The Predistribution of Wealth

I went back home to Kentucky for Thanksgiving, and I’ve been quietly biting my lips as I hear from friends of my family how concerned they are about Obama.  Obviously, since they’re friends I don’t think I can chalk it up to racism, so my next assumption is that they watch Fox News and have found themselves trapped in an echo chamber.

I just thought I’d make a little point about those people griping about Obama taxing the rich and being a socialist.  There is a very strange misconception that poor people are lazy and deserve to be poor.  This is in fact not true.  Many poor people have to work 2-3 jobs and experience considerably more stress than rich people, which prevents them from ever becoming middle-class.

People gripe about government redistribution of wealth, but taking taxes from the wealthy and creating government projects that pay poor people a decent living wage is really the best approach to rebuilding the middle class.  Don’t believe me?  Here are a couple of arguments in favor of this approach:

  1. Government jobs increases the private-sector economy.  People have increased disposable income and buy more stuff, which improves the private sector.  Also, most R&D arguably starts off by government subsidies or grants.
  2. Austerity measures increase social unrest, tax hikes do not. Another great argument to support taxing the rich.  Primarily because they will not be affected by it.
  3. Income over $75,000 is sufficient for happiness.  There is conflicting evidence over the benefit of having much more than this, but the fact that $75K is enough for happiness seems to be a reachable bar.

Taking these three points, it seems clear that supply-side economics is not the approach we should be taking to improve the economy.  We don’t need to make the “job-creators” richer, we need to augment the wealth of the poor.  If not from a social justice standpoint, from an economic one.  There’s a series of graphs that supports this argument (feel free to have a look here).  But, I modified a graph of my own using the $75,000 benchmark for happiness and Census and Bureau of Labor Statistics data to come up with a “Happiness Index”.

I wanted to see how income changed over time and how many people are happy now compared to ~35 years ago.  The formula I used is:

Average income is the average income in each income bracket (bottom 20%, top 1%, etc.), and Year Adjustment is the CPI value of any year divided by the CPI value of 2012 to get a sense of what $75,000 was equivalent to in 1979 (which may or may not be the same level of happiness).

So, plotting the happiness index over the last 33 years gives you this figure:

As you can see, the poor was always below 0 (i.e. unhappy), but since 1979 you see a slow dragging of the middle class into the unhappy zone (i.e. below 0).  As of 2005 (the last year I have data on this from the Congressional Budget Office), more that 50% of America is unhappy, compared to only 20% in 1979 (a year marked by recession and Iranian embassy invasion).

Obviously, this is not a true metric of happiness, but based upon only the happiness brought about by wealth 35 years ago to today, much more Americans are unhappy than before.  And if you look at the top of the graph, the top 1% is reaping the benefits while the bottom 50% is dragged into misery. The 49% between the two? They’re relatively static, so this is truly a battle of the rich vs. poor.  But in this case, it is the VERY rich (~500K and above) vs. “the middle class” (60K and below).

If the rich really are the “job-creators”, let’s get to making with the jobs, Ted DiBiase.  Otherwise, it’s about time those bastards paid their fair share.

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