Janet Yellen Shills for the Democrats

janet-yellenAt a conference last week, Federal Reserve Chairman Janet Yellen recycled a shopworn Democrat talking point about the supposed crisis of income inequality and stalled economic mobility. “The extent and continuing increase in inequality in the United States greatly concerns me,” Yellen said, going on to wonder “whether this trend is compatible with values rooted in our nation’s history,” especially “equality of opportunity.”

Like the mythic “war on women,” this progressive sound bite is misleading and duplicitous, based on statistical sleight of hand. Worse yet, it is a pretext for more and more government expansion and intrusion into the economy, and for more and more redistribution of income through entitlement programs. It makes one wonder what one of the most powerful government officials impacting the economy, supposedly a politically neutral technocrat, is doing recycling Democratic campaign slogans.

The “income inequality” claim depends on ignoring numerous data that contradict it. For one thing, it glosses over the mobility among the 5 income cohorts over time, assuming that the same people are rich or poor year after year. But as Stephen Moore and James Pierson point out, “In America they [the rich] don’t generally stay rich for long. A few years ago the Department of Treasury examined what happens to the wealth of families across several generations. Guess what: the poor got richer and the rich got poorer. The incomes of poor households rose 80 percent from 1987 to 1996 and then more than doubled from 1996 to 2005. The richer people were at the start of this period, the more income losses they suffered in subsequent years.”

The Treasury study indeed confirms this mobility, finding that between 1996 and 2005 over half of taxpayers moved to a different income quintile. Half of taxpayers in the bottom quintile in 1996 moved to a higher income group in 2005. Meanwhile, only 25% of the richest 1/100 of 1% in 1996 were still that rich in 2005. This mobility has indeed stalled, but not for “several decades,” as Yellen claimed, and not because of the sinister machinations of the wealthy. Its cause rather is the sluggish economic growth after the recession ended 5 years ago, and the blame for that in large part falls on Obama and the Democrats’ regulatory overreach, trillion-dollar deficits, “you didn’t build that” anti-business rhetoric, and redistributionist economic policies. Get the feds out of the way of the economy so it can grow, and we will see income growth and mobility again.

The “income inequality” meme ignores other facts as well. It focuses only on “money income,” neglecting the value of government transfers like Medicaid, Electronic Benefit Transfer cards (formerly known as food stamps and welfare checks), emergency-room health care, Section 8 housing subsidies, and the Earned Income Tax Credit, all of which boost the buying power of the statistical poor and lower middle class. For the middle class, “money income” ignores the value of employer-provided fringe benefits such as health care. As for the rich, “money income” ignores the highly progressive taxes they pay to fund those government programs. As Gary Burtless of the Brookings Institution writes, “To disregard the impact of transfers and progressive taxation on the distribution of income and family well-being is to ignore America’s most expensive efforts to lessen the gap between the nation’s rich, middle class, and poor.”

Finally, consumption––how much people spend–– is more revealing than “money income” as a measurement of economic wellbeing. In fact, consumption rates of the lowest income quintile have increased over the years, reaching nearly twice of income in 2005. As a result, Kip Hagopian and Lee Ohanian write, “A family claiming $22,300 in income in 2005 would have reported about $44,000 in expenditures in that year. As noted earlier, the gap between reported income and consumption is filled by various categories of government transfer payments (including Medicaid, food stamps, subsidized housing, the Earned Income Tax Credit, Temporary Assistance for Needy Families, etc.), family savings, imputed income from owner-occupied housing, barter, support from family and friends, and income from the underground economy.” Indeed, if one takes into account consumption, the statistical poor enjoy living standards higher than the average European. The obsession on “money income” ignores how well all Americans live.

Yellen’s second claim, that income inequality contradicts “values rooted in our nation’s history” like “equality of opportunity,” is equally muddled. If we look at the political order of the Constitution––our most important “national values”–– income inequality was taken for granted, a reflection of an unchanging and flawed human nature. In his famous comments on “factions” in Federalist 10, James Madison wrote, “As long as the reason of man continues fallible, and he is at liberty to exercise it, different opinions will be formed. As long as the connection subsists between his reason and his self-love, his opinions and his passions will have a reciprocal influence on each other; and the former will be objects to which the latter will attach themselves. The diversity in the faculties of men, from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of government [emphasis added]. From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately results; and from the influence of these on the sentiments and views of the respective proprietors, ensues a division of the society into different interests and parties.” Hence “the most common and durable source of factions has been the various and unequal distribution of property. Those who hold and those who are without property have ever formed distinct interests in society.” Income inequality is a fact of life, not a failure of government or the economy.

