French myths about American inequality, fairness and poverty

It was a routine but difficult task to explain to my students the core political difference between the United States and France, namely the assertion in the American Declaration of Independenceas to the primary nature of "life, liberty and the pursuit of happiness," whereas the French asserted, "liberty, fraternity, equality." The French were obsessed with a collective if not communist approach to producing outcome equality, i.e., today's woke concept of "equity," while American founders emphasized the individual rights that allowed people to pursue their own sense of happiness or success, i.e., "the American dream." While my students might have developed an appreciation of this difference, progressive French economists seem eager to ignore American values and to impose French values on American freedom. A recent French "study' attempted to accuse American of violating basic human rights, primarily by not being sufficiently French in our culture and economy, including things like open marriage, losing wars, and being rude to tourists. Here is a fine rebuttal of just how wrong the French economists can be.

Preface. Inequality in incomes does not create more poverty. I have long argued that those most upset about the top "1%" are those in the top 2% to 5%, and not those in the bottom 50%. The top 5% (outside the top one percent) look at the one percent with envy, to the point of anger and jealously, while the bottom fifty percent look to the top fifty percent with admiration and the desire to achieve that status, and many of them do, if not in relative terms at least in absolute terms, as incomes and therefore the goalposts change minute-by-minute.

Key excerpts from Chris Pope's article follow below.

As part of a recent study on income disparities, Thomas Blanchet, Lucas Chancel, and Amory Gethin of the World Inequality Lab at the Paris School of Economics found that the United States “stands out as the country that redistributes the greatest fraction of national income to the bottom 50 percent.” This is not the American welfare state’s traditional reputation and seems to have come as a surprise to the left-leaning authors. How can it be so?

Government spending accounts for a smaller share of national income in the United States (35 percent) than in Europe (47 percent), but rates of public spending on education, health care, and benefits for the poor and disabled are similar. The greater cost of government in Europe results largely from its spending 11 percent more of national income on public pensions than the United States—which serves to crowd out private pensions that higher earners would have provided for themselves. To finance these state pensions, Europe imposespayroll and sales taxes at rates twice as high as in the United States. These additional taxes fall heavily on lower-income groups—making government bigger, while imposing higher costs on the poor.

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Blanchet, Chancel, and Gethin make much of the fact that income is more unequally distributed in the U.S. than in Europe. The United States does not have greater inequality because it has more poor people, however, but because its nonpoor earn much more. In 2017, after adjusting for differences in the cost of living, only 19 percent of Americans lived in households withdisposable incomesless than $20,000, compared with 22 percent in Germany, 27 percent in the United Kingdom, and 53 percent in Italy. By contrast, while 32 percent of Americans enjoyed disposable incomes greater than $50,000, only 12 percent of Germans, 12 percent of Britons, and 4 percent of Italians did so. Americans live in houses that are, on average, twice as large as those of Europeans. Indeed, the average resident of France, Germany, or Britain hasless living spacethan the poorest quintile of Americans.Rates of homelessnessare also substantially lower in the U.S. than in France, Germany, or the U.K. Only 3 percent of the U.S. population wasundernourishedin 2016, the same as in the E.U.

The swelling of Europe’s welfare states mostly imposes additional costs on those with modest incomes, rather than the rich—of which it has many fewer than the United States. While the richest 1 percent pay about 33 percent of their income in taxes in the U.S. and 35 percent in Europe, residents with below-average incomes pay much less in tax in the U.S. (16 percent) than in Europe (28 percent).

The United States has the highest levels of disposable income among G7 countries for nine out of 10 income deciles. Such comparisons give the impression that the poorest decile is little better off in the United States than in Europe. But the U.S. relies heavily on in-kind benefits, which traditional income statistics don’t count, to assist its neediest citizens. In 2018, American families with children below the poverty line averaged posttax earnings of $18,148—in addition to which government programs provided an average of $20,757 in cash, food, and housing benefits, along with $4,967 in child care and services and $14,960 in health-care benefits.

Blanchet, Chancel, and Gethin note that government spending on health care in the United States and Europe accounts for a similar share of GDP. However, American entitlements to health care are largely reserved for the elderly, disabled, and poor through Medicare and Medicaid, which covers 34 percent of the population. Health care for middle-class families is typically paid for privately through employer-sponsored insurance. When government and private-sector spending are included, the U.S. spends a total of 17 percent of GDP on health care, compared with 10 percent in the E.U.

Further thoughts. In my leadership and management classes, I would present CBO data on the share of government spending that consisted of wealth transfers or what they termed "human resources," which describes spending by the government -- of taxpayers' money -- that goes directly to benefit individuals. From a nadir of 2% during World War II, the percent going to wealth transfers had climbed monotonically for seventy years, and was still growing, having surpassed 65% by the Obama administration.

Other data showed clearly that rather than the middle class falling into an ever-larger poverty class, the fact of the matter was that while the middle class was shrinking, it was due to movement upward, into the "upper" middle class, and the percent of those in poverty had continued to decline.

Adding to this difficulty for the left was the now discontinued "global rich list," published by Oxfam -- I believe -- that ranked incomes on a global basis and showed that an income of about $33,000 (in or around 2015) that would put you in the lower middle class in the United States would place you in the top 1% of incomes worldwide, among those 7.5 billion people. The most overwhelming meaningful socioeconomic fact of the past two hundred years has been the decline in absolute poverty worldwide, from over 90% of the world's one billion people in 1820, to less than 15% of the world's 7.8 billion people this century, all at the 'expense' of income 'income equality.' As Margaret Thatcher once opined, the Left would prefer that everybody be poorer, as long as no one grew abundantly wealthy. Or as I noted recently and often in the past, those most unhappy with the top "one percent" are those in the top two to five percent; those in the bottom fifty percent are more interested in moving into the top half than in reducing the wealth or income of those in the one percent.

One fundamental problem is the progressive Left's obsession with equal outcomes over equal opportunity and due process, i.e., fairness before the law. The Left -- including many French economists -- would prefer to put a very heavy thumb on the scales of real justice to produce an impossible words where everyone has equal outcomes. As I noted to colleague this past week, how might a university effect equity? By abolishing the admissions and gradient system and granting a degree that lacks any specific requirements, but that gives students the specific outcome they demand of their college? In fact, any form of outcome equality suffers from the impossibility of agreeing to the single outcome and agreeing to which people in the world are eligible to receive this equity. And, were this perfect equity ever achieved, how would the world ever maintain this equity indefinitely?

Sadly, I think that offering such facts today in a Loyola classroom would get me sanctioned if not fired. The good news is that it is great to be gone. The bad news is that I would not dare offer these data or analyses today.