Newsgroups: talk.politics.misc,sci.econ
Subject: Re: Look Back in Anger
From: <DGS4@psuvm.psu.edu>
Date: Mon, 16 Nov 1992 10:33:19 EST
Organization: Penn State University


In article <1992Nov15.223328.5620@desire.wright.edu>, demon@desire.wright.edu
(Stupendous Man) says:
>
>In article <92320.184749DGS4@psuvm.psu.edu>, <DGS4@psuvm.psu.edu> writes:
>>...
>> The poor did get poorer, relative to the rich, though both groups were
>
>        There's the rub.  Shall we chain weights to the best sprinters,
>telling
>them that they're so far ahead of the guy in last place that it's "not fair"?
>Do that to relay racers who inherit a lead?

Of course, I never suggested chaining weights to anyone.  What I've said is
that inequality is supposed to serve a purpose in a free market economy.  It
is supposed to motivate entrepreneurs to risk capital for larger rewards.
That is supposed to pay off for all people in society by raising the
growth rate of GDP.

I see no evidence that the increase in inequality during Reagan's terms
did raise the long-term growth rate of GDP.




>        Economics is not a foot race, but I think the analogy is fitting.  How
>much do the poor have to earn before we stop with the N% less than the rich

Any result in a free market economy depends on the initial endowments of the
individuals.  In the economic foot race between an African-American and a
Caucasian, for example, suppose the Caucasian wins by 50 yards.  Does it make
any difference to you if the Afican-American started the race 1 mile behind
his competition?  By looking only at the finish line, you ignore
important information.




>comparisons?
>        My government teacher in high school had an apt analogy for socialism
>in all things.  She told us in a socialist school system, everyone would get
>Cs.  Cheers from the below C students, and well deserved raspberrys from those
>above a C average.  Of course the real point was that such a policy would
>result in no one working for more than a C, lowering the average even further.

Why divide the world into "free" and "socialist"?  There are a lot of
nebulous situations in between.  I have argued that some level of
inequality in outcomes is absolutely necessary in a free market
economy.  There are several questions that still remain.  How much
inequality is needed?  Did the rise in inequality in the 1980s pay back
benefits in terms of long-term growth?  Can we use public policy to
alter endowments so that the realized inequality reflects differences in
effort, not differences in initial advantages?

>> different sets of people at the beginning and the end of the 1980s.  While  e
>th
>> political and media powers are not presenting this information correctly,
>the
>> true story is not as rosy as Brett makes it out to be.  This is
>
>        I'm not trying to make the situation look rosy, merely not what some
>represent it to be.  Certainly better than the 70s.  But we start getting into
>what's "good enough" style debates by making comparisons between rich and
>poor.
>
>> nothing necessarily good or bad about the increase in inequality.
>> I think inequality is a necessary
>> component of a free market economy.  My question is what did we get for the
>> increase in inequality during this period?  I don't see much benefit, so
>far.
>
>        But why should we have to get anything?  Someone who bets on a 10:1
>horse will win more than a 2:1 bet if they win.  Looking for an overall gain
>from such a situation is meaningless.

What is the purpose of inequality in a free market?  Isn't it to motivate
effort?  Doesn't that motivation result in increased growth rates that
benefit all?  Isn't that the one of the main purposes behind free markets?


>        We can tiptoe around the real issue, or address it.  Why are the poor
>poor?  What is the most meaningful difference between the poor and the
>not-poor.
>        Education?
>        Opportunity?
>        Government?
>        IMO, it's the government.  A system that started out with the
>intention
>of buffering the bottom 20% became an institution for perpetuating the
>condition.  Both becuase politicians and bureaucrats figured out that these
>people meant job security for them, and because role models play an important
>part how well children do relative to their parents.
>        The welfare system provides neither good role models nor an efficient
>way out of poverty.

To link to another thread that is developing, provide me evidence that the
welfare system is the cause of long-term poverty.  As you show, there is quite
a bit of mobility from bottom to top in the U.S.  How can you reconcile that
with your statement that our government is perpetuating poverty?  Can you
show me that long-term generational poverty increased after the implementation
of the Great Society?  Will you include all the generational poverty among
African-Americans and the rural poor in your pre-Great Society estimates?
Education is clearly a difference between rich and poor in the U.S. both in
level and quality.  Discrimination still plays a role, though it has been
diminishing.

Other than the obvious arguments about property rights...

Tell me why I should value the Reagan Revolution if it did not increase
income mobility, did not increase long-term growth, and did increase
inequality?  Tell me why I should value free-market economies if they
do not increase income mobility and increase long-term growth?

Dennis G. Shea, Penn State
<<DISCLAIMER>>
Ain't nobody's bizness but my own. I'll be happy to accept all
the credit for anything I've written.  It's funny, however, how
employers only acknowledge the profitable ideas.