Indeed, the clashing interests of those with property and those without, and the political discord they create, were continually on the minds of the delegates to the Constitutional convention. New Yorker Gouverneur Morris, arguing for an appointed rather than a popularly elected Senate, frankly said, “The Rich will strive to establish their dominion and enslave the rest. They always did. They always will. The proper security against them is to form them into a separate interest. The two forces will then control each other . . . By thus combining and setting apart, the aristocratic interest, the popular interest will be combined against it. There will be a mutual check and mutual security.”

Thus the “mixed government” of the Constitution was designed not to eliminate property inequality, which is rooted in the differences of talent, hard work, virtue, and luck among people. Rather, it was created to prevent any faction, whether the rich or the poor, from taking control of the government in order to aggrandize its own power and serve its own interests at the expense of others’. Only that way can the freedom, property, and opportunity of all be kept safe.

Our “national values,” then, are for equality of opportunity, not equality of result. Yellen pays lip service to the former, yet that sentiment contradicts the whole complaint about income inequality, which is about result, not opportunity. Like most progressives, Yellen is really concerned with equality of result, something the Founders abhorred, for a tyrannical government always promises the masses equality of result, in the form of a redistribution of property, in order to secure the support of the people for centralizing and increasing government power and limiting personal freedom. But equality of result, as the sorry and bloody history of communism shows, is contrary to the reality of human nature and the unequal distribution of talent and character. As Plato wrote, it is “numerical” equality rather than “proportionate equality,” which takes into account the differences of character and virtue that exist among people, and “assigns in proportion what is fitting to each. Indeed, it is precisely this which constitutes for us political justice.”

America’s “national values” have traditionally included equality of opportunity, not equality of result. People should be free to rise to whatever levels their differing talents and virtues can take them. Differences of wealth over time and over large populations reflect those differences more than any unjust manipulation of the economy by the rich. Moreover, in a dynamic, free-market economy, the success of the well off improves the well being of the rest, whether by creating jobs or paying the trillions of dollars in taxes that fund the redistributive programs that have allowed millions of American to enjoy a material existence only dreamed of by most of the human race.

We still have equality of opportunity, whether measured by the millions of ordinary people who create and run businesses big and small, or the 11 million illegal aliens who didn’t risk their lives coming to America because it lacks economic opportunity. The Chairman of the Federal Reserve has no business indulging a progressive canard that exploits envy and resentment for electoral gain.

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  • objectivefactsmatter

    Marxists teach hate of success. Yellen is just another communist (Social Justice Warrior) pretending to be something else.

  • johnlac

    That income gap has been growing since the onset of the industrial revolution. Advances in technology and the (relatively) free market meant that millions of people with a little more drive and intelligence made more than people with less drive and intelligence. Those are the sad fact of life….some people will outperform other people.
    But that does not mean, as the writer of this article pointed out, that the people who earned less lived awful lives. Everybody benefits from an economy that can create millionaires and billionaires. But the Marxist Dem Party looks at the wealth/income disparity as “proof” of the failure of the free market. Funny how so many Hollyweird libs are super wealthy under this “unjust’ economic system.

    • carpe diem 36

      capitaalism for me socialism for you. Democrats motto

  • http://www.stubbornthings.org NAHALKIDES

    Good article by Thornton. I question whether we have equality of opportunity any more, though, because statism is so advanced now that clearly those with government contacts now have an advantage over those without because the government already has too much control over the economy. I have in mind green-energy boondoggles (Al Gore didn’t become rich through his entrepreneurial skills) that benefit Obama supporters (Solyndra) and Federal intervention in housing that made party hacks like Franklin Raines and Jamie Gorelick rich.

    • pupsncats

      You are right that statism has advanced to the degree that many people, no matter what they do, will never get out of the throw of poverty (although being poor today also has many advantages). Yet, there are still many instances where people with simply drive, ambition, and a willingness to move on after failure, have not only helped them rise out of poverty but through their inventions or products, have helped many others as well.

