Millennial Economic Confusion

Green on the outside, red on the inside
Photo: Wikipedia

A social media post captured my attention. A millennial was boasting about a recent home purchase. Nothing out of the ordinary, home ownership is a good thing and people take pride in owning their own place, private property is the bedrock of capitalism and freedom. This millennial was buying in one of the country’s most expensive real estate markets.

While boasting about a “privileged” status of people who could afford to buy homes because they had inherited wealth, the millennial opined that the system is rigged. This spurious “white privilege” system somehow suppresses black people who earn incomes considerably lower than whites.

Race-baiting while flaunting expensive material possessions, millennials like to quote large income disparities between blacks and whites, forgetting that income disparities exist among whites as well and not because of any deliberate exploitation or skin color but because each individual, lucky or unlucky, made personal choices that resulted in economic success or failure.

Let’s inject some economic sense into millennials’ warped reality. Income and wealth are two different economic concepts. A person could, of course, donate part or all of yearly income and part or all of wealth to black needy families to assuage his/her “white guilt.” Nobody stopped him/her from giving away to or sharing his/her home with a needy black family for the sake of his/her perceived social injustices and “white privilege.” Cars and home donations are quite welcome and part of philanthropy.

But government should not mandate how we split acquired wealth nor should government have the right to confiscate it. I’ve experienced government confiscation of wealth, private property, and even the nationalization of the means of production. It did not end well at all. It resulted in the murder of millions of innocents and decades of totalitarian exploitation of the proletariat masses by the Communist Party leaders and apparatchiks.

This millennial was discounting millions of white and black people who have worked hard to purchase their homes without direct financial help from family. Many had accumulated wealth which they plan on leaving to their heirs.

Charity begins at home and can extend to families who made poor personal choices in life or decided to enter our country illegally, seeking welfare, Social Security, and the government protection they could never get in their countries. As hard as we may try to, we simply can’t afford to make life better for billions of needy in the world.

The argument is expressed that we could feed, house, and educate millions of poor people for what we spend on wars. The problem with this argument is that the definition of poor is quite different for various groups and populations. Another problem is that ordinary people cannot control when wars are started, the few elites in power do, and they approve expenditures for such wasteful efforts.

Life is never fair and nobody should have guarantees of an easy egalitarian existence. Success, a good income, and wealth are not rights, it is an opportunity to succeed or fail.  Just because the education system has given awards to every child for walking across a stage without tripping and participation trophies, the harsh reality of life is quite different from communist academic and progressive lobbyist rhetoric.

Bad luck and bad choices are contributors to failures, while good luck and good choices to success. Hard work and choosing wisely are also important. Saving money and studying hard are essential variables of success. Blowing everything you earn on parties and a good time every weekend are formulas for failure. Lack of personal responsibility, something no longer taught in this country, contributes greatly to the “social injustices” radical communists rail about.

Millennials in this country have become radicalized communists while in college where they joined other like-minded individuals who live high on the crony capitalist horse.  IT professionals, academics, lobbyists for non-profits, or staffing offices of influential politicians have the temerity to lecture the rest of us about fairness, equality, and social justice.

Forcing social justice and equality by law or through lobbying aggressiveness is not going to make people equal or successful because humans are born with dissimilar IQs, diverse motivation levels, higher or lower moral capacity, and different talents and abilities.

Affirmative action, quotas, and other forms of government-approved and academia-sanctioned racial discrimination do not make everyone “equal” or “diverse,” it just suppresses everyone to a lesser common denominator by lowering selection standards and by hiring those less qualified. It will be interesting to see how the Supreme Court will decide on the lawsuit brought on by Asians against Harvard for discriminatory admission scoring.

