I have lost count the number of times I’ve heard someone say, “The rich get richer, and the poor get poorer,” when talking about capitalism in general, or our country under President Bush in specific. This presupposes that there are easily defined groups we can point to as “rich” or “poor.” The dirty little fact that too many people ignore is the fluidity of these groups. People who are “poor” this year may have been millionaires last year, and people who are poor, starving students this year may be pulling down the big bucks right after graduation. When we say that America is the home of the free, we mean that people are free to fail just as they are free to succeed.

Contrary to the phrase, while the rich are getting richer, so are the poor. Here is a snippet from a Wall Street Journal story posted yesterday titled “The Poor Get Richer.” (subscription required)

Earnings growth tapered off as the economy slowed in the early part of this decade, but earnings for low-income families have still nearly doubled in the years since welfare reform became law. Some two million welfare mothers have left the dole for jobs since the mid-1990s. Far from being a disaster for the poor, as most on the left claimed when it was debated, welfare reform has proven to be a boon.

The report also rebuts the claim, fashionable in some precincts on CNN, that the middle class is losing ground. The median family with children saw an 18% rise in earnings from the early 1990s through 2005. That’s $8,500 more purchasing power after inflation. The wealthiest fifth made a 55% gain in earnings, but the key point is that every class saw significant gains in income.

On the one hand we have a well-used slogan, and on the other hand we have historical reality. The next time you hear some liberal use the phrase, “The rich get richer, and the poor get poorer,” you can explain that just isn’t the case here in the United States.

Not that hearing the facts will change the average liberal’s mind.

Tim Worstall over at TSC Daily posted a very interesting article today dealing with prosperity — namely, how our American prosperity stacks up to that of other European countries. Since this article deals with economics, and since I know some of you break out in hives at the mere mention of economics, I have a cute Easter Ferret for your viewing pleasure. Feel free to skip the rest of this post.

Worstall’s article is titled, “America: More Like Sweden Than You Thought,” and it is an interesting read for an economic article. He begins by discussing a, uh, “fun” economic paper which he recently read that extols the virtues of Europe, especially the Scandinavian countries. He writes:

I will admit that I do find it odd the way that only certain parts of the, say, Swedish, “miracle” are held up as ideas for us to copy. Wouldn’t it be interesting if we were urged to adopt some other Swedish policies? Abolish inheritance tax (Sweden doesn’t have one), have a pure voucher scheme to pay for the education system (as Sweden does), do not have a national minimum wage (as Sweden does not) and most certainly do not run the health system as a national monolith (as Sweden again does not). But then those policies don’t accord with the liberal and progressive ideas in the USA so perhaps their being glossed over is understandable, eh?

As part of their propagandizing, they produce the above cited reports each year. And this time it’s being released chapter by chapter in the lead up to Labor Day. I can tell you that policy wonks are breathless with anticipation waiting for each part as it comes out (I myself was most excited to get chapter 8 linked above). For there is the great joy of seeing that what they think they’re telling us isn’t, in fact, quite what they are telling us.

People with an agenda? Say it ain’t so! While there is some very good news pointed out in the article that Worstall analyzes, there is also a very telling graph.

Purchasing Power Parity

This graph is based off the Purchasing Power Parity, a means of calculating the diverse prices and salaries of all these nations in a way that makes them roughly comparable. What the writers of the article want you to notice first is that seemingly huge gap between the rich and poor in the United States. But my wife didn’t see that when I showed her the graph. Instead she noticed right away that the top 10% of wage earners in Finland and Sweden only make 111% and 113% of the median income, respectively. She noticed this because her Great-Uncle Kurt, who lives in Sweden and worked for an international insurance company for many years, had 90% of his income taxed away to support other able-bodied Swedes who simply chose not to work. And this is something we should emulate? I don’t think so! Worstall wraps up his column by analyzing the left side of the graph.

In the USA the poor get 39% of the US median income and in Finland (and Sweden) the poor get 38% of the US median income. It’s not worth quibbling over 1% so let’s take it as read that the poor in America have exactly the same standard of living as the poor in Finland (and Sweden). Which is really a rather revealing number don’t you think? All those punitive tax rates, all that redistribution, that blessed egalitarianism, the flatter distribution of income, leads to a change in the living standards of the poor of precisely … nothing.

Such may lead us to a conclusion that the EPI probably wouldn’t like:

If we accept (as I do) that we do, indeed, need to have a social safety net, and that we have a duty to provide for those incapable or unlucky enough to be unable to do so for themselves, we need to set some level at which such help is offered. The standard of living of the poor in a redistributionist paradise like Finland (or Sweden) seems a fair enough number to use and the USA provides exactly that. Good, the problem’s solved. We’ve provided — both through the structure of the economy and the various forms of taxation and benefits precisely what we should be — an acceptable baseline income for the poor. No further redistribution is necessary and we can carry on with the current tax rates and policies which seem, as this report shows, to be increasing US incomes faster than those in other countries and boosting productivity faster as well.

