To ease income inequality, smooth the path for innovators — Sutherland Soapbox, 11/4/14

Making_shoe_racks,_Coos_County,_ca._1948_(5670423808)This post is a transcript of a 4-minute weekly radio commentary aired on several Utah radio stations.  

Today is Election Day, so I want to talk about an issue that is the driving electoral message of hundreds of political candidates nationwide. That issue is income inequality.

Now the first thing to understand is that, in a free society, income inequality will always exist at some level. If given the liberty to do so, enterprising individuals will find a way to make more money – in some cases a LOT more money – than their neighbors. If nothing else, the history of our nation is a testament to this: There have always been rich people, middle income people, and poor people.

Of course, to acknowledge this reality as reality is not saying we should accept extreme income inequality simply as a fact of life. When growing income inequality reflects higher barriers to economic mobility for the poor and middle class, that problem must be addressed. For a conservative, this is first because the respect that we owe to the human dignity of our lower-income neighbors as free and reasoning individuals places a moral duty on us to ensure that they have reasonable opportunities to flourish as human beings, including the chance to improve their economic standing. It is also because the thriving free market economy that conservatives value requires a free market economy that is worth living in.

But the sad reality is that many who publicly lament today’s high levels of income inequality have no serious plan for addressing the problem, and are just using the issue to manipulate people’s emotions in order to capture their votes. And in today’s politics, this is especially true among political progressives.

Income inequality has become the latest fad in progressive policy circles, partly driven by an economic recovery to refuses to act or feel like a genuine economic recovery, and partly driven by the popularity of French economist Thomas Piketty’s book Capital in the 21st Century. Predictably, the progressive focus on the issue has been accompanied by calls for higher taxes on the wealthy and increasing the minimum wage, which it seems are the only ideas that progressives ever have about income inequality.

For my part, I have never understood this approach. After all, how is raising taxes and making people unemployable by raising the minimum wage above the market value of the skills of many low-income Americans going to make it easier for them and their families to achieve the American dream?

For those familiar with Piketty’s arguments about income inequality and the criticisms of his argument, the reality of the issue is more complicated than can be solved by simply taking money from the wealthy and attempting to mandate away the problems of the working poor.

A study published last month by the National Bureau of Economic Research identified two conflicting forces underlying income inequality. Encouraging inequality is the entrepreneurial desire to significantly increase one’s income. Limiting inequality is the “creative destruction” caused by disruptive innovations which shift income-earning potential from one individual, business, or market sector to another, thus naturally limiting how much income any one person or business can accumulate.

Among other things, the researchers conclude that policies which prevent entrenched business interests from blocking new innovation and competition will serve to decrease income inequality.

There are many examples of policies that block or limit new competition or innovation. One includes ridiculous professional licensing schemes that require thousands of hours of formal education before a low-income individual can open a business in which they have some basic skill. Another is economic development policies that offer multimillion dollar tax incentives to multi-billion dollar corporations willing to relocate, effectively granting them the privilege of a better effective tax rate than their smaller and often more innovative competitors.

If we seriously mean to address income inequality and economic mobility, then we have to do more than the progressive platitudes of raising taxes and minimum wages. We have to reject calls from those representing big business to protect their privilege to special tax incentives. And above all, we have to genuinely embrace the principle of the free market in our policymaking, and reflect that principle in areas like business licensing and regulation, and economic development policy.

Otherwise, all this railing about income inequality amounts to little more than grubbing for votes.

For Sutherland Institute, I’m Derek Monson. Thanks for listening.

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Energy development boosts poor and middle class

Oil_wellAmid the agonizingly slow recovery from the last recession, policy-makers on both sides of the aisle have turned their focus to improving economic mobility for the poor and economic security for the middle class. So from the political left we hear calls to raise the minimum wage, and from the political right we hear proposals to expand the Earned Income Tax Credit and reform welfare programs.

But based on the results of a recently published study from the National Bureau of Economic Research, it seems there is another policy path toward addressing poverty and middle-income security: developing energy resources.

The researchers report that a boom in oil and gas production and employment has significant, positive impacts on nearby employment in manufacturing. This is “because many manufacturers in resource-abundant counties supply inputs to the oil and gas sector, while many others sell locally traded goods and benefit from increases in local demand.” The researchers conclude that their study “highlight[s] how linkages to natural resources can be a driver of manufacturing growth.”