 

Progressive Equal Pay and Capuchin Monkeys

“Most people are pretty happy with what they’ve got until they see what the other guy has got.” – Alfred E. Neumann, Mad Magazine

Photo: Wikipedia

An article about “equal pay,” which appeared on my screen recently, caught my eye. The article was entitled, “What Happens When Two Monkeys are Paid Unequally for the Same Work?” The embedded video was clipped from a TED talk by Frans de Waal, primatologist, ethologist, and professor of primate behavior at Emory University, who talked about the “fairness study” as it involved the pillars of morality, reciprocity and empathy. His study was done with Capuchin monkeys who appeared to “reject unequal pay.” http://www.upworthy.com/2-monkeys-were-paid-unequally-see-what-happens-next?g=3

The outcome of the monkey video embedded bears no resemblance to the economics of remuneration but, to the untrained mind, it seems to validate the snowflakes’ mantra that we should all receive equal pay because it is our human right. These days, in the progressive philosophy, all welfare and the results of human activity are a human right bestowed upon us by the generous and omnipotent government that receives its money and generosity from thin air and money trees.

If two Capuchin monkeys were given cucumbers, they were perfectly happy. If one monkey was given grapes, the results were different. Using new monkeys who have not done the task before, the results were comical. 

The two monkeys paid the human with a rock first and then received the treat, either cucumber or grapes. The monkey on the left got cucumbers and the monkey on the right received grapes. The first piece of cucumber was fine, the monkey ate it, however, after she saw the monkey on the right receiving grapes, a better tasting treat, the first monkey rejected the next slice of cucumber and threw it in apparent displeasure back to the human running the experiment. Each time the monkey received cucumber, she was agitated, banged and rattled the glass enclosure and threw the cucumber back. As the presenter said, this is the “Wall Street” protest on display, the audience erupted in laughter. https://m.youtube.com/watch?v=dMoK48QGL8

This may seem like a convenient lesson of Economics 101 and why all Capuchin monkeys should be paid equally for the price of a rock, however, it is more a lesson on malicious Envy, a deadly sin.

Keynesian economics, taught in our colleges and universities, tells us that “The United States has rather more income inequality than most other industrialized countries,” and “The distribution of income in the United States has grown substantially more unequal since about 1980.” (Economics Principles and Policy, William J. Baumol and Alan S. Blinder, tenth edition, p. 450)

First of all, we are not Capuchin monkeys. Secondly, food is not income, nor pay, unless we live in a primitive society and use food as commodity money.

Thirdly, progressives recite the politically correct talking points that agitate and enrage them, demanding equal pay, an economic impossibility. They have failed to learn in school the real causes of income inequality.

1.      Differences in ability (Some of us can do math faster, some are better wordsmiths, some program computers more accurately, some run faster, some can play an instrument, and some are born with poor health due to genetic mutations or have different IQs.)

2.      Differences in intensity of work (Some like or are able to work longer hours without making mistakes)

3.      Risk taking (Entrepreneurs gamble sometimes all they have and win, other times they lose and start all over again with the same energy and curiosity)

4.      Compensating wage differentials (Some people work the night shift or work very dangerous jobs that other people are not willing to take; consequently they must be paid more as an incentive to work.)

5.      Schooling and other types of training (Those who go to college and receive a degree with an employable skill are going to receive higher pay upon graduation; those who choose to end their learning with a high school diploma or a worthless college degree with no possibility of employment at the end of four years, will experience an income differential that they will not like but it was based on a voluntary decision.)

6.      Work experience (Research has proven that workers with more experience earn higher wages.)

7.      Inherited wealth (Children of wealth can go to more expensive schools and can finance businesses and thus potential success; there is no guarantee that inherited wealth will make one successful but, in most cases, it is quite beneficial; Chelsea Clinton received a very high salary on her first job even though she had no experience whatsoever in the field, it was based strictly on nepotism.)

8.      Luck (Chance and luck play important part in income inequality. Someone develops an idea that makes him/her a multi-millionaire. At the same time, thousands others toil for years on great ideas that never take off.)