As I said above I’m sure this isn’t quite what the EPI actually wanted to tell us. But there it is, from their own report. Which is why I rather enjoy my working life — sad case that I am — because I get to read all those reports that really don’t tell us what the authors think they are telling us.

Go read the whole thing. And the next time someone tells you we should be more like Europe, you can point out to them that we care for our poor and downtrodden masses just as effectively as they do, and we don’t have to tax ourselves into an economic slump to do it. No nation has ever taxed itself into prosperity. If they can’t accept that truth, it’s probably a lost cause. Just have them check out the cute Easter Ferret instead.

A common biology lesson deals with how energy is passed from one layer of creatures to another, as demonstrated by the graphic on the right. The yellow bar is 1000 pixels tall, representing the energy that comes from the sun. The next bar is only 100 pixels tall, and this represents the energy taken from the sun by plants for their own use. The next bar is 10 pixels tall, representing the energy which herbivores get from the plants they eat. The final bar is 1 pixel tall, representing carnivores and the energy the get from the animals they eat. I could go on a few more levels, but it’s hard to draw a bar only a tenth of a pixel tall. Each level only gains about 10% of the energy from the layer below.

Vegetarians often use this principle to illustrate how much more efficient it would be if we switched from the carnivorous level to a plant-based diet. Doing so would mean that we would have a tenfold increase of energy available to us. But there’s one big problem with this idea — a carrot just doesn’t barbecue as well as a steak. The carrots slip right through the bars and onto the coals.

Ignoring grilling carrots for the nonce, the laws of thermodynamics explain how energy moves from one layer of life to another and why the energy levels keep dropping in each layer. While an in-depth discussion of thermodynamics is way beyond the scope of this article, it’s still worth taking a quick look at the principle.

1st Law of Thermodynamics — energy can be changed from one form to another, but it cannot be created or destroyed.
2nd Law of Thermodynamics — the disorder in an isolated system will never decrease.
3rd Law of Thermodynamics — absolute zero, the absence of any kinetic energy, cannot be reached, only approached closely.

Since that’s a little dry, here’s how C. P. Snow, a British scientist, described these three laws:

1st Law — you cannot win
2nd Law — you cannot break even
3rd Law — you cannot leave the game

The laws of thermodynamics tell us that any time we do work, we are converting energy from one form to another. Dams take potential energy and convert it into kinetic and electrical energy. Cars take chemical energy and convert it into kinetic energy. That’s the 1st law in action. The 2nd law explains that each time energy is converted, at least some energy is lost in the process. No car engine can convert gasoline into kinetic energy (the vroom) with complete efficiency. Some of the energy from the gasoline is turned into noise and waste heat, neither of which is used. The same thing happens in living machines like you and me. As we eat our grilled steak and carrots, we imperfectly convert that chemical energy into new skin, muscles, and 5K runs.

The 2nd Law describes entropy. Entropy is the spreading out of energy in a system, going from more organized and useful energy into disorganized and less-useful energy. There is no way to reverse this trend other than on a small scale, and doing so will still increase the overall disorder and energy change in the total system.

Bored already? Have you remembered why you didn’t like science classes? Now for the kicker — these laws, but most especially the 2nd Law, apply to life, as the diagram above shows. On average, only 10% of the energy from one layer makes it into useful energy for the next layer. This loss of energy also applies to people, nations, and organizations.

So what is the most efficient way to move money (that’s financial energy for you and me) from one person to another? Notice the trend below:

– You give $100 to someone.
– The Federal Government taxes $100 from you and gives money to someone.
– The Federal Government taxes $100 from you, gives money to a state welfare department, which hands money to the local welfare department, who hands money to someone.

Do you see the extra layers appearing? Remember, as money moves from one layer to another, this movement costs money. So as this $100 passes through the layers of bureaucracy, some is skimmed off to pay for salaries, the buildings and maintenance, and petty cash expenditures. Of our original imaginary $100 taxed from you, the end recipient on welfare gets less than $25. That means over $75 of your hard-earned tax money was lost in pushing your taxes from one department to another. In other words, for every one welfare person you help with your taxes, you have funded three bureaucrats. Gives you a nice warm fuzzy feeling, doesn’t it?

This is one reason why I instinctively favor smaller government over larger government. Smaller organizations cost less to staff, not only in numbers of people on the payroll, but because with fewer layers of bureaucracy there is less entropy as money (energy) passes through. We do need government and the services it provides, but these services come at a cost, both seen and unseen. This is why Thomas Jefferson was correct when he said, “That government is best which governs least.” This is true even on a thermodynamic level.

