Ep 99: The Myth of American Inequality with Senator Phil Gramm
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Burning sander says that income inequality in amErica is unseen and unsustainable. Actually, if you can all transfer payments and taxes, income and inequality lowered to do than IT was nineteen forty.

We felt a lot about the problems of the eec ality, about the rich getting richer, the poor getting poor. People suffer in america, said their filled gram serve in dc for twenty five years. He's an economist.

He's an iconic class. He's a legend from texas e and a couple other great economists spend a lot time on the data, and they were a book that chAllenges conventional wisdom. Has a very different view on how people are doing in america. Let's here from you're very respected here in texas, have come here last five years, is a long lot of people spoke to hive ve you .

so an honor to get to meet yeah preciate that I .

enjoyed your a book here, clearly an economist and interested in data as well. Your a book a couple of years ago called the myth of american inequality. Before you jump into that, I want to hear a little bit more about about your background and dc.

what brought you to dc. I was academic. I was economist for twelve years, but I didn't like what was happening in amErica in the nine hundred and seventy and got promoted to full professor when I was thirty.

And I sort of woke up one morning and realized I was adult, and I didn't like go what was happening in our country. And so I was doing energy work in canada. I lead to a book, the economics of minor extraction.

And so I knew everything the government was saying about energy was wrong, know we were never going to produce more fossil fuel, was absurd. So Michael story shared a old article, flow wall street journal. And i'd written a lot of academic stuff, which nobody ever read, and suddenly this article produced dozens of letters in response.

And so our story is speaking out on subjects. And that basically lead to me ultimately running and being elected. amazing.

I M, I guess the law of the energy in one hundred and seventy was very .

pessimistic. People thought nothing out of everything in. We had to learn to live on live.

Well, I win the amErica that known for. I love IT. Well.

you're one of the early american optimists who helps turn things around the back. Thank thank you for that. Haven't see a book a little bit. This just a myth of american inequality. We're constantly hearing from all sources about how amErica is becoming more unequal, about how it's just so horrible for the least well off about how the top of taking everything and and and you guys do a very kind of scholarly like analysis of this and and said.

that's wrong. Yeah, IT is wrong. Well, forceful. Let me say that IT is always since time, the ancient greeks been a political ploy to try to create divisions between the people who have things and the people who don't have much is not a new idea.

And even in america, IT has some silence as an issue. Um it's reinforced ed, by the fact that the census bureau's in measuring income starting in nineteen and forty seven made a series of simplifying assumptions. Are that basically came down to the fact the very little income was paid in can like you employ your buying health insurance or contributing to your a retirement system or government benefits like food stamps, housing services, medical g didn't exist.

So the sense of people defined income household income as cash payments or cash pre tax, I A find yeah and they didn't take into account taxes. And so that was other than the tax assumption, that was a pretty reasonable approximate in nineteen forty. But dozens and dozens of occasion, the warm poverty started virtuality.

All of its benefits were paid in kind. They weren't played in cash. The census real didn't count any of those benefits as income.

So today, in measuring household income, the census bureau's ts, only about a third of all transfer paintings as income to the recipients. I didn't count food stamps IT doesn't count. Housing subsidy doesn't count medicare IT doesn't come and IT doesn't take into account taxes. So IT doesn't count. Refundable to express IT where you get a check from the treasury. So in total, for the people who are class fs being poor in america, eighty eight percent of the benefits that they get from the government or not counted as our income so let me just don't wanted bore you to death with figures and let me give you two one in nineteen sixty seven when the warm poverty ranked up um counting all transfer payments as income received and all taxes paid, is income lost the average in the bottom twenty percent of income on in amErica got nine thousand and seven .

hundred .

dollars in the party. Seven hundred doors from the government benefits got IT by night by two thousand and seventeen fifty years later that number was approaching fifty thousand dollars.

Inflation adjusted.

this inflation adjusts in reality the way we find to find poverty. If you can all transfer payments and taxes, only about two percent of americans or poor. And most of those are people that i've got a problem, physical problem, mental problem, drug problem, alcohol problem. And so they're not receiving many of the benefits also in terms of the income and inequality. According the census bureau, in their measure mode of housel income, the bottom twenty percent, the top twenty percent of owners in amErica have sixteen point seven times the income with the bottom that's missing .

at the wrong way, though they were to six.

