Lorenz curve — The Proper Role of Government — The Founders and Redistribution of Wealth — New Report: Young Workers Fall Behind, Blame Wall Street for Economy — Wealth Redistribution is Biblical — China: World Wealth Redistributed After Two Hundred Years — Mamas & Papas: California Dreamin Music Video — Our [California] View: Global-warming welfare coming
“A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future.”
President Obama State of The Union Speech, Feb 24, 2009
The distribution of income is central to one of the most enduring issues in political economics. On one extreme are those who argue that all incomes should be the same, or as nearly so as possible, and that a principal function of government should be to redistribute income from the haves to the have-nots. On the other extreme are those who argue that any income redistribution by government is bad….
Distribution of Income, from the Concise Encyclopedia of Economics
A statistical summary of U.S. family income distribution since World War II shows the following:
- 1. The U.S. family income distribution is highly unequal.
- 2. The degree of income inequality is not much greater today than it was at the end of World War II.
- 3. Family income inequality declined slowly from 1946 through 1969, increased slowly from 1970 through 1979, and has increased somewhat faster since then….
The Lorenz curve shows the cumulative proportion of income received by cumulative proportions of population (broken down in quintiles, i.e. 20%). The diagonal would represent perfect equality in income. The extent to which the Lorenz curve is away from the diagonal shows the extent of income inequality. Since 1929, the Lorenz curve has shifted somewhat closer to the diagonal.
In economics, the Lorenz curve is a graphical representation of the cumulative distribution function of a probability distribution; it is a graph showing the proportion of the distribution assumed by the bottom y% of the values. It is often used to represent income distribution, where it shows for the bottom x% of households, what percentage y% of the total income they have. The percentage of households is plotted on the x-axis, the percentage of income on the y-axis. It can also be used to show distribution of assets. In such use, many economists consider it to be a measure of social inequality. It was developed by Max O. Lorenz in 1905 for representing inequality of the wealth distribution.
The Pareto principle (also known as the 80-20 rule, the law of the vital few, and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes. Business management thinker Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed that 80% of the land in Italy was owned by 20% of the population. It is a common rule of thumb in business; e.g., “80% of your sales come from 20% of your clients.” Mathematically, where something is shared among a sufficiently large set of participants, there must be a number k between 50 and 100 such that k% is taken by (100 − k)% of the participants. k may vary from 50 in the case of equal distribution, to nearly 100 when a tiny number of participants account for almost all of the resource. There is nothing special about the number 80% mathematically, but many real systems have k somewhere around this region of intermediate imbalance in distribution.
The Pareto principle is only tangentially related to Pareto efficiency, which was also introduced by the same economist. Pareto developed both concepts in the context of the distribution of income and wealth among the population.
Labor Day parade, Main St., Buffalo, N.Y., ca. 1900
The Proper Role of Government
by The Honorable Ezra Taft Benson, Former Secretary of Agriculture
[The Eisenhower Administration – ed.] Published in 1968
THE POWERS OF A PROPER GOVERNMENT
It also includes those powers necessarily incidental to the protective functions such as:
(1) The maintenance of courts where those charged with crimes may be tried and where disputes between citizens may be impartially settled.
(2) The establishment of a monetary system and a standard of weights and measures so that courts may render money judgments, taxing authorities may levy taxes, and citizens may have a uniform standard to use in their business dealings.
My attitude toward government is succinctly expressed by the following provision taken from the Alabama Constitution:
“That the sole object and only legitimate end of government is to protect the citizen in the enjoyment of life, liberty, and property, and when the government assumes other functions it is usurpation and oppression.” (Art. 1, Sec. 35)
THE VALUE OF LOCAL GOVERNMENT
It is a firm principle that the smallest or lowest level that can possibly undertake the task is the one that should do so. First, the community or city. If the city cannot handle it, then the county. Next, the state; and only if no smaller unit can possible do the job should the federal government be considered.
This is merely the application to the field of politics of that wise and time-tested principle of never asking a larger group to do that which can be done by a smaller group. And so far as government is concerned the smaller the unit and the closer it is to the people, the easier it is to guide it, to keep it solvent and to keep our freedom. Thomas Jefferson understood this principle very well and explained it this way:
“The way to have good and safe government, is not to trust it all to one, but to divide it among the many, distributing to every one exactly the functions he is competent to. Let the national government be entrusted with the defense of the nation, and its foreign and federal relations; the State governments with the civil rights, law, police, and administration of what concerns the State generally; the counties with the local concerns of the counties, and each ward direct the interests within itself.