When it comes to unequal pay due to economic discrimination, Americans find this intolerable. Economic discrimination, according to Economics 101, happens when equal factors of production receive different payments for equal contributions to output. This sounds great in theory but in practice, how do you measure, each and every time that two factors of production are equivalent; it is always a subjective determination, not a precise and objective one.

You may spend eight hours a day at your desk but your productivity may be half of someone else’s because you spent part of the time day dreaming, surfing, taking breaks, talking to your co-workers, playing computer games, and not turning your assigned report on time. Should you get paid the same as another person who completed twice as much work as you in eight hours? In the case of assembly line production, it is easier to measure productivity based on the number of widgets you produce.

Even Keynesian economists agree that “equality is bought at a price” and that there are better ways to promote equality by seeking policies that do the least possible harm to incentives and efficiency in the economy. They prefer redistribution of income to fight poverty. “Neither complete laissez faire nor complete equality would normally be society’s optimal choice.”

Centralized planning economics has experimented with equal incomes for most professions, and failed miserably in every communist country it was tried, with disastrous effects. People became even lazier than they are by nature, hid and slept part of the day instead of working, pretended to work because they knew the commies pretended to pay them, justified stealing from work to supplement income, and developed a black market in order to survive.

Charles Murray and Richard Herrnstein, a social critic and a psychologist, wrote a book, The Bell Curve, which became rather controversial due to the claims made on the distribution of IQ tests on a bell curve. Most people clustered in the middle, with fewer at both ends.

As Baumol and Blinder said, “No one doubts that intelligence contributes to economic success, nor that genetics has some bearing on intelligence.” But some argue that environmental factors are more important than genetics in determining intelligence and that “true” intelligence is different from test-measured intelligence. I might add common sense, which is not so common anymore, to the list of economic success. Cognitive ability is certainly not the main ingredient in economic success. Why else would a ball player and some actors make so much money? They have a unique skill or talent that most people don’t have.

To sum it up simply, we are not Capuchin monkeys, envy is a sin, and, in my humble experience, progressive equal pay at all levels is a utopian communist promise that cannot be fulfilled; it is just equal misery for all.

 

 

 

 

 

Economic Miseducation

I have taught basic principles of economics for thirty years to groups after groups of college students who were often cross-eyed, bored, running late, playing with their phones, angry that I gave them too many notes, “hard tests,” and too many assignments which interfered with their busy social lives.  

Many students were there just to get a grade and to complete their useless social studies degrees on the way to an advisor’s assurance of a six-figure salary job on day one, an offer that would never materialize on their limited horizons. They did not care that their parents went in debt to pay for this college miseducation they received or that hard-working taxpayers funded their federal grants for four years. Most of them had no clue how the economy ran nor did they care.

It is painfully obvious that today students and college graduates are just as woefully incompetent and uninformed. They are voting in droves for their Marxist/communist of their choice, falling for empty promises of free education in their communist utopia of free birth control pills and free legalized drugs.

None of them paid attention in Economics classes that in communism abortion is not a choice, birth control pills are not available or expensive, and drug use is punishable with hard time in jail.  Education is free technically but there is no room to educate everybody in the halls of higher learning, so only a select few are chosen, usually the elite’s children are picked first, regardless of grades. If there are places left, then those with the highest scores are admitted.

Someone who spends a lot of his time running computer models to predict economic downturns, upturns, bubbles, crashes, and collapse, attempted to educate the audience on Facebook. Most of his advice fell on deaf ears because people are tired of listening to anybody, they know it all already, and have already made up their minds to go full speed ahead off the cliff, they want to try things for themselves, why listen to reason and rational thought. Repeating failed history in hopes of a different result seems enticing to most people.

In his analysis, in an economic environment of “120 percent debt to GDP ratio, we have less than five years before economic implosion.” He defined “Point Zero” as the point where the national debt becomes 120 percent of GDP, an unsustainable scenario that would cause an unrecoverable spiraling downturn of the economy. A black swan event would make things much worse.