How is this link relevant to economic mobility and security? Jobs on manufacturing and energy development have historically been vehicles for individuals with limited formal education and job skills to move up the economic ladder, and for middle-income families to secure and maintain their advantageous economic position. Subsequently, increasing job opportunities in both sectors through energy resource development has the potential to simultaneously strengthen economic mobility for the poor and economic security for the middle class.

In Utah, this is magnified by the fact that much of the energy resources in the state reside in more rural areas, where economic development and job opportunities can be limited. In other words, energy development and manufacturing growth provide greater possibilities for rural Utah to keep younger generations in the area and/or bring in new people, instead of losing or never having a chance with them because most good job opportunities are to be found in more urbanized areas and cities.

As policymakers consider ways to use policy to provide new economic opportunities to the poor or to shore up the position and outlook of the middle class, they should remember the potential of energy development to do both.

Be ‘warriors’ for social justice, Mike Lee and Arthur Brooks tell audience at Sutherland event

Sen. Mike Lee speaks at Sutherland dinner in Salt Lake City on Oct. 1, 2014. (Photo © Sutherland Institute)

Sen. Mike Lee speaks at Sutherland dinner in Salt Lake City on Oct. 1, 2014. (Photo © Sutherland Institute)

Is social justice a conservative cause? Yes, absolutely.

Sen. Mike Lee of Utah and Arthur Brooks, president of the American Enterprise Institute, explained why it’s not just a cause, but a moral imperative, last night at a Sutherland Institute dinner in Salt Lake City.

Brooks told the group gathered at La Jolla Groves that conservatives who want to improve social justice cannot be elitist about the type of work considered “worthy.”

“All work is blessed.”

If you believe in fighting to improve life for poor and middle-class families, you cannot believe that trimming a hedge is less valuable than managing a hedge fund, he said.

Sen. Lee said that because nearly every strategy in the “war on poverty” has failed to achieve true societal change, conservatives need to summon the courage to lead this fight with new strategies.

“Defenders of today’s status quo say that any critique of our welfare system is really just a thinly-veiled attempt to destroy the social safety net. But what we all should want – and what I certainly do want – is not to destroy the safety net, but to make it work.”

America’s complicated tax code, health care and justice system hurt working families, Sen. Lee said. “Our justice system tears apart communities and fractures families among our most marginalized communities.” Sen. Lee is a co-sponsor of the Smarter Sentencing Act, along with Sen. Dick Durbin, D-Ill., and Sen. Patrick Leahy, D-Vt.

Lee urged supporters of conservatism to help “make poverty temporary, not merely tolerable.”

“We usually refer to the free market and civil society as ‘institutions,’” he said. “But really, they are networks – networks of people and information and opportunity. …

“Networks of opportunity formed within the free market and civil society are not threats that poor families need more protection from. They are blessings that poor families need more access to.”

Derek Monson, policy director at Sutherland Institute, pointed out that family strength and culture are intertwined with economic issues – issues that are at the heart of Sutherland’s Center for Utah’s Economy. Read more

A reminder of Utah’s lost energy opportunities

UtahTarSandsThis just in! There’s energy in the ground, and there’s money and jobs to be had in energy. OK, maybe that’s old news.

Not that it matters that much in Utah anyway, where the ground is mostly owned by the federal government, and it’s not letting the energy, the jobs or the money out.

North Dakota, which is about 3 percent federally owned, just passed the million-barrel-a-day mark for crude production, making it one of the top producers in the nation. Meanwhile Utah, which is over 60 percent federally owned, produces about a tenth that amount but is sitting on the potential for $7 billion annually in economic value, a billion or so in tax revenues, and over 50,000 jobs, according to an analysis by Sutherland’s Coalition for Self-Government in the West. But, while oil production on private lands has increased by about a million barrels a day since 2009, production on federal lands has been flat. That’s bad news for Western states that are mostly controlled by D.C. bureaucrats.

And it’s a lot of lost opportunity.

Economic forecast: optimism or doom and gloom?

Reymerswaele_Two_tax_collectorsThe federal Commerce Department announced recently that growth of the U.S. economy was “near zero,” as reported by some media outlets. Growth was estimated at 0.1 percent, a pitiful rate that comes after several years of sluggish economic recovery from the most recent recession.