It is by dividing and subdividing these republics from the great national one down through all its subordinations, until it ends in the administration of every man’s farm by himself; by placing under every one what his own eye may superintend, that all will be done for the best. What has destroyed liberty and the rights of man in every government which has ever existed under the sun? The generalizing and concentrating all cares and powers into one body.” (Works 6:543; P.P.N.S., p. 125)
It is well to remember that the states of this republic created the Federal Government. The Federal Government did not create the states.
THE DIVIDING LINE BETWEEN PROPER AND IMPROPER GOVERNMENT
As Bastiat pointed out over a hundred years ago, once government steps over this clear line between the protective or negative role into the aggressive role of redistributing the wealth and providing so-called “benefits” for some of its citizens, it then becomes a means for what he accurately described as legalized plunder. It becomes a lever of unlimited power which is the sought-after prize of unscrupulous individuals and pressure groups, each seeking to control the machine to fatten his own pockets or to benefit its favorite charities – all with the other fellow’s money, of course. (THE LAW, 1850, reprinted by the Foundation for Economic Education, Irvington-On-Hudson, N.Y.)
THE NATURE OF LEGAL PLUNDER
As Bastiat observed, and as history has proven, each class or special interest group competes with the others to throw the lever of governmental power in their favor, or at least to immunize itself against the effects of a previous thrust. Labor gets a minimum wage, so agriculture seeks a price support.
Consumers demand price controls, and industry gets protective tariffs. In the end, no one is much further ahead, and everyone sufffers the burdens of a gigantic bureaucracy and a loss of personal freedom. With each group out to get its share of the spoils, such governments historically have mushroomed into total welfare states.
Once the process begins, once the principle of the protective function of government gives way to the aggressive or redistribute function, then forces are set in motion that drive the nation toward totalitarianism. “It is impossible,” Bastiat correctly observed, “to introduce into society… a greater evil than this: the conversion of the law into an instrument of plunder.” (THE LAW, p. 12)
THE REAL CAUSE OF AMERICAN PROSPERITY
In 1801 Thomas Jefferson, in his First Inaugural Address, said:
“With all these blessings, what more is necessary to make us a happy and prosperous people? Still one thing more, fellow citizens – a wise and frugal government, which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it had earned.” (Works 8:3)
THE POWER OF TRUE LIBERTY FROM IMPROPER GOVERNMENTAL INTERFERENCE
Nearly two hundred years ago, Adam Smith, the Englishman, who understood these principles very well, published his great book, THE WEALTH OF NATIONS, which contains this statement:
“The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations; though the effect of these obstructions is always more or less either to encroach upon its freedom, or to diminish its security.” (Vol. 2, Book 4, Chapt. 5, p. 126)
WHAT IS WRONG WITH A “LITTLE” SOCIALISM?
In reply to the argument that a little bit of socialism is good so long as it doesn’t go too far, it is tempting to say that, in like fashion, just a little bit of theft or a little bit of cancer is all right, too! History proves that the growth of the welfare state is difficult to check before it comes to its full flower of dictatorship. But let us hope that this time around, the trend can be reversed. If not then we will see the inevitability of complete socialism, probably within our lifetime.
In closing I wish to refer you to the words of the patriot Thomas Paine, whose writings helped so much to stir into a flaming spirit the smoldering embers of patriotism during the days of the American Revolution:
“These are the times that try men’s souls. The summer soldier and the sunshine patriot will in this crisis, shrink from the service of his country; but he that stands it NOW, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph. What we obtain too cheap, we esteem too lightly; ‘tis dearness only that gives everything its value. Heaven knows how to put a proper price upon its goods; and it would be strange indeed, if so celestial and article as FREEDOM should not be highly rated.” (THE POLITICAL WORKS OF THOMAS PAINE, p.55.)
We’ve heard a lot lately about “redistribution of wealth.” What would the American Founders think?
Property rights provide the foundation of prosperity. As Americans, we’re accustomed to a revolutionary guarantee that we may labor, earn wages and acquire property — and rest assured that what we earn and acquire will be secure.
It’s a simple promise that survives despite the income tax system: Americans get to keep what we earn.
The right to enjoy the rewards of your labor is a powerful incentive to work hard and pursue opportunity — to pursue happiness. The principal reason to protect property and the right of all persons to acquire, use and part with their own property is a matter of justice and fairness.
