Today I saw an old quote from April where Michelle Obama spoke about accomplishing some of the necessary things for the poor in America. "The truth is someone is going to have to give up a piece of the pie so someone else can have more."
Nevermind the fact that the Obamas don't practice what they preach - giving 1% of their income to charity from 2000 to 2004 and nudging to 4.7 and 6.1 in 2005 and 2006. What concerns me is that Mrs. Obama's talk about forcing a redistribution of the pie betrays an ignorance of some simple economic principles about wealth and poverty - and the more her kinds of ideas are allowed to flourish, the harder it will be for the poor to rise out of poverty.
When we talk about who has more money than someone else - who has a bigger piece of the pie - it's important to clear up misconceptions about the "pie."
First, it's important not to forget that the pie is always animated, and most people do not stay in the same pie share their entire lives. In Thomas Sowell's Basic Economics, he points out that:
Three-quarters of those Americans who were in the bottom 20 percent in income in 1975 were also in the top 40 percent at some point over the next 16 years. This is not surprising. After 16 years, people usually have had 16 years more experience... It would be surprising if they were not able to earn more money as a result.Second, the pie in a (mostly) free market is not of a fixed size. As resources are allowed to flow to their most productive uses, the overall standard living of the economy as a whole improves - and the pie gets bigger. The bottom 10% of wage earners in America have a much higher standard of living than the bottom 10% did fifty years ago, and also much better than 100% of wage earners in many countries where free markets have not been allowed to raise the standard of living. Even if your share of the pie doesn't change, your share is bigger when the pie gets bigger.
...When a large majority of those in the bottom 20 percent in income in 1975 were also in the top 40 percent at some point by 1991, you cannot determine the degree of income inequality between people by looking at inequality between income brackets at a given time.
Since both the size of the pie and the relative shares within the pie change so much over time, it's completely meaningless to take a single frame snapshot of the pie and say that some people with more at one point have to give up some of their share to those with less.
If those who have worked hard to rise through the ranks of income brackets - including the Obamas themselves - are not allowed to keep the larger share of the pie that they have earned, we will take away the entrepreneurial incentives that create the innovation that makes the pie grow and increases the standard of living for all.
What's worse than Mrs. Obama's ignorance of basic economic principles is Mr. Obama's implementation of them. His tax plan, while in many ways not as frightening as Mr. McCain claims, basically takes more money from the rich and gives it to the poor who pay no taxes. Kimberley Strassel explains this magic:
Mr. Obama will give 95% of American working families a tax cut, even though 40% of Americans today don't pay income taxes! How can our star enact such mathemagic? How can he "cut" zero? Abracadabra! It's called a "refundable tax credit." It involves the federal government taking money from those who do pay taxes, and writing checks to those who don't.While the plan is good-intentioned, like many misguided government policies, this kind of plan prevents the free market from pushing resources to their most productive uses and ends up slowing the overall improvement of the economy. As a result, some of our poorest people may temporarily end up with a little more cash - but a large portion of them will rise through the income brackets over time anyway, and the ones trapped in poverty will have fewer opportunities to rise above and cease depending on that little cash handout than they would have had otherwise.
