Posts Tagged ‘income inequality’

Today’s Times details the extensive donations that Michael Bloomberg has made to his alma mater, Johns Hopkins University — over 1 billion dollars! This is totally nutso. Yet, it is relatively common for highly selective universities to get giant donations from rich alums.

This is bad for a variety of reasons:

  1. College is probably not the best place to use your dollars if your goal is societal improvement. By the time you get to college, your life track, income, etc. is pretty much set within a narrow range of outcomes. It’s probably better to spend your money improving early childhood and elementary schools.
  2. If you assume that college is still quite important for other reasons, don’t fund Johns Hopkins (or Harvard or Yale or wherever). Your return-on-investment there is pretty bad, since these institutions coast on reputation. Why not give to community colleges instead — which are always hurting for cash and have lower attrition rates than four-year colleges? Additionally, the students that attend Hopkins or Harvard or Yale already have lots of breaks in their favor? Why not give a break to the students at the margins of success who need it more?
  3. Additionally, the highly selective undergraduate institution relies on cartelization to keep its prestige. Harvard, with its $34B endowment, could reasonably educate a lot more people than it does now. Instead, it limits who can attend with unnecessary precision. Can’t dilute the brand! If that’s the case, why keep giving so much to an institution that will do so little with your money?

So, if this is so bad, why do we do it?

  1. Sentimentality (or availability bias): Michael Bloomberg got a lot out of Hopkins; he wants to show his appreciation. He loves the place and has fond memories. As such, he wants to give money.
  2. Our tax code: By giving the money away, Bloomberg gets a legacy that he doesn’t have to lose upon death (estate tax). Additionally, he gets to deduct those donations from his massive income.
  3. Prestige: Rich people love giving away money when they can slap their name on it. (Not so much when they can’t, see, e.g., Donald Trump.) Additionally, we shower people with attention for their donations.

All these factors lead to a quite inefficient distribution of wealth to higher education. Hopkins has a $3B endowment; it educates 5,000 undergrads and 2,000 grad students a year. The University of Maryland-College Park has a $792M endowment; it educates 26,000 undergrads and 10,000 grad students a year. I can’t find statistics, but I would hazard that the parental income of a Hopkins student is higher than the parental income of a Maryland student. I would also hazard that the percentage difference in income of a student who was waitlisted at the university and got in vs. a student who did not is bigger at Maryland than at Hopkins.

Which is all a long way of saying that donations are vastly inefficient ways to redistribute wealth, and we should just tax people a lot more. I’m not saying that central planning is a better way to distribute wealth; plenty of this money could just be block-granted to states/municipalities with some strings (i.e. required income reporting, tracking students after graduation, etc.).

Philanthropy may sound good, but a system with a lot of big-dollar philanthropy probably isn’t equitably distributing wealth in the first place.

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One theme on this blog is a certain level of generational warfare, for lack of a better term. The idea that our policies have been carefully crafted to benefit the older and wealthy at the expense of the young and poor. You tend to hear people focus on the rich/poor distinction, but the age difference plays an equally important role. There’s a new article in Esquire that explores this. Here’s the opener:

“Twenty-five years ago young Americans had a chance. In 1984, American breadwinners who were sixty-five and over made ten times as much as those under thirty-five. The year Obama took office, older Americans made almost forty-seven times as much as the younger generation.”

One astounding fact it reports is that it is estimated that 85% of 2010 college graduates returned to their parents houses, carrying with them an average of $25,250 in debt. The debt I can believe, but… 85%?!?! That seems so amazingly high. Must it include people who return home briefly before heading out for a new job or opportunity? I know the market for young people is awful, but I still find 85% very difficult to believe. Or am I being naive?

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As Linus and I have stated before, most problems in America are the baby boomers’ fault, and they have left them to the younger generation to solve.

The new data on wealth for different ages only makes this clearer:

A perfect storm of economic forces has caused the net worth of of people under 35 to fall by 68 percent between 1984 and 2009 according to the Pew Research Center. It’s a bitter pill to swallow for the young and depraved given that the nation’s olds (people 65 or older) saw a net worth increase of 42 percent in the same period.

