Envy and inequality

Bob, a friend of mine, posted a Facebook status update that included some statistics about CEO compensation in the United States. Those who disagreed with his argument — that gross inequality was destabilizing the social and economic fabric of our society — tended to invoke all manner of hyperbole about communism, socialism and Marxism. But a common refrain in the comments accused Bob of envy.

“Isn’t envy one of the seven deadly sins?” taunted one.

“I begrudge no one their hard-earned success,” said another, implying that Bob was just grudging. “Not you, and not any CEO.”

For those who might not have taken rhetoric or logic, an ad hominem (Latin for “to the person”) argument fails to deal with the substance of claim and instead makes an irrelevant attack on the opponent’s character or motive. And it’s pretty common on Facebook whenever politics rears its head.

Playing the “envy” card

It’s disheartening, however, when blatant ad hominem attacks run unchecked in the popular media reporting on serious and substantive policy debates. I encountered one today on The Daily Ticker, in a blog post called “Why Piketty has an “envy” problem: Schiff.”

Piketty has a 700-page economic treatise called “Capital in the 21st Century” which is a surprise best-seller (at this point, three weeks at Number One). A story in the Times sums up the book’s thesis neatly:

“Capitalism has a natural drift toward high inequality, as assets like real estate and stocks disproportionately held by the wealthy (capital) rise faster than the economy (growth). This process was temporarily reversed by the world wars of the first half of the 20th century, but now inequality in the United States and Europe is rising back toward pre-World War I levels. This is a bad thing, which should be fought through radical policy measures like a global tax on wealth.”

If you’ve followed the debate around this book, you’ll know that there has been a dispute between the Financial Times of London and Piketty over his data selection and methodology. And that’s a good thing, because the debate will tease out the strengths and weaknesses of Piketty’s analysis. But in the Daily Ticker blog today, we get this:

“Author and Euro Pacific Capital founder/CEO Peter Schiff argues Piketty’s real problem is envy,” the post reads, and quotes Schiff: “He’s talking about imposing draconian confiscatory tax rates on successful people…to me that’s more about being envious of the people who can succeed than about a legitimate economic policy that’s going to lead to greater growth.”

That’s simply outlandish. Piketty is a pretty successful person himself — he has degrees from the best universities in France, Great Britain and the U.S. and had already earned an illustrious reputation as an economic wunderkind before this book even reached #1 on Amazon. Not only is Schiff trying to infer a motivation from an action — which puts him on shaky ground — but he discounts any other possible motivation for Piketty’s work. (Put another way — is Schiff a better psychologist than Piketty is an economist?)

But playing the envy card is, first and foremost, a way of avoiding the substance of Piketty’s analysis. If you can attack Piketty’s credibility from the outset, there’s no need to read the book, right?

What Schiff says next makes it clear that he’s probably not up to the task anyway. In the post, Schiff “says much of that (profit) doesn’t go to workers, but goes to taxes, lawyers and insurance, so workers are not getting to keep the fruits of their labor and then have to pay a ‘heavy’ income tax.” So Schiff’s argument is that CEOs would pay better wages if they didn’t have so much overhead.

As a former CEO, that was not my experience, nor did I ever once hear a colleague say, “If only I didn’t have to pay so much in tax, I could pay my employees more.” Today, CEOs at both public and private companies are incented to maximize profits and profit margins, which requires they only pay employees as much as they need to, not as much as they can. Schiff conveniently ignores the fact that because labor is an expense that sits above the EBITDA line, a successful business could reduce its overall tax burden by paying its employees more. In other words, a company that behaves the way Schiff suggests — one that has preferential attitudes regarding labor over tax — might even pay employees 100 percent of anticipated profit in order to avoid taxes. But I’ve never seen one behave that way.

Finally, Schiff’s argument could only make sense when there is little or no profit after taxes —and as the chart shows below, this isn’t the case (corporate profits in the US have risen 68 percent since 2009).

If Schiff’s “benevolent CEO” thesis were correct, we would expect income growth across all segments of the workforce to grow as rapidly as profits, since in his view, corporations would distribute “excess” profit to the workforce. But that doesn’t seem to be the case. In 2009, the U.S. Census reported that median household income was $49,777. By 2012 (the last year for which the data is available) that number had increased by just $1,293, or 2.6%. In fact, if you stretch out the data back another decade, median household income has been dropping. The New York Times reported that the census report “found that median household income, adjusted for inflation, was $51,017 in 2012, down about 9 percent from an inflation-adjusted peak of $56,080 in 1999, mostly as a result of the longest and most damaging recession since the Depression.”

But I think there’s something else going on. In another Facebook discussion, this time about an increase in the speed limit on Interstate 295 in Maine, one commenter thought he was about to end the debate by writing, “Saving fuel is a personal choice.” But it’s not just a personal choice, of course. Speed limits create coordinated consumption, which can impact both overall fuel consumption and demand. These, in turn, can affect the price at the pump and emissions — certainly fair game for public policy.

And so it is with the envy argument. Not only does this particular ad hominem disclose intellectual laziness, but it also seeks to remove discussions from the public sphere and condemn them to “personal choice.” But the allocation of wealth always involves public policy choices. As Bob wrote in his Facebook post:

The role of the good citizen is to try to make our country better by participating in discussion and advocating for better government. I have always thought for myself and tried to understand the facts of issues and then work for improvement. I always tried to teach students to find out the facts and then take a position. Personally I believe we are all in this life together and vast income inequality is not healthy for our culture. I am terribly worried that such a large percentage of our GDP is based on financial speculation and has very little to do with real innovation and creativity.

Whether you agree with Bob’s concern about inequality in the United States, it’s hard to see how he is motivated by envy.