      • http://www.stubbornthings.org NAHALKIDES

        I hope so, but notice that France has had no growth for 30 years; America has had essentially zero growth under Obama for 6 years. When government becomes big enough, it stifles economic growth, and then it’s almost impossible for anyone to get ahead.

  • Midway

    Printing of money will stop when Obama’s out of office or loses power. Once interest rates are raised & markets start tanking, they’ll just say “See, Obama was getting us out of the mess & Republicans are getting us back into what they created” if GOP wins Senate, they better have a response for this.

    • Sheik Yerbouti

      Yes, the GOP is allowing themselves to be set up once again to take the fall. On paper Hillary has no chance, but in the court of public popularity, that could change. We lament the MTV generation, but 30 years later it’s MUCH worse. Obama is proof that a nobody can be shoved into the top seat by a political machine with no conscience.

      The army of rioting fools that Obama’s team has assembled has made the nation weary. OK, we get it, if Obama doesn’t get his way, there will be riots.

      When is someone going to say “if there are riots, there will be armed troops and filled jails” and “the coddling phase of this is now over. Go home or we will find a home for you”. When will we get the America with ball back?

      America has been wimped down since Carter. It’s time to kick some assses.

    • carpe diem 36

      If we repeal Obamacare and high taxes and free enterprise comes back people will be free to work hard and earn as much as their talents will allow them. No more Socialism, it is bad for everyone.

  • Hard Little Machine

    Politicizing the Federal Reserve. That’s breathtaking even for President Dear Leader Obama

    • I_Am_Me

      It’s the ultimate shortcut to communism. They could tip the boat over in a couple of days or months if they wanted to.

  • KenoshaMarge

    Did anyone ever think for one minute that Yellen was anything but a lefty shill? She would never have been chosen otherwise. And since she is female that’s a twofer for the libs.

  • kevinstroup

    Just as all cultures are not equal (how else to explain different achievements) not all people are equal. Yes, there is much corruption and stupidity in life. When has there ever not been? Does anyone think in this day and age that socialism will make life better for the masses?

  • rbla

    The major factors behind the steady rise in income inequality over the last 40 years are, first, the dismantling of American manufacturing which has benefitted China. This was greatly accelerated under Clinton and his crony capitalist friends. More important, however, is mass third world cheap labor immigration. The Republicans would do well to follow the lead of America’s senator, Jeff Sessions.

  • Gee

    The “income inequality” claim sounds exactly like what the Communists spouted for decades.

  • mmichlin

    I think that the notion of “Equality of Opportunity” is a flawed one because it is so imprecise and can be so broadly interpreted. After all there is no denying that children have different opportunities depending on the income and wealth of their parents (not even talking about the number of parents in the household) and a myriad of other aspects . Yes, their opportunities are not equal, but does it mean that we (read “the Government”) should try to equalize them?

    I think, that the notion of “Equality under the Law” captures the intent much more clearly and gives no wiggle room for high-jacking it in the way that leftists do with the “Equality of Opportunity”.

  • victoryman

    But, but, but, she’s a WOMAN…..and isn’t that the main qualification she needed to be confirmed? Not the question of qualification(s) but of political correctness…..

  • carpe diem 36

    “The extent and continuing increase in inequality in the United States greatly concerns me,” Yellen said,” And who does she fault? It is Obama who made this happen with his regs. and IRS and of course Obamacare that has shrunk the economy. If you control the economy you impede mobility, it is as simple as that. And on top of that he made full time employees into part timers, and no employment. Under free enterprise everyone who wanted to work hard and start a business could do that, now under these restrictions it is nearly impossible to do that. And I know what I am talking about from experience, in the 70s we started a big business with $10K, you cannot do that today What Obama is saying Capitalsm for me Socialism for everyone else. Those who voted for him have no right to complain. And he appointed Yellen who continues his bad policies. We need a Reagan now more than every.

  • nimbii

    Yellen should know her QE programs brought trillions into the hands of the very Wall Street people who have so much more money than the rest of us as a result of it.

    • I_Am_Me

      She knows. She’s just talking out of both sides of her mouth like a proper lying elitist Leftist.

    • objectivefactsmatter

      In her mind she had no choice. See, the problem is always not enough socialism. Give them complete control and Utopia will arrive soon after. QE isn’t a problem except that we should have increased welfare spending at the same time to compensate. See?