And yet, the main fiscal issues of the day are not how to help America’s youth, but how to keep Social Security and Medicare afloat and how to keep pensions from bankrupting states. I’m not saying that we should weaken any of these programs, but the focus on the boomers (and their unwillingness to pay taxes, vote for progressive candidates, or support general social improvement such as interracial same-sex relationships) is basically ruining the future of America.

We should just change the motto from “Out of many, one” to “Fuck you, I’ve got mine.”

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The Onion recently published this hilarious story about the new Republican education plan to close all schools and instead just give students $3,000 to “start their own business.”

Of course, The Onion‘s humor derives from its closeness with the truth, and Eric Cantor’s (undelivered) remarks on income inequality demonstrate how close the Republican Party has veered beyond parody:

I believe that child needs a hand up to help her climb the ladder of success in our country. She needs the advantages of a solid family around her and a community that encourages her to learn and work hard. She needs some semblance of stability. She also needs some guarantees. She needs to know that the rules are the same for everybody. That although she may have to work harder than many of us, she needs to know that she has a fair shot at making it in this country.

OK, so far so good. Children in poverty need help at an equal opportunity for success. So… better schools? Extensive job training? A minimal health insurance plan? Maybe universal early childhood education?

Uh, no:

There are politicians and others who want to demonize people that have earned success in certain sectors of our society. They claim that these people have now made enough, and haven’t paid their fair share. But, pitting Americans against one another tends to deflate the aspirational spirit of our people and fade the American dream. I believe that the most successful among us are positioned to use their talents to help grow our economy and give everyone a hand up the ladder and the dignity of a job. We should encourage them to extend their creativity and generosity to helping build the community infrastructure that provides a hand up and a fair shot to those less fortunate, like that little 9-year-old girl in the inner city.

So, there you have it. The Republican plan to help all children receive equal opportunity is… to wait for benevolent rich people to “give everyone a hand”!

The rest of the speech is mostly a love-letter to entrepreneurs and small business. We’ll just wait for the 9-year-old to start up her business, I suppose.

The Onion couldn’t have written Cantor’s speech any better.

For what it’s worth, Cantor refused to deliver the speech when it became clear that his entire audience would be Occupy Wall Street protestors.

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Readers of this blog have probably seen me say at some point that I think the biggest threat to the promise of America is our out-of-control and ever-widening gap between the wealthiest Americans and everyone else.

That being the case, you might not be surprised to learn what I think of a long-term budget plan that continues to slash top tax rates when they’re already at historic lows, and then slash trillions from programs like Medicare and Medicaid: it’s a transfer of wealth from the poor to the most privileged. With our current fiscal structure in this country, I find that unconscionable and immoral. So I’ll turn it over to James Fallows to unload:

1) A plan to deal with budget problems that says virtually nothing about military spending is neither brave nor serious. That would be enough to disqualify it from the “serious” bracket, but there’s more.

2) A plan that proposes to eliminate tax loopholes and deductions, but doesn’t say what any of those are, is neither brave nor serious. It is, instead canny — or cynical, take your pick. The reality is that many of these deductions, notably for home-mortgage interest payments, are popular and therefore risky to talk about eliminating.

3) A plan that exempts from future Medicare cuts anyone born before 1957 — about a quarter of the population, which includes me — is neither brave nor serious. See “canny or cynical: take your pick” above.

4) A plan to reconcile revenue and spending, which rules out axiomatically any conceivable increase in tax rates, is neither brave nor serious. Rather, it is exactly as brave and serious as some opposite-extreme proposal that ruled out axiomatically any conceivable cut in entitlement spending or discretionary accounts.

5) A plan to reduce the federal deficit by granting big tax reductions to the highest-income Americans, at a time when their tax rates are very low by historic standards and and their share of the national income is extremely high, and when middle-class job creation is our main economic challenge, is neither brave nor serious. See “cynical,” above.

Read the whole thing.

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