As reported, the reasons given for the stagnant economy include “an unusually cold and disruptive winter, coupled with tumbling exports.” Yet some economists remain optimistic that this year “will be the year the recovery from the Great Recession finally achieves the robust growth that’s needed to accelerate hiring and reduce still-high unemployment.”

In this context, scholarly economist John H. Makin at the American Enterprise Institute published an article titled “The limp recovery, five years on>” that seeks to explain the current “feeble expansion” and project its prospects for growth in the next year. His prognostications are decidedly less optimistic than those reported in various news outlets.

Makin (see his bio and impressive credentials here) reports that the current recovery “has been considerably below average when compared to post-World War II recoveries.” Only in two quarters has growth been above average since June 2009. He gives several reasons for this.

One is weak growth in business investment due to investor uncertainty, driven by the financial crisis and massing changes in federal regulation from the Obama administration, weak growth in consumer demand, and slowing levels of inflation. A second reason is the slow growth of household spending, which is attributed in part to the fact that “it has required seven full years for households to regain levels of net worth last seen in 2007,” leaving households cautious about spending money.

Subsequently, according to Makin, “the recent expansion has been characterized by especially weak growth of employment and persistence of high unemployment, notwithstanding some progress over the past year.” This problem has been compounded by the fact that “labor-saving technologies [have reduced] the need for labor in the production process,” such as “the ability to use smartphones and tablets to manage communication and scheduling without a human assistant.” Interestingly, Mr. Makin ties this to income inequality: “[T]he result has been a shift in income distribution away from labor and toward capital during much of this expansion.”

Makin predicts a gloomy outlook for the economy over the next year, but concludes with a prescription. “Something additional is needed to sustain a stronger recovery in the United States – leadership.” That leadership includes pushing to reform federal welfare, taxes and regulations (such as those created under the auspices of Obamacare) to make work more financially rewarding for employees and creating new jobs less costly for employers. It also includes reforming things like the education system in ways that make it more possible, and I might add more affordable, for individuals to climb the economic ladder.

Makin’s article is a good one for anyone interested in the economy and where it is likely headed in the near future. For my part, I wonder whether the Obama administration has the maturity and statesmanship to support reforms that amount to a tacit admission that its policies have been economically harmful to individuals, families, and businesses. But there’s always hope.

Don’t take my PILT down, man

Calf Creek Canyon in Grand Staircase-Escalante National Monument.

Calf Creek Canyon in Grand Staircase-Escalante National Monument.

There’s nothing wrong with PILT (Payment in Lieu of Taxes) that getting rid of the need for PILT won’t fix. But so long as there’s a “in Lieu of Taxes,” getting rid of “Payments” would be fundamentally unfair and harmful to Western counties and states. And yet, that seems to be where we’re going.

PILT was created in the 1970s to offset the revenues that counties – mostly in the West – lost due to tighter environmental regulation on federally owned lands.  It was a “make ’em an offer they can’t refuse” scenario where the federal government said they would offset lost tax revenues with direct payments that the counties could then use to pay for their schools, public safety, and all of those boring things. In other words, the counties were “asked” to trade economic independence and good jobs for an annual check from Uncle Sam.

This may not seem like a big deal to states east of the Rocky Mountains – you could add up all of their PILT payments combined and it wouldn’t equal the payments that go to any two Western states. But if your county is 90 percent (or even 98 percent) owned by the federal government it’s easy to imagine that having no property or income taxes coming off of those lands can have a significant impact, not just to counties’ coffers but to their way of life.

And that seems to be the direction we’re going. The recent omnibus (D.C.-speak for “too big for anyone to read”) spending bill cut PILT payments to … nothing.

Read more

Of bacon and bad policy

egg baconWhy do our fearless leaders in Washington continually claim that middle class jobs are their top priority while incessantly inflicting job-killing policies on us? I don’t think it’s an accident or an evil plot (well, not always anyway), but rather a simple case of cognitive dissonance. Let me illustrate.

I’m a big fan of the bacon makes everything better culinary method. I’d put bacon on yogurt, except I don’t like yogurt. And yet I also know that too much bacon is bad for me. So I cool the kitchen with my refrigerator while staring at those savory slices trying to talk myself out of piling pork belly on whatever lesser foodstuff will end up being lunch.

