Profile of Sam Bowles

Just read the prologue to Bowles’ textbook. Can this be true?
At the close of the eighteenth century Cuba had slightly higher
per capita incomes than the United States, and Haiti was probably the
richest society in the world.

New Mexico’s Gini score (45.7) reveals this state is more unequal than most. Utah is the most egalitarian state (with a 41.3 Gini), while the District of Columbia (53.7) is the most economically polarized, according to the most recent Census report, from 2006.

Interesting so high tax DC has a higher Gini score than low tax Utah. Hmmm.

The second figure, 23, is the Gini for Sweden, the world’s most egalitarian country. Whereas most of Europe, Canada and Australia have Ginis in the low 30s, the US has over the past several decades developed inequalities usually found only in poor countries with autocratic governments.

So does Cuba have a Gini score of 100 (Castro does own the whole country) or does one say that it up there with Sweden? My point is that the Gini score it is a little less clear than it first seems. Maybe a combination of wealth, income, consumption and control of wealth would be more revealing. Castro may not own all of Cuba’s wealth but he controls it. If you are in Cuba it is like you are in Castro’s home.

Inequality leads to an excess of what Bowles calls “guard labor.† In a 2007 paper on the subject, he and co-author Arjun Jayadev, an assistant professor at the University of Massachusetts, make an astonishing claim: Roughly 1 in 4 Americans is employed to keep fellow citizens in line and protect private wealth from would-be Robin Hoods.

Is that why the crime rate is so low among NFL and NBA athletes all of whom earn a good living? Crime rose sharply in the 1960s and 70s was that a time of growing inequality? No.

The greater the inequalities in a society, the more guard labor it requires, Bowles finds. This holds true among US states, with relatively unequal states like New Mexico employing a greater share of guard labor than relatively egalitarian states like Wisconsin.

The problem, Bowles argues, is that too much guard labor sustains “illegitimate inequalities,† creating a drag on the economy. All of the people in guard labor jobs could be doing something more productive with their time—perhaps starting their own businesses or helping to reduce the US trade deficit with China.

Or is it that crime does not pay or what causes crime also causes poverty. And what does any of that have to do with the USA deficit with China?

I could support something along the line or universal welfare or an hourly wage subsidy. The one problem that I see with such ideas is what they do to immigration.

Can you hear the Friedmanites groaning? “It sounds very radical,† Bowles says, “but it’s very consistent with economic ideas.†

Come on the Friedmanites have been suggesting such for years.

Police = wasteful “guard labor”. This is the kind of nonsense I expect to hear from anti-government freaks.

Oh, and yeah, the author clearly knows nothing about economics in general or Milton Friedman in particular except what other left-wingers have told him.

Here is the relevant quote from Filthy Lucre:

There are empirical studies that examine how people handle large lump-sum cash transfers – such as lottery winnings or bequests – and the results are pretty devastating. A 2001 study in the United States suggested that about 70% of people who receive large lump-sum payments spent it all in the first two years.

To take a practical example, large “coming of age” payments are common in North America on Native reserves with significant oil and gas revenues. Consider, for example, the case of the Samson Cree reserve in Hobbema, Alberta, which sits on top of a massive oil field. During the 1980s, the federal government of Canada collected over $783 million dollars in royalties for the Samson Cree. At the time, families were collecting nearly $3,000 in royalties each month and teenagers were given $100,000 on their eighteenth birthday. And at the same time, Hobbema became the suicide capital of the country. In this community of 6,000, there were over 300 suicides a year, and a violent death was occurring once a week.

These types of social problems tend to have very complicated causes, especially in Native communities. However, many tribal elders identified the “coming of age” royalty checks as a major contributing factor. According to one, “A lot of these kids, they will not listen. They will rebel, simply because of the fact that they have this money coming. It’s more of a detriment than anything. Kids will drop out of school. They see it as a career – turning 18. I’ve seen kids get $150,000, spend it in two months, then commit suicide.” Even after drilling was complete and royalty checks began to dwindle (down to between $30,000 and $40,000) Mel Buffalo, a member of the Samson Cree Nation said, “I’ve seen people spend that in three or four days or booze, casinos and cars.”

Corey,

I think you are confusing the tax and transfers sides of the system. The guaranteed income plan involves substituting lump sum payments for current welfare payments, leaving the tax side of the equation undisturbed. So anyone who can currently afford to buy the stuff at the Robb Report would still be able to with the result that, to use your terminology, we’d have lots of people wasting relatively small sums *and* a few insanely wealthy people wasting fortunes.

The desire to increase equality of opportunity is laudable. All the ‘real world’ evidence, however, suggests that Bowles’ idea would be worse than useless in this regard. To the extent that the straight transfer idea appeals to you, Friedman’s negative income tax has a lot more promise.

Ricardo,

Ordinary Gini coefficients are computed using coarse bucketing, and thus underestimate the true Gini coefficient. Piketty and Saez say that the true Gini coefficient has gone up more than the ordinary Gini coefficient; they say nothing about why the ordinary Gini coefficient has gone up.