The 1% are the Atlases

The disappearance of the middle class is a direct consequence of failed economic policies enforced by bad laws.  Regulations (first) and taxes (second) destroyed the manufacturing industries. Desperate for productivity, firms seek and reward the best managers.  But they cannot work miracles.

America moved forward on information technology.  Computering is wholly unregulated, though the incomes are taxed.  But computers are only one sector.  Genetics is stalled.  Spaceflight is marginal.  Robotics is stuck.

Just like physics, to the extent that economics actually describes reality, the facts cannot be evaded without consequence.  Machinery needs motive power. Engines need fuel.  Friction must be reduced and worn parts must be replaced by preventive maintenance.  Most of all, no engine design solves all problems.  Therefore, innovation and invention – innovators and inventors - are the prime movers.  To pretend otherwise is to beg for disaster, which is where we are headed.

On the nearly-free enterprise blog, OrgTheory, from almost-rational sociologists, is a current topic spinning nonsense about the “income gap” caused by the salaries of top managers.  Idiocy is easy to find, for instance, at Huffington Post (which, in fact, delivers the marketable facts of your session to its parent AOL, a ironic and just consequence, like profits on Che Guevara t-shirts).  I single out OrgTheory because they usually exemplify good thinking about new ideas in sociology.  But sociology never shrugged off its Marxist chains.  So, sociologists labor under a burden of false assumptions and wrongful conclusions.  

The problem is not that top salaries have increased, but that the middle class has disappeared into the working poor. They were crushed by the regulations and taxes that destroyed the businesses that employed them – and made impossible other new firms offering inventions, innovations, creations, and developments which never happened. 

The Congressional Budget Office statistics are unarguable. The top quintile earns 50% of the income and pays nearly 70% of the taxes.  The broad middle class – 60% of the workers in quintiles 2, 3, and 4 – earn only 45% of the gross income and pay only 33% of the taxes., with the 4^th quintile accounting for more than the lower two. The top 1% earns 15% of all incomes and pays almost 30% (28.9%) of all federal taxes.  The richest carry twice their fair share.

We are killing the goose that lays the golden eggs.

The wealthy have proved that they are accomplished at creating and managing wealth.  We know that the government is neither.  The government does not create wealth. The government does not manage wealth.  Those are not its purposes.  If it has any function at all, government is defensive and remediatory: we look to power for justice and protection.  Even “infrastructure” is not its purpose.  President Obama pointed to highways when he told innovators and creators, “you did not build that.”  But like Bastiat’s broken window, the highways are only visible events that mask the unseen.  When the highways were built, cell phones and the internet were possible.  But AT&T was the “Ma Bell” monopoly.  Car phones were exotic luxuries; even answering machines were rare.  Private highways – the Lincoln Highway; the Dixie Highway – were created; tollroads and turnpikes did exist.  Then taxways called “freeways” prevented innovation in public transportation.  The construction of the superhighways – and the support they gave to the automotive industry – actually derailed innovation and invention by draining capital into less productive channels.

The American government invested monumental resources in a cold war against a hollow empire that never knew a successful harvest.  Every jet fighter, bomber, missile, and submarine represented one more utopian promise from 1900 never to be fulfilled.  Public education Kindergarten through College still consists of one person lecturing to a passive array of listeners – and we wonder why it failed. We speak of “cancer” the way 19^th century people did of “miasma” and “consumption.” Meanwhile latter age neo-primitives protest for laws against genetically-modified plants and animals. We do not fly to work in personal aircars, vacation on the Moon, or transship freight from highspeed rail to dirigible airships.  The missing innovations were the unseens of Bastiat’s unbroken windows.  

From the vantage point of the Wright Brothers, Robert Goddard, Thomas Edison and Nicola Tesla – or Jules Verne and H. G. Wells – we should be colonizing the asteroids by now, enjoying median IQs of 150, and inventing new art forms for 3-D displays.  Instead, we still wear colored glasses like they did in 1955 to watch remakes of 1955 cinemas, because engines of innovation and invention were stopped by the sands and sugars of regulation and taxation.

The wealth of the 1% came from the computer revolution.  It was the only sector of the economy not regulated because its very nature literally mystified the legislators.  They could not regulate what they could not understand, gratefully.  With Moore’s law racing ahead of all the other laws, computering is the only train on the track.

Make no mistake: it was not Al Gore or even his science advisor Dr. Michael Nelson who built the Internet.  It was hackers and hobbyists who built the first consumer modems and wrote the cyclic redundancy check programs for them to let ordinary people in their homes use the voice-grade landlines while the government-backed AT&T Bell monopoly wanted to charge “business rates” for data grade lines.  As BBSes were spreading, local Bell operating companies were lobbying for laws against them, seeking government-sanctioned permission to offer the only dial-up information services.  That did not happen.  They did not build that.  And we have some thin blanket of prosperity against the chill of regulation and taxation.

Atlas Shrugged, Part 2 will be out this week.