      The real problem is the opposition and their guns and religion and so forth. And don’t forget the “evil Jews.” Must destroy dissent since they are blocking evolution of humankind and civilization and stuff.

      This is what she’s thinking. Or she’s a completely mindless robot.

      • nimbii

        Agree.

  • cree

    The geography advantage of United States nation has produced immense quantities of wealth and interstate and international trade from its beginnings. This advantage has enriched all who have benefited from this wealth. The benefits was free trade with necessary regulations that kept all traders relatively happy enough to continue in trade. Essentially, free trade becomes fair trade; fair in the sense that buyers and sellers mutually benefit in their transactions. Simple enough as it can be; the barter system with the use of money.

    Progressives want to exploit this system. They envy the advantageous benefits produced and claim that fair trade and the opportunities it allows for is unfair. Then they do all crazy economic nonsense that gums up the works and they call it right and fair. They are the elite (exploiters), don’t you know? They contradict evidence; the evidence is there to see but what they see they refuse to see. As screwed up as it can be; elites manipulating the use of other people’s money.

  • Hank Rearden

    After all these years, it just shows the failure of America that we still have 20% of the population at the bottom in terms of income. Do you know who many people that is? 60 million! 60 million Americans at the bottom! Pathetic. I think that Obama should implement a plan right after the election to go after this. I think it should be our goal in the next decade to ensure that NOBODY is in the bottom 20%! That is a pretty minimal requirement in the 21st century.

    • I_Am_Me

      Very funny.

    • pupsncats

      And after all the current wealth of everyone is confiscated to redistribute, how will keeping everyone out of the bottom 20% be sustainable? How to support a growing number of unemployed, unemployable, disabled, and illegal alien immigrants so all of them can never be at the bottom?

  • PAthena

    See David Hume, Inquiry Concerning the Principles of Morals, section on Justice. He examines different theories of justice, including the one that everyone should have equal property. He argues that this would lead to poverty, since it destroys incentives to produce. It also requires tyranny to enforce it – shades of Communism, two centuries ago!

  • truebearing

    “Income inequality” is a problem for Yellen because it is an indicator that the political/economic stasis that communists seek has not yet happened. Communists want to eliminate mobility of all kinds in their straightjacketed “utopian” society. The potential for the individual to improve his economic situation and quality of life over the squalid conditions that communists offer is a threat to the elitists who want total control.

    The irony of wanting income equality is that the Left has no choice but to impose artificial egalitarian control after using class envy to rise to power.

  • herb benty

    “crisis of income inequality(1), and (2)economic mobility”. Not 20 Trillion in debt type of crisis, not 100′s of Trillions owed to corruptly leveraged, unsustainable, “Public”(union) pensions. Nothing at all from this comrade that her job should be passionate about. The state of these USA, not perceived imbalances in what people do. And “economic mobility”, my my the progressive PC is really getting hard to stomach. In capitalism goods, services, and labor, find their own levels. In socialism, every “tick”, “nuance” and “imbalance” must be regulated, laws passed, punishment delivered for non-compliance etc. Capitalism is much more EFFICIENT than BIG NANNY government- it’s well proven. So why does global communism look insane, considering what Einstein said about repeating? Why aren’t the “enlightened” Chinese leading the Ebola war? Russia, Norway, ET bloody CETERA.

  • I_Am_Me

    Some people just can handle or stand cognitive liberty. They crave slavery.

  • Pericles

    “The extent and continuing increase in inequality in the United States
    greatly concerns me,” Yellen said, going on to wonder “whether this
    trend is compatible with values rooted in our nation’s history,”
    especially “equality of opportunity.”

    Isn’t her job to worry about inflation, growth, recession, unemployment? Or is she simply trying to divert attention from ISIS, Ebola, the IRS scandal, Benghazi hearings, etc.? We already have a political hacks in the Attorney General, the Ebola Czar and at the CDC. Cannot the Chairman of the FED at least be objective and impartial? Obama, the rotten apple, has spoiled the entire bunch.

  • pupsncats

    It’s pointless to argue with Marxists about anything, particularly wealth since their ideology demands poverty of the masses so their elitists can live high on the hog. After they confiscate the wealth of the people and murder the most obstinate (while murdering some who did the dirty work for them to rise to power), they live in luxury. Forcibly take away the wealth of billionaire and millionaire liberals and see how willing they are to actually live their ideology.