That's not counting taxes. And the top twenty percent pay huge percentage of the taxes. That's not counting two thirds of all transfer payments.

And so when you count all transfer a payment, you count all the income senses doesn't come on and you take into account taxes, the ratio of the top, the bottom is four to one, not sixteen points. So over the one. And now you can say forward once too much, maybe he is, but it's a completely different debate. And i'll have to say whether I was at stanford or horwood or the university chicago, no one has ever said that these numbers are wrong. I think they're .

probably afraid to get .

attacked for IT is my, well, what and the best day have been able to do, which is the way I would attack the book academically, I will post to IT, is to say what you can edicated. No, that's true. You can not medicate.

But for working families who are not much Better off than people on welfare in amErica today, they can be blue, cross blue, sheer leader. But they buy at one of the number where the sensus says that income quality is rising. The burning sander says that income in equality in amErica is unseen and unsustainable. Actually, if you can all transfer payments and taxes um income and inequality lowered that that was in nineteen forty seven.

What was the ratio and forty seven between .

the top in the bottom IT was it's now about three percent less than what I was now. The and this is important because we're having a real debate in amErica about the sustainability of democracy and capitalism based on the thesis is that income inequality growing rapidly when in fact, IT is declined in the last fifty years. Culturally, what do you think that is?

I think the the greek call, you mean IT, was very interesting that you remember there are something in ancient greece where they choose like the richest person that nobody liked, and they ban them and they they banish him and take their stuff for ten years, rose. And that's where .

the outside look. The in our system, there are a lot of people who are successful that we don't like. There are a lot of people there are successful in.

You say, well, I am as small as that guy in port to be free and to be prosper. SHE got, accept the fact when you said people, for you, some people that can be more successful. I don't have a problem with that.

Rich people make me richer. Help iran must. But if he still rich, his man in the world.

But i'm not poor because he's richer. I'm richer because he's Richard. I have his satellite on my mile and .

it's one tenth .

as expensive as the internet service I was getting before and is twice is good amazing. So yeah, he's Richard me, but i'm Richard cao Richard. I know IT is about me. I think you'll .

think you about any quality in the wrong way. I think you're right. So i've also big, big island, but I still the budget companies as well as funny, I my friends, I another company that would making an equality go up. But if I were to to spend all the money on the beach and go have vacation, that makes an equality go down. So they really think I should be going on a complication more.

Is that what they are saying? interest. And there so many things I know we're going get into them that, that are so misleading.

The way people talk about IT I made, for example, do the rich pay their fair sheer? okay. Well, if their fair share is everything, no. But if you look at actual our data, the tax code is progressive up to about seven, and I have million dollars a year, yeah, and rises federal, state, local taxes to the low of forty percent and then IT levels off.

And for a very small number of people who earn almost all our income from capital gains and you give vast demands some money away, IT falls into the thirties. But this idea that the bridge stone play there for sheer is a result of a bit and switch. You remember the article that came out on from a republica where they stole attach to remember, well, I looked at those, wrote an article, the walls are journal about IT.

If apparently they took the actual taxes paid when they're doing warn buff, a great public benefactor, in my opinion, they took his actual taxes, but they intake his actual income, and they made up in the income by saying, what would his income have been if he sold every asset he owned every year and pay taxes on IT? yeah. And on that basis, even president biden quotes their number. That is, taxes would have been very low.

It's a fake number, saying a big number is a thing. Anything you own should be tax right away, which would not work for couples. This is big debate going on right now. In america, you have some really extreme rain of people that give coal. And by in this idea that you need to take everyone's wealth exactly where IT isn't, tax them on and unrealized every year, which seems like going to break.

and you well would destroy a capital accumulation and ultimately the prosperity of the country. But and you've got an appetite, for example, the french economy fend. All of his data is based on when he's told about inequality.