Some people discuss and fantasize over a world-wide government that would make world-wide laws and policies just as the Federal Government currently makes national laws and policies. But I cannot look on this idea with as much eagerness, because the principles of thermodynamics tell me that adding this extra layer of bureaucracy will sap even more of our financial energy. Knowing how inefficient government already is, why would I want to add yet another layer?

I see no benefit of a world-wide government that would outweigh the cost of having it in the first place.

The Constitution is the law of the land.

That is a phrase often spoken by people in the press or our elected officials as they press the flesh in their attempt to be re-elected. But once they are voted into office, how much do they really uphold it?

Section 8 of the first Article in the U.S. Constitution outlines the responsibilities of Congress. If it is not listed in that section, Congress does not have the responsibility or authority to pass laws about it. Unless you have read that section within the last week, please click on it and read it now. I will wait right here until you are finished.

Done? Good. Did you read anything in there about education, welfare, or the environment? What about Social Security, Medicare or Medicaid? Did you notice that none of these programs are listed in the Constitution as responsibilities of the federal government? Each time people are sworn into the House or Senate, they swear or affirm to defend and protect the Constitution. But each law they pass without a constitutional mandate is another blow to our Constitution as the law of the land. Each time they pass a law without the authority to do so, they prove that their oaths to support the Constitution are just so much legislative hot air.

Here is another case in point. Jim Abrams, a writer for the Associated Press, wrote an article titled “Senate approves pay increase for itself” on Oct. 23. In this article, he points out that Congress will receive a pay increase during 2004, rising from $154,700 to $158,000. In a 60-34 vote on Thursday, the Senate rejected a proposal that would exempt it from a cost of living adjustment (COLA) targeted to all other federal workers and military personnel. In the previous month, the House rejected a similar proposal to exempt itself from this COLA.

As much as I dislike the other political ideas and actions of Democrat Senator Russ Feingold of Wisconsin, I admire him for standing up against this COLA. He pointed out that in the last five years, the Senate has seen increases totaling $21,000–quite a nice sum. Sen. Feingold even went as far as to suggest that anything above his starting salary of almost six years ago should be returned to the Treasury. In this situation, I admire Sen. Feingold’s stand much more than that of Republican Senate Majority Leader Bill Frist. “I think that our representatives of government deserve a pay raise consistent with the work that we’ve produced,” he said. Do you, Senator? Then draft specific legislation that will give you this well-deserved pay raise. Do not continue this back-door method of getting more money.

It must be pretty nice to be able to approve your own pay raise. However, there is a little snag in this rosy plan: the Constitution. The 27th Amendment, ratified in 1992, says, “No law, varying the compensation for the services of the Senators and Representatives, shall take effect, until an election of Representatives shall have intervened.” This means that any raises or cutbacks to members of the House or Senate do not take effect until after the national November elections for Representatives. Since 2003 is not such a year, this COLA should not take effect until at least Wednesday, November 3, 2004. But this pay increase is scheduled to take effect with the first paycheck written by the U.S. Treasury in January 2004, because the majority of the people serving in the House and Senate are more interested in making a few thousand dollars more each year than in honoring their oaths to “support and defend the Constitution.” Nor is the Legislative Branch willing to “bear true faith and allegiance” to the document it pretends to revere.

“This is not a pay raise. This is an increase that’s required by law,” said Constitution-ignoring Republican Senator Ted Stevens, the Senate Appropriations Committee chairman from Alaska. He obviously wants the money more than he cares to honor the Constitution. Since this law automatically increases the pay of the Senate and House, it cannot legally take effect until November 2004, but Sen. Stevens has already turned a blind eye to the Constitutional requirement by ignoring the very nature of this pay increase. A rose is still a rose, even if you call it a shovel, Senator. And this cost of living increase will raise your pay; therefore, it is a pay raise. To quote Conan O’Brien, “Duh!”

Democrat Senator Joseph Biden of Delaware voted against the Feingold measure. He called this a “no-win situation under any circumstances” since the people would not accept any dollar amount for a pay increase for the Legislature. Well, if the Legislature can point out the many wonderful work it has completed in the past year, the people will stand behind the increase. But since the nation has been economically rocky for the last few years, just how happy do you think the public will be to view these legislators increasing their paychecks at the expense of families just trying to find work or make ends meet?

I am not all that concerned about the amount of money involved. When you consider just how much power a Senator or Representative has, it is amazing just how little he or she is paid. The leaders of large business corporations, who have much less power to affect our daily lives, are paid many times more than anyone in government. Even the President is only paid $400,000 a year, and he is the leader of the greatest nation on Earth! My primary concern is over the all-too-common disregard for Constitutional authority. The Constitution gives the government the power and permission to act, and when members of the Legislature vote to line their pockets and no one stands up for the 27th Amendment, I realize just how forsworn our elected leaders are.

