Monday, January 18, 2016

Income Inequality 1950-2016

William F. Buckley, Jr.

Income inequality is going to be one of the top issues in the 2016 Presidential campaign. Bernie Sanders, the avowed Socialist Senator from Vermont, has made it the key issue in his effort to upset front-runner Hillary Clinton in the Democrat nomination race. Sanders seemed like a joke at first but now he is running Clinton hard in the polls for both the Iowa and New Hampshire primaries. Inevitably, Clinton will have to embrace the issue in order to appeal to the so-called Progressive wing of her party. At the same time, she will have to hide her own considerable wealth as well as the wealth of her fat-cat supporters in the Democrat party.

For many, income inequality is a new issue that has taken root because of the increasing gap between the rich and poor in the past few years. However, the issue goes back in time to an earlier period in American history. The origins of the issue have more to do with ideology than with any current economic statistics.

While cleaning out my basement the other day I found a copy of God and Man at Yale, the book that first brought William F. Buckley Jr., the famed Conservative commentator, to the Nation’s attention back in 1951. The book was subtitled, “The Superstitions of ‘Academic Freedom’”, and bore the following dedication: “FOR GOD, FOR COUNTRY, AND FOR YALE, in that order.”

I have owned the book for years but have never gotten around to reading it until now. Buckley had spent two years in the Army before entering Yale in 1946.  He must have had an outstanding college career before graduating in 1950. For example, one year he held the prestigious position of editor of the Yale Daily News.  He graduated in 1950 and it is obvious from his dedication that he loved his Alma Mater. Nevertheless, he found some disturbing trends and chose to write about them in “God and Man..."

Here I would just like to concentrate on his lengthy chapter devoted to the teaching of economics at Yale, a chapter primarily analyzing the textbooks chosen for the basic introductory course that was taken by a large number of students. All four of the textbooks believed that the biggest problem facing America in 1950 was “income inequality”. That’s right! Income Inequality or, as he titled it, THE UNFAIR DISTRIBUTION OF INCOME. Why was income inequality such a big issue back in 1950?

I believe the answer can be found in the background of the economists who had written the textbooks. If Buckley was about 25 in 1950, then I would guess the authors of the textbooks were born before the First World War and grew up in the era marked by the subsequent Communist Revolution in Russia and the worldwide Great Depression of the 1930s. Paul Samuelson, for example, was born in 1915 and his textbook, Economics, an Introductory Analysis, was first published in 1948 and soon became one of the best-selling textbooks of all time. Samuelson’s book is one of the four reviewed by Buckley.

Samuelson and the others all believed that the experiment begun in Russia in 1917 was the wave of the future, and that the Great Depression in American had shown the inadequacies of the traditional system of free or private enterprise in dealing with modern economic issues.
In the chapter on economics Buckley cited a comparison between the Soviet and American systems from one of these textbooks. The italics are Buckley’s.

compare “ the situation in our economy with that in a socialist economy, such as the Russian or Czechoslovakian. In the Russian economy the decision to produce, let us say 20 million tons of pig iron, is made by the Central Planning board, which presumably takes into account the needs and resources of the Russian economy before it comes to a decision. The same board determines how many automobiles to produce, how many pairs of socks to manufacture, and how many acres to put into wheat. In our economy, no such institution exists. No one group or person determines how much steel to produce, how many tractors to make, or how much land to plant in cotton…. In a socialist economy, important questions of output, price, employment, and so on are planned collectively. In a capitalistic economy, these decisions are made separately by individual firms…. How does the business firm determine how much it will produce? The answer to this question is to be found in the fact that the business firm in this country is privately owned…. The determination of how much to produce, or of the price to be charged for the product, is made with one interest in mind—that of the owner. The owner’s interest is to secure as large a profit as possible. [Pp.65-66]

It is the profit motive that is the root of all evil. In the words of one text, “the state, being free from the profit motive and having the power of compulsion, is able to make its revenue fit its expenditures (within limits) rather than the reverse.” [p. 67] 

Of course, profit motive brings up the image of the greedy businessman as often portrayed in popular movies of the 1930s or in the figure of Mr. Monopoly from the very popular board game. Samuelson’s text disclaimed the image but still used it.

In this connection, it is important to understand just what a monopolist is. He is not indeed,“…a fat, greedy man with a big moustache and cigar who goes around violating the law. If he were, we could put him in jail. He is anyone important enough to affect the prices of the things that he sells and buys. To some degree that means almost every businessman”…[75]

In 1950 all four textbook authors were convinced that the experiment going on in Russia was the wave of the future and that the private enterprises system was a thing of the past that had been forever discredited by the Great Depression. The textbooks, and the professors who chose them, were all advocates of central planning, a large central government, extremely high progressive income tax rates, and confiscatory inheritance tax rates.

Writing in 1950 I don’t suppose that the young Buckley or the textbook authors could have foreseen the great economic boom that would take place in the USA in the next few decades, a boom that not only raised millions out of poverty, but also created the wealthiest country in the history of the world. Neither could they imagine that during the same period the Soviet economy would finally be exposed as a rotten failure. At the same time as we were beginning to learn about Stalin’s brutal oppression, we were learning of people lining up at Russian markets for hours to buy inferior or even non-existent necessities.

The Soviet Union had eliminated income inequality by making everyone poor. Years later, we would learn that they had actually created a new aristocracy of Communist party members and their friends who lorded it over their subjects. So much for central planning and the elimination of the profit motive.

In one of history’s ironies Paul Samuelson made a fortune with his economics textbook, In true capitalist fashion he contrived to bring out a new edition every couple of years so that students could not buy older used texts. No central board or agency prevented him or his publisher from printing and selling as many copies as the market would bear. He lived a long life and received practically every award a scholar could get. In 1996, he was awarded the National Medal of Science by President Bill Clinton, another Yale graduate who now makes millions by giving speeches to fat cats all over the world while his wife complains of income inequality.


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