He didn't count any transfer payments and he didn't take into account taxes on the up and and he does debate and switch on income on the upper by saying we should count their asset appreciation. Well, that would be equivalent to a Normal person. You got to sell your house every year. You ve got to cash.

have the kind of my house and they have to look at the artifacts. They have to judge the value of the .

artifacts and tax me on on which is what which is what um what he wants to that's what he wants to do. The chairman of the senate finance committee, hopefully not chairman, was longer. But what he wants to do is tax people on the appreciation of the assets they own. What what would you do if they started taxing, you know, and the world would happen to its value would go.

Now it's interesting to you, because inflation in that case would allow them just to steal your money very easily. They cause inflation by printing money, giving and out people, and then they can say a lot of your stuff worth more.

And and then taxi. Well, and course, inflation is how government historically is so stolen money ah but in any case, the book looks at A A range of issues from to the rich pay their fair share. And let me give you one else on a warm buffet.

You know one of the criticisms are buffeted by the left. He didn't pay him self income. Kay pay himself a modest salary. He didn't spend any money. He drives a muse core and um so they say he's cheating the question well if his IT is not if he's not spending IT, what what's happening .

to yeah what .

well what is the world doing IT is invested in the future of america, is making all of us Richard a buffet is a public benefactor when he does and may not be a long time from now when he does. And the government takes forty percent of what is and spends IT. We're going to be worse of having them spending IT. Then him having invested IT in the future of me yeah .

was helping grow .

the country. It's the same argument. But but he is you where where RAID is his nephew says, well as well doesn't know good. He then spend IT, whose didn't do good britain IT built a railroad, ge IT built the factories.

Ah people， I think the system level understanding of wealth, creating our society and making things work is is unto to people. I want to ask you look about the war on poverty. We have this big war on poverty.

We recited some specific, fifty years before twenty seventeen, I was much smaller. Ont, going to people. Now it's a much bigger among going to people.

A lot of people talk about how the warm poverties done little to move. The poverty rate IT was a failure. But it's actually interesting using your data, has not there been a massive transfer .

wealth to the poor? Has some of this? And if your objective was eliminate world, it's been successful. It's transferred red huge amount, twenty two percent GDP. Okay, transfer payments.

That's in general, not all love going to poor people, but if you you go with the objectives that london Johnson announce, which was to make people self sustaining, it's been an object failure and limit you you one more number. When the warm poverty started, sixty eight percent of the poor people, in a miracle word, that number is now down with. And this prime work person, okay, now is down to thirty six percent, that thirty six percent. And in the second quint, the the there's second twenty percent of income. Others, they had a higher labor force participation in the country, and that's now fAllen below middle income workers.

So speaker paul wins a friend and he's, I think, been very eloquent on the bad incentives of welfare and and how a lot of people they they will make less if they work because of bad government policy. So I understand why the bottom, which has been pushed not to work, which is horrible, but understand why the instance work.

that why would the second to highest people, generous, so big, that is inducing people that are in the second quality to stop working. And in fact, the reason the labor force participation rate failed during the pandemic, even after the pandemic was over, was the benefits had built into the middle.

Is so much free money to everyone?

yes. So look, it's it's wasteful of people's lives and tax money to pay people not to work who could and should work, yes, but when you get to the point where we're paying middle income amErica is not to work, you are assaulting the very foundations of the country.

So a lot of taxes, but they are being used .

for that i'm not feeling good about reminds .

me of idea called U. B. I. If you heard this universal basic income, a lot of a lot of people on technical vely think we're gonna just start truck and no, is going off to work too much, is going to give my money, is simply as not good for the solve the nation to me.

Well, look at whether we all have over one hundred welfare programs or not is clearly definable. Whether we would be Better off giving people cash more than all you'd benefits is debate.

But IT is didn't seem to me to be debated that if you got able bodied people that are Brown worker and you're providing welfare benefits, they all have to work um to me that is that's not definable and look, it's a IT working gives due the dignity that comes from being self sufficient and if you're not, the american economy is like an nator. Okay, you go to work, you get on the escalator or you work hards, you climb up, you fool around, you stumble down. But descriptors going up. Compared to nineteen sixty seven, sixty six point three percent of all american outsells, uh, are now in the top quintal of earners is compared to one thousand nine .

and did in nineteen .

sixty seven and because of the increased productivity of the economy. But if you aren't working, if you one of those sixty eight percent, it's now down to thirty six percent. You weren't only esco later ah and so you're you're benefited only to the extent that government gave you more. So I am firmly committed to the principle that we should have a Mandatory work requirement for everybody to people on wealth.