Each time the Legislature passes another law dealing with welfare, education, or the environment, it is collectively thumbing its nose at the Constitution. So we should not be surprised when in a few months, the Legislature will start cashing larger paychecks regardless of Constitutional amendments against it. Senators and Representatives have shown that the Constitution usually stands in their way, and they do not care if the people see them do this. They know we are too involved with “The Next Joe Millionaire” to care about the unconstitutional acts of our elected leaders. Shame on them, and shame on us.

Political satirist and author P.J. O’Rourke once wrote of the four ways you can spend money:

  1. You spend your money on yourself.
  2. You spend your money on other people.
  3. You spend other people’s money on yourself.
  4. You spend other people’s money on other people.

In the first case, you’re likely to do some good bargain shopping to get the best stuff for the lowest price. When spending your money on other people, you tend to go as cheaply as you can–that is why ugly polyester ties see a big upswing in sales around Father’s Day. When you spend other people’s money on yourself, you can really live high on the hog, and the sky is no limit–Dom Perignon and fine caviar for breakfast! But when you spend other people’s money on other people, you have no reason to care what is bought or how much it costs. Sadly, this is how our government spends money. Is it any wonder that we get truly stupid spending like mohair subsidies?

One of the current big issues being forwarded by President Bush is a welfare prescription drug benefit. In this case I am absolutely opposed to this new entitlement program. Interestingly, those newfound Democrat spendthrifts who balk at the $87 billion Bush requested to help fight terror and rebuild Iraq and Afghanistan are clawing each other in their rush to spend over $400 billion on this newly-proposed benefit for America’s elderly.

Why do the elderly need assistance in paying for their drugs? On average, the elderly are the richest age group in our nation, so they are most equipped to pay for their own pharmaceutical needs. So why are government people on both sides of the political aisle in such a rush to pass this benefit? For one very simple reason: elderly citizens vote, and in vast numbers. Career politicians know that if they can count on the elderly vote, they will never be voted out of office. And that, after all, is their primary concern.

So here we have the wealthiest portion of America’s population on the fast track to get a major government handout to pay for their drugs. And there are plenty of elderly folk who are eagerly anticipating this bit of government largess. After all, they are entitled to this money because they are old, right? Well, not really. But try telling that to the old folks with extended blue-veined hands. I wrote previously about the nature of rights in our country. Basically, I do not have the right to access your money, time or labor. This is why the UN’s statement that we have the “right” to food, clothing, housing and medical care really means they want the right to plunder your pocketbook to pay for other people’s food, clothing, housing, and medical care. These are not rights–these are demands!

Since we have dismissed the erroneous idea that health care is a right, what are some of the other reasons people are clamoring for this new handout? Believe it or not, I have heard several people lay claim to this benefit merely because they are elderly. Really. In their minds, they have achieved the right to vacuum money from your hip pocket because the sun has risen and set on them a magical number of times. While I applaud their longevity, I do not appreciate their willingness to take my money.

The high cost of health care is probably the most commonly-used excuse for this program. After all, the elderly would not need our money to pay for their prescriptions if health care were not so very expensive in our country. But this is backward reasoning. Health care is so high-cost precisely because it falls into the fourth spending category: spending other people’s money on other people. What incentive does the doctor have to compete with other doctors and offer the best service at the lowest cost if his fees are paid by someone he never sees?

My wife’s mother recently had an extensive surgery performed on her foot to reconstruct her bones. To understand how the foot was healing, her podiatrist ordered a series of scans. When the bill came back from the x-ray imaging center, it was almost twice what the regular hospital charges for a full-body MRI. If the doctor had not spotted this extraordinary charge, neither Mom, nor the doctor, nor the insurance company would have noticed or cared. This lack of accountability is one of the primary reasons why health care costs are increasing. In a short while after the passing of this new benefit, health care costs will continue to rise, probably even faster than before, and the cry will come up from the elderly that their doctor visits and surgeries are costing too much. The politicians will see the need to “fix” this problem by tossing even more of other people’s money down this rathole.

So what is this new welfare prescription drug benefit? All together now: it is spending other people’s money on other people. This will do nothing to reduce the cost of health care. It will just force the fewer, poorer young generations to care for the numerous, wealthy retirees. This is like saving a burning house by pitching buckets of gasoline onto the fire. Not a smart move, but since the largest voting block in the nation will benefit, you may be assured that the drug benefit will pass both the House and Senate with ease.

How can we break this spiral of rising costs? The only sure way to change it is to shift the trend from spending other people’s money on other people to spending our own money on ourselves. If we succeed, then our natural desire to spend the lowest amount of money on the best possible product will provide a much-needed brake on the cost of health care. This principle works when we buy cars, clothes, and candy, so why would it not work with health care? It certainly worked in the days when people paid for their own health care, and it would work much better than the current system.