing supply businesses and the majority of Americans.

But there has indisputably been a growing inequity in wages of the middle class vs. the top one percent. Comparing the thirty year period from 1982 to 2012, we see the middle of the income distribution increase by 20 percent. But in the same period, the top one percent of workers saw their incomes rise by 94 percent.

Many attribute this growing divide to the growth of CEO and executive compensation.

But in a recent study, “Firming Up Inequality,” four economists from the University of Minnesota, Stanford University, and the Social Security Administration offer an explanation that is breathtaking in its simplicity.

The mistake we are making, they say, is to compare CEO pay to all American workers. Instead, they suggest comparing CEO pay only to the firm that each CEO heads. For instance, the income of Craig Manear, CEO of Home Depot, should be compared only to Home Depot workers. And the compensation of Tim Cook, CEO of Apple, contrasted only with his Apple colleagues.

Working from a Social Security Administration dataset, they were able to track the total compensation of all workers, and, more importantly, tie them to the companies for whom they toiled.

Contrary to the common assertion of growing inequality, the authors state that “we find strong evidence that within-firm pay inequality has remained mostly flat over the past three decades.”

Mostly flat? How to explain this?

First, the study does recognize that inequality has increased (20 percent vs. 94 percent income growth as stated earlier). But they show that this disparity occurs between companies, not between all executives versus all workers.

Here is an example. Say it is the year 1920. You work for a struggling buggy manufacturer while your brother is employed by a burgeoning Ford Motor Company. He makes more than you do.

Ford is taking the transportation market by storm and buggies are quickly becoming a curiosity. The average earnings of all employees at Ford is greater than those at your buggy company because Ford is making massive profits. A new technology is driving an increase in wage inequality, not between CEOs and workers, but between Ford workers and buggy makers.

In our current era, the past 30 years have seen an enormous growth in high technology firms. There is a new, information  economy and an old economy. Information economy firms, in aggregate, are growing rapidly and generating lots of profit. Old economy firms are plodding along, growth and profits humble. Compensation at the new economy firms is much greater than at the old economy firms. The average Apple employee makes much more than the average Pep Boys worker, especially when considering stock options. And this gap has been growing for three decades.

In this coming political season, which will be rife with populist cries for income equality, keep one simple question in mind.

In order to achieve it, would you be willing to give up your iPhone and say goodbye to Google?