I like that idea lot. I think that makes a lot of sense. It's not healthy.

Not you talk a little bit more about history we talked about in greece. Are your book talks about actors an england as well, which I really enjoy. Ed, I think a lot of us are brought up on these .

stories of a these like really .

kind of grubby cities and you see poor people and and you're kind of told and popular culture. This is a horrible time on as people are suffering in the cities and being mistreated and having a tough time and there's kids working and is interesting as if you actually look at the statistics from about twelve hundred, eight hundred, you had a pretty flat, pretty flat h productivity, flat growth like people weren't doing Better.

And then all of some people started doing much, much, much Better in the nineteen and century. Actually, they are improving the whole time. So what's what's going on there? Why the .

confusion? We had the enlightenment, which was an intellectual movement that recognize that people should have the right to worship god in their own way uh that they should have um the right to own their own labour and capital a because in many in the media world the insensitive to work was leach the way because of the fields that people had in sharing they had with the crown, the church, the guilt gets the city and so when we came to view people's labor is something they own as the fundamental property his aram Smith has corb is great if um then things started to change.

And so if you look at income levels for a thousand years, they are pretty flat in an always on. And that was the enlightenment, the birth of capitalism, the industrial revolution. nail.

What were conditions in the industrial revolution? Terrible is compared to today, yes, but were they Better than any people who had ever lived on the face of the earth, had experience? IT, yes.

I think this is the confusion. I think one point, your book you mention when people thought of country life, if they were high class, they think of the manor houses, and they think of the nice, beautiful places, but actually there were people suffering and living really badly in the countries that when you drives the city.

you always side. And they chose to come to the city. They saw opportunity and freedom in the city, and they found both. There's never been a period in the history of the world were working people benefited more than they did in the last tip for the eighth century. And all the th, I am a lot of the the litter tour you read about how terrible IT was was from the landed gentry y who were losing workers and who were in a political battle with people living in the city over the corn laws. And the corn laws in england were laws that banned, that limited the import of food products and grains.

Is this ronis m to try to help?

I know what happened is when the cities became more politically powerful, they force the parliament to repeal the corn laws, and the the living standards exploded. And much of this literature was so there, trying to discredit the new industrial revolution. So IT. And don't forget the the, an economy, we have creative destruction. When new industries come, they kill awful l industries. So you know, I was if i'm a landed a risk to quiet and i've gotten the parliamentarian really works for me and then suddenly, ly, you've got industrializing and you got all my workers go into the cities and and laying values of flowing.

I'm unhappy trying to stop IT. This is try to stop this. Ya bol.

and because try IT, the biggest difference to in american europe pe today is we d allow korea of destruction. They try to impede IT. I see every day I still work a line till people have Young wife wants money, would put me in a nursing home. I quit working, but I work as I like working. And one of the biggest problems in europe in private equity business and acquiring businesses is that when you're looking at a business and you look at the number people who work there and often it's twice as many people as you would have doing the same thing in america, yet you can lay a without paying a huge. So you can, I feel like in if if the body I can throw off old .

father in some and something at, I remember him being on the phone yelling because he couldn't fire people, leave him back. It's impossible. The thing i'll give you on that, which is interesting, elon mosque, of course, has become very famous now again when we work with him back at paypal.

And not another context. And when we were building paper, I was a kid there, h ellia. Spitzer kept trying to destroy the company with regulation, and very close to doing so.

And in europe, that actually war companies, that we're destroyed by the regulators. So it's funny, like we actually have our year on musk. Thanks, america. Not quite being able to stop us.

Where is in europe? Like, well, the first place I ran into anything similar to that was in china. Interesting right now where that was the first place you ever could you hold a card up to someone, have IT register and they will wait ahead.

Um of course we have blown pay some. Now freedom works. I want to ask about the super .

rich because that's something it's very contentious. I feel like a lot of the worry about inequality maybe comes through social media today where people see people living much, much Better than them. On the very rare exceptions of private jax, huge monts of money, and you and kala, Harris and berry standards all kind of use this against