Spirit of Horatio Alger stronger than ever!

January 21, 2006

RL here.

Krugman really pisses me off.

The name of the leftist rag? Business Week, which published an article titled “Waking Up From the American Dream.” The article summarizes recent research showing that social mobility in the United States (which was never as high as legend had it) has declined considerably over the past few decades. If you put that research together with other research that shows a drastic increase in income and wealth inequality, you reach an uncomfortable conclusion: America looks more and more like a class-ridden society.

Let’s talk first about the facts on income distribution. Thirty years ago we were a relatively middle-class nation. It had not always been thus: Gilded Age America was a highly unequal society, and it stayed that way through the 1920s. During the 1930s and ’40s, however, America experienced what the economic historians Claudia Goldin and Robert Margo have dubbed the Great Compression: a drastic narrowing of income gaps, probably as a result of New Deal policies. And the new economic order persisted for more than a generation: Strong unions; taxes on inherited wealth, corporate profits and high incomes; close public scrutiny of corporate management–all helped to keep income gaps relatively small. The economy was hardly egalitarian, but a generation ago the gross inequalities of the 1920s seemed very distant.

Now they’re back. According to estimates by the economists Thomas Piketty and Emmanuel Saez–confirmed by data from the Congressional Budget Office–between 1973 and 2000 the average real income of the bottom 90 percent of American taxpayers actually fell by 7 percent. Meanwhile, the income of the top 1 percent rose by 148 percent, the income of the top 0.1 percent rose by 343 percent and the income of the top 0.01 percent rose 599 percent. (Those numbers exclude capital gains, so they’re not an artifact of the stock-market bubble.) The distribution of income in the United States has gone right back to Gilded Age levels of inequality.

It is true, however, that America was once a place of substantial intergenerational mobility: Sons often did much better than their fathers. A classic 1978 survey found that among adult men whose fathers were in the bottom 25 percent of the population as ranked by social and economic status, 23 percent had made it into the top 25 percent. In other words, during the first thirty years or so after World War II, the American dream of upward mobility was a real experience for many people.

Put it this way: Suppose that you actually liked a caste society, and you were seeking ways to use your control of the government to further entrench the advantages of the haves against the have-nots. What would you do?

One thing you would definitely do is get rid of the estate tax, so that large fortunes can be passed on to the next generation. More broadly, you would seek to reduce tax rates both on corporate profits and on unearned income such as dividends and capital gains, so that those with large accumulated or inherited wealth could more easily accumulate even more. You’d also try to create tax shelters mainly useful for the rich. And more broadly still, you’d try to reduce tax rates on people with high incomes, shifting the burden to the payroll tax and other revenue sources that bear most heavily on people with lower incomes.

Meanwhile, on the spending side, you’d cut back on healthcare for the poor, on the quality of public education and on state aid for higher education. This would make it more difficult for people with low incomes to climb out of their difficulties and acquire the education essential to upward mobility in the modern economy.

And just to close off as many routes to upward mobility as possible, you’d do everything possible to break the power of unions, and you’d privatize government functions so that well-paid civil servants could be replaced with poorly paid private employees.

It all sounds sort of familiar, doesn’t it?

Where is this taking us? Thomas Piketty, whose work with Saez has transformed our understanding of income distribution, warns that current policies will eventually create “a class of rentiers in the U.S., whereby a small group of wealthy but untalented children controls vast segments of the US economy and penniless, talented children simply can’t compete.” If he’s right–and I fear that he is–we will end up suffering not only from injustice, but from a vast waste of human potential.

Goodbye, Horatio Alger. And goodbye, American Dream.

Goodbye Horatio Alger? I think not. Today’s news has an item which proves that the Horatio Alger spirit is alive and well in America and that hard work combined with the proper deference to authority will always result in success.

Like a modern day Ragged Dick, a homeless person risked his own life and welfare in order to assist a stranger who is obviously a far better person. And, like the famed Alger characters, this homeless man was handsomely rewarded for his hard work and personal risks.

William Dominick had stopped at a Waffle House in Bradenton, where armed robbers smashed out the windows of his silver Mercedes sedan while he sat in the driver’s seat, according to the Manatee County Sheriff’s Office.

Popping open the trunk, the robbers grabbed two steel cases plus a briefcase and ran toward a black luxury car with tinted windows. An intervening homeless man hit one of the robbers, who dropped and left behind the largest case, reports show.

“It had $700,000 to $800,000 inside,” Dominick said Thursday of the recovered case. The contents included an 1879 U.S. gold coin worth $150,000 and a $10,000 bill valued at $75,000, he said.

“The blessing is that that homeless guy was there,” said Dominick, who gave the man a $100 bill.

The missing briefcase and the second steel case, which weighed about 30 pounds, held $250,000 in merchandise, Dominick said.

“I’ve offered a $100,000 reward,” said the dealer, who runs Westwood Rare Coin Gallery in Naples and a New York suburb. “I’ll do whatever’s needed to get these guys in jail.”

Now, naysayers like Krugman will hear about this generous coin dealer, the courageous victim of a horrendously violent crime, and loudly exclaim that a $100 reward for thwarting the robbery of $800,000 worth of goods is hardly magnanimous, especially when the same dealer is offering $100,000 for the return of merchandise worth far less, but that’s just old-fashioned class warfare.

See, Krugman and his crowd just wont admit the fact that this homeless person, if truly deserving, will take that $100, make some shrewd investments, say in rare coins, and become another Horatio Alger success story. Why, the homeless person might even be able to buy a name. Fred. Or Joe. Or some other nice name.

Anyway, the point I’m making is that $100 is all the homeless man needs. Giving the homeless man anything more would simply be coddling, ultimately weakening the character and determination of the homeless man and dooming the the homeless man to a life of handouts.

Kudos to William Dominick, and I’m sure that his homeless hero will soon have a moniker of his own!

One Response to Spirit of Horatio Alger stronger than ever!

  1. Bitch | Lab on January 21, 2006 at 1:53 pm

    of course, what krugman doesn’t say is, in that same study, where there was upward mobility, there was also downward mobility.



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