Arnold Kling  

Two Views of Class Struggle

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Jeff Sachs writes,


Since Ronald Reagan became President in 1981, America's budget system has been geared to supporting the accumulation of vast wealth at the top of the income distribution. Amazingly, the richest 1% of American households now has a higher net worth than the bottom 90%. The annual income of the richest 12,000 households is greater than that of the poorest 24 million households.

Investors Business Daily editorializes,

Add the cost of benefits and pensions, and the average compensation gap between federal and private-sector workers jumps to nearly $62,000 per year -- $123,049 vs. $61,051.

In theory, the 12,000 households with the highest incomes are producing more wealth each year than the 24 million households with the lowest incomes. I hate to have to say it, but I find that plausible.

In theory, the average federal worker produces more than twice the wealth of the average private-sector worker. I hate to have to say it, but I find that doubtful.

Obviously, it is very difficult to verify any claim of this sort.


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COMMENTS (12 to date)
Arthur_500 writes:

I fail to understand how a federal worker covers their own worth. To begin with if they paid 100% of their salary in taxes it wouldn't cover the cost of their employment.
The idea that they create wealth must have come from K Street. Each government employee costs taxpayers and the regulations and laws they oversee cost even more. I fail to think of one instance in how they might create wealth.

Amaturus writes:

Arthur_500,

If there are negative externalities at play, then a Pigovian tax/regulator/whathaveyou would create a more socially efficient outcome. Sure, there's the knowledge problem, but it still remains that there are instances where a government actor can create wealth.

Les writes:

Just for the sake of argument, let us assume that the statements of Jeff Sachs and Investors Business Daily are correct.

In that case, we should give grateful thanks that economic incentives and the American Dream are alive and well in the private sector.

But the government sector is clearly in desperate need of rescue from the greedy hands of self-serving politicians and rapacious government labor unions.

Mark Brady writes:

Les writes:

"But the government sector is clearly in desperate need of rescue from the greedy hands of self-serving politicians and rapacious government labor unions."

Why is there no mention of corporations and other producer interests that (1) seek and obtain special favors from government and (2) lobby government to buy their products, like defense contractors.

Mercer writes:

Many of the top one percent are investment bankers and lawyers. Do you consider them wealth creators?

ionides writes:

"In theory, the average federal worker produces more than twice the wealth of the average private-sector worker."

Not necessarily. The equivalence of income and product only holds if income is market-determined.

Lori writes:

The word 'Amazingly' in the Sachs quotation appears to denote irony, but I could be wrong. Irony recognition is not my strong suit.

I've been reading this blog long enough to know that you love to have to say that you think some people are 'worth' more than others by multiple orders of magnitude. You are of course entitled to your opinions (which may even be right, theory being what it is), but when the rhetoric about 'liberal elitism' comes out of the woodwork there is an aura of pot. kettle. black.

effem writes:

So much wealth at the top has simply been created by going long asset inflation...i.e., owning assets on leverage and then hoping for a bailout in a 2008 type situation. Every large bank, real estate partnership, and private equity shop is guilty of this. That is not creating wealth - it is transferring it.

Even if financial "innovation" has brought down borrowing costs, it is not clear that is creating wealth. If your drug dealer suddenly charges 10% less are you better off? Our country would be better off without easy credit.

The top 1% simply excel at knowing how to manipulate the system.

Les writes:

Mark Brady writes:

"Why is there no mention of corporations and other producer interests that (1) seek and obtain special favors from government and (2) lobby government to buy their products, like defense contractors?"

The answer is that if politicians were ethical, then corporations would be unable to (1) seek and obtain special favors from government and (2) lobby government to buy their products, like defense contractors.

Mark Brady writes:

Les writes:

"The answer is that if politicians were ethical, then corporations would be unable to (1) seek and obtain special favors from government and (2) lobby government to buy their products, like defense contractors."

Two questions. First, on your analysis, if politicians were ethical, would that imply that government labor unions would not be "rapacious"? Second, shouldn't we be more concerned with how the political set-up provides the wrong incentives and makes the system inherently dysfunctional rather than with trying to find "ethical politicians" to run the system?

Les writes:

Mark Brady writes:

Two questions. First, on your analysis, if politicians were ethical, would that imply that government labor unions would not be "rapacious"? Second, shouldn't we be more concerned with how the political set-up provides the wrong incentives and makes the system inherently dysfunctional rather than with trying to find "ethical politicians" to run the system?

Answers to questions:
1) Government labor unions would still be potentially rapacious, but if politicians were ethical, these government labor unions would not exist.
2) Yes: the powers of the federal executive and legislative branches should be vastly reduced. Trying to find "ethical politicians" to run the system is bound tofail.

Mark Brady writes:

Les writes:

"1) Government labor unions would still be potentially rapacious, but if politicians were ethical, these government labor unions would not exist."

If none of these three types of organizations enjoy legal privileges, would you agree there is no difference in principle between (1) a labor union, (2) a professional association, and (3) a trade association?

"2) Yes: the powers of the federal executive and legislative branches should be vastly reduced. Trying to find "ethical politicians" to run the system is bound to fail."

I agree that trying to find "ethical politicians" to run the system is bound to fail. So who runs the very limited government that you envisage?

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