In order to make sure the economy becomes sustainable again in the face of a 19 trillion national debt, “entitlements” must be reformed, spending and waste must be cut, some regulatory burdens on corporations must be reduced or eliminated, and taxes must be raised.

And this does not even begin to address unfunded liabilities such as Social Security and Medicare. Entitlements comprise 70 percent of the budget and debt servicing is 10 percent. This leaves just 20 percent of the budget that can be cut. Is that sufficient to even begin reducing the huge national debt?

Cutting the corporate credit card will force Congress to balance the budget. They cannot spend more than they take in from Treasury auctions and taxpayers. How many Congressmen will risk their careers in order to do what is right? Congress does not seem willing to address any of the above because they do not want to compromise their political careers and thus destroy the power they yield in Washington.  

Even though both spending cuts and tax increases are necessary, Congressmen fight and politically posture on both sides of the isle while nobody’s pet project or state funding gets cut. Why are Congressmen unwilling to cut pet projects? When they do, they know their constituents will vote them out of office.

We keep giving money to the U.N., we fight unwinnable wars with strange rules of engagement, and we waste more money on our political friends and foes overseas at a time when we can ill-afford it.

To make matters worse, inflation is looming on the horizon because of the three quantitative easings (QEs), printing money without the backing of goods and services in order to purchase our own debt.

The corporate mandate of the Affordable Care Act (ACA) has not even taken full effect yet. We are not sure if Congress will repeal Obamacare without a replacement. The preexisting conditions’ feature of ACA is a good idea.  In spite of dishonest political rhetoric, nobody will die in the streets without medical care.

But there is rationing occurring already due to the burgeoning and very expensive bureaucracy. We cannot offer care to more people and illegal aliens without substantial costs to the nation which so far seem to be far greater than if we would have given free premiums to the millions of uninsured who, before ACA, could not secure nor afford medical insurance. Some of them were already recipients of Medicaid.

We are sitting on a social unrest powder keg as evidenced by Ferguson, Baltimore, the Black Lives Matter, the collegiate race-baiting violence, and ISIS coming to our shores via unprotected borders. The social cohesion is breaking down faster than you can say All Lives Matter.

Even though our national debt to GDP ratio is quite high (104.7%), our economic situation is slightly different than Greece’s because we can print our own dollars. http://www.tradingeconomics.com/united-states/government-debt-to-gdp

Our fiscal policy is in a mess. Taxation burdens the middle class and favors crony capitalism while spending is out of control.  Almost 50 percent of the country does not pay any taxes and crony corporations move their headquarters to other countries to avoid paying proper share of taxes. Because corporate tax in the U.S. is one of the highest in the world, Congress enabled corporations to move overseas via Congressional bills.

The burden of taxation falls on the middle class yet again. TPP is going to move most of the remaining manufacturing sector overseas, transforming U.S. into a service economy and destroying many blue collar and white collar jobs in the process.

Congress originates the spending bills and approves them. The President can express what he wants and signs or vetoes bills, but the ultimate spending power and control rests with Congress. Congressmen are few and far between who have strength of character or the will to do what is unpopular. Nobody wants to be perceived as hurting parents trying to feed their kids, put a roof over their heads, or as “throwing grandmas over a cliff.” So the out-of-control spending continues to balloon.

American citizens themselves do not want to give up their instant gratification and suffer without their Starbucks coffee and the pain or indignity of a less than 75-inch TV or other electronic gadgets that are creating the blue screen hunchback nation. Why bear responsibility for yourself when Uncle Sam can do it for you?

Presidential hopefuls make promises to the electorate that will not reduce debt substantially in the absence of a robust and sustained economic growth that would bring in additional revenues. Some talk about “entitlement” reform by increasing the retirement age. Proposals to create economic growth are not very encouraging. There is no magical pot of gold at the end of the rainbow, nor another bubble that would bring in enough revenue to offset the very large budget and reduce the unpayable national debt.