That’s called cognitive dissonance: a mental conflict that results from holding the two incongruous beliefs that bacon is the best thing since (or on) sliced bread, and that it’s also having the same effect on my arteries as pouring wet cement into a standpipe.

Ok, maybe that’s the Torquemada  of tortured metaphors. But the point is that our folks in Washington are suffering their own cognitive dissonance, stuck between a belief that they’re the answer to all the country’s ills and the reality that they’re actually the cause of all too many of them. Why does this matter?

Read more

The young and the liberal


The Bank of America building, which is now empty, in Providence, R.I.

The 2012 presidential election campaign was framed as a choice between a former governor who knows how to get the economy producing good jobs (the Romney line) but is unacceptable in character and experience (the Obama line), and a sitting president who is “cool” and understands your life situation (the Obama line) but is economically incompetent (the Romney line).

Large majorities of young voters and self-described liberal voters (who in some cases, but not all, are the same people) voted for “cool” and understanding rather than good jobs … and it seems today that they are getting exactly what they voted for.

As noted in a summary of economic news stories reporting on the employment situation of young Americans on the Weekly Standard blog, “the official unemployment rate for those under age 25 is 16.2%, more than double the rate for the population as a whole.” Further, “only one age group has managed to go the past year without reducing its unemployment rate. It’s 20-to-24-year olds.”

And anecdotally, the same blog includes a post about news articles highlighting the economic situations of various states. In the “blue state” of Rhode Island, according to a report from the Associated Press, the state’s “tallest building” and “most distinctive feature on the Providence skyline” will “soon be its most visible symbol of the state’s long economic decline,” as the last tenant remaining in the building has left. According to the news article, the state had a 9.4 percent unemployment rate in February, and “has had one of the worst jobless rates in the nation for years.”

On the other hand, in the “red state” of Texas, the city of Midland (population 111,000) is “growing quickly as companies bring in employees to drill new oil wells.” As a result, “Midland officials are welcoming plans to erect a 53-story skyscraper that would be … the sixth tallest in all of Texas.” Housing and office space are reportedly “hard to come by.”

The lessons? First, you get what you vote for. Second, perhaps the liberal politicians and thought leaders are the real danger to the economic well-being of young people, not the corporate and political boogeymen that the liberal politicians and thinkers incessantly use to influence the votes of younger generations.

The Sundance tempest

Last week my Sutherland colleague Derek Monson wrote about the Sundance Film Festival. To highlight the unbelievable truth that a whole bunch of your tax dollars go to a film festival in Park City, Derek mentioned a few of the questionably themed films promoted there – and, for that simple narrative, my good colleague has been lambasted by The Salt Lake Tribune (not just once, but three times).

Furthermore, and rather oddly, a state senator from St. George used his Facebook page to ridicule our blog post, absolutely lie about some alleged personal conversation with me and compared Sutherland Institute to a twisted pack of religious bigots who demonstrate about homosexual rights at military funerals – but not once did this state senator from St. George explain why he supports tax dollars to a film festival.

So let me back up and retell this story. The widely popular Sundance Film Festival is held in Park City every winter. It attracts thousands of visitors to the state and quite a few famous Hollywood types. Over the last four years the state of Utah, using your tax dollars, has given this film festival over a million dollars. Read more

State of Utah should end ‘complex relationship’ with Sundance

For past Sutherland commentary on the positive, family-friendly content produced by Sundance, click here. For past Sutherland commentary on questionable content and activities associated with Sundance, click here.

What would you call a film festival airing movies that explore the lives of porn stars, adulterous relationships between mothers and their friends’ children, and teenagers competing to lose their virginity? Many Utahns’ values would lead them to call this “obscenity” or “pornography,” but to the state of Utah, evidently it is simply “economic activity.”

The director of Sundance Film Festival called the theme of these movies “complex sexual relationships” when they were recently announced as part of the Festival’s “Premieres and Documentary Premieres” programs. And admittedly, having an affair with your friend’s son while she simultaneously has an affair with yours is a “complex” relationship – not to mention indecent, immoral, and potentially illegal, depending on the boys’ ages.

Given the amount of sexual promiscuity that Sundance Film Festival regularly brings to Utah, it seems similarly indecent that Utah’s major economic development agencies basically endorsed the event: providing “critical support” to the festival as a “global branding”[1] opportunity, and being listed under the event’s “Corporate Support” bannerRead more