To take from one, because it is thought that his own industry and that of his father’s has acquired too much, in order to spare others, who, or whose fathers have not exercised equal industry and skill, is to violate arbitrarily the first principle of association — the guarantee to every one of his industry and the fruits acquired by it.”
Unlike the liberalism that was to come later (think of the modern welfare state), redistribution of wealth was not an objective of the American Revolution.
Jefferson and the other Founders opposed the taking of wealth and reallocating of property by government. They favored measures to encourage a free-market distribution of property, rather than government interference.
In the long run, the Founders reasoned, markets would do a better job at spreading wealth.
It’s clear that young workers need change now. We need to hold corporate greed accountable and help young workers – and anyone else who works for a living – get back on track. We can do it with the Employee Free Choice Act.
This Labor Day, nearly one in three young workers will be at work. This statistic is just one symptom of a far deeper economic reality for workers younger than 35.
The AFL-CIO report, “Young Workers: A Lost Decade,” shows that not only have young workers lost financial ground over the past 10 years—they have also lost some of their optimism.
- More than one in three young workers say they are currently living at home with their parents.
- 31 percent of young workers reports being uninsured, up from 24 percent without health insurance coverage 10 years ago.
- One-third of young workers cannot pay the bills and seven in 10 do not have enough saved to cover two months of living expenses.
Based on a nationwide survey of 1,156 people by Peter D. Hart Research Associates for the AFL-CIO and the AFL-CIO community affiliate Working America, “Young Workers” examines young workers’ economic standing, attitudes and hopes for the future. It also draws a comparison with findings from a similar 1999 AFL-CIO study, as well as with attitudes of workers older than 35.
Overall, young workers have a clear vision for reinvigorating the economy, and it’s largely summed up by one four-letter word—JOBS. But few trust their own employer to do what’s best for employees. Even fewer have confidence in corporate America as a whole. When asked who is most responsible for the country’s economic woes, close to 60 percent of young workers place the blame on Wall Street and banks or corporate CEOs.
See Complete AFL-CIO Report (PDF): Young Workers: A Lost Decade
Wealth redistribution is a hot political topic these days. Some argue President Obama’s economic policies are essentially moving money from one group of people to another by raising and lower taxes accordingly. The term “wealth redistribution”, equated to socialism by some, could be defined as taking money from the rich and giving it to the middle class or poor. Whether you agree with this definition of wealth redistribution or the use of the term itself, Jesus Himself supports it, but in reverse.
Reverse Wealth Redistribution
For those who are good stewards or managers of the financial resources God has given them, wealth redistribution is a very exciting thing. In the parable of the talents (Matthew 25:14-28), Jesus speaks of three servants whose master gave them money to manage while he went on a journey. Two of the servants made their money grow while the master was away, but the third servant did not. The master returned and, after seeing that the third servant did not manage his money in a way as to receive increase, commanded that the money be taken from him and given to one of the other servants. Verse 28, 29 – “Take the talent from him and give it to the one who has the ten talents. For everyone who has will be given more, and he will have an abundance. Whoever does not have, even what he has will be taken from him.”
The servant who initially received the ten talents became the recipient of reverse wealth redistribution. The money was taken from the one who had less and given to the one who had more, just the opposite of the wealth redistribution we hear about in the news. This was not an injustice, but rather an example of rewards and consequences of individual behavior. Take personal responsibility for your finances, make wise money management decisions, and more money will come your way.
It’s true – the rich get richer and the poor get poorer. Dave Ramsey says, “Money naturally flows from those who do not manage it to those who do.” …]
World Wealth Redistributed After Two Hundred Years
By 汤明哲 Translated By Guangyong Liang 24 July 2009
Sohu, China. Edited by Jessica Boesl, China – Sohu – Original Article (Chinese)
The total population of China and India now exceeds two billion. Now that they are beginning to compete for resources with people in Europe, the U.S. and Japan, the world’s wealth will be redistributed. The direction of the flow of wealth has begun to reverse itself after two hundred years.
In ancient times, production equipment had not yet been developed. Natural resources would not have been able to feed the entire population and wars among countries were usually battles for resources.
The competition for survival of the fittest encouraged scientific and technological progress, as well as the development of civilization.
The Industrial Revolution began in Europe. Over the course of two hundred years, every country in Europe took advantage of the Industrial Revolution to strengthen its military might. Europeans nearly conquered the entire world as their colonies grew and the world’s resources were sent to Europe.
On the other hand, the Industrial Revolution tremendously expanded the scale of the economy and an enormous amount of capital was required for investment in factory equipment. Thus, a capital market was effectively born. Profits made in the capital market enabled large transnational enterprises to emerge. European countries lost control of their colonies and could no longer use their guns to gain access to resources. Instead, they began to use economic means to determine who would have access to resources. Transnational enterprises played an important role in this transition.
Thirty years ago, the economic growth rate of the European, American and Japanese economies far exceeded that of today’s developing countries. The U.S., Europe and Japan acquired both resources and wealth.
Thirty years ago, Europe, the U.S. and Japan produced two thirds of the world’s steel. Even today, the U.S. is home to only five percent of the world’s population but consumes 25 percent of the world’s available resources. Thirty years ago, I was studying in the northeast of the U.S. In winter, the temperature was minus ten degrees outside, but inside it was warm as summer. I had to wear short sleeved clothing.
Over the past thirty years, the poorer countries have begun to develop their economies. The overall standard of living needed to be improved. Therefore, additional resources were necessary. The world’s wealth must be redistributed now that more than two billion people in China and India have begun to compete with the six hundred million people living in Europe, the U.S. and Japan for resources. Fortunately, this redistribution of wealth constitutes economic warfare rather than an all-out war of guns, and will be carried out according to economic laws.
In the competition for resources, prices will be responsible for redistributing resources. Cheap labor from developing countries replaces European and American labor, allowing developing countries to earn foreign exchange. Developing countries also compete for resources with Europe and the U.S. in the global market, leading to the price hikes of natural resources in the past few years. The world’s wealth is gradually flowing to developing countries from Europe, the U.S. and Japan.
Wealth starts to reverse its direction of flow within two hundred years. Europe, the U.S. and Japan can no longer maintain the same standards of living as in the past and heat in winter will not be enough. However, no country will simply sit by and watch its standard of living deteriorate. Thus, frictions and conflicts among nations begins. In response to the huge trade deficit in the 1980s, the U.S. placed a limit on Japanese cars, making the dollar stronger than the yen and leading to economic stagnation in Japan for 20 years.
The best solution is that Europe, the U.S. and Japan utilize science and technology to assist developing countries with their own productivity and let them have experience economic growth even while these developed countries prosper.
However, the human history is one of constant competition for resources. The tidal wave of wealth redistribution has begun.
Appeal Democrat, Sep 2, 2009
Anticipating hundreds of millions of dollars a year in greenhouse gas fees collected from California businesses, the Legislature is planning to redistribute much of the bounty to the state’s “most impacted and disadvantaged communities.”
Perhaps a bill pending in the state Senate reveals the motive of feel-good legislative efforts to fight global warming: a massive redistribution of wealth.
Assembly Bill 1405 calls for 30 percent of new fees raised under global warming regulations yet to be drafted to go to a Community Benefits Fund to be used in specially selected communities, based on specific criteria also yet to be drafted.
A Senate analysis says anticipated new rules by the state Air Resources Board allow revenue from fees imposed on greenhouse gas emitters to pay for the board’s administrative costs, but not for “climate-change-related mitigation activities.”
AB 1405, authored by assembly members Kevin de Leon, D-Los Angeles, and V. Manuel Perez, D-Indio, would amend the so-called Global Warming Solutions Act of 2006 to require 30 percent of money raised by fees under consideration by the Air Resources Board to be “used solely in the most impacted and disadvantaged communities…” The 2006 law provides broadly that “revenues collected pursuant to this section, shall be deposited into the Air Pollution Control Fund and are available upon appropriation, by the Legislature, for purposes of carrying out this division.”
As proposed, the money would provide “competitive grants” to reduce emissions and install equipment and “energy efficiency upgrades for schools, senior centers or low-income housing.” Money collected from businesses statewide would be redistributed according to “socioeconomic indicators,” including income and poverty levels, educational attainment and “linguistic isolation.”
The air board is considering fees to raise about $54 million a year, restricted to paying its administrative costs. This bill begins the political divvying up of the anticipated pot of cash to be extracted from California businesses, ostensibly to curb global warming, a likely non-existent threat, which probably would be unaffected by the state’s regulations even if it were a threat. Favored recipients would reap at least $18 million a year from proposed fees and as much as “hundreds of millions” if the air board imposes a cap-and-trade emission scheme.
Someone selected by politicians and bureaucrats stands to profit from millions extracted from private hands. But the economic damage far outweighs speculative benefits of curbing global temperatures, which haven’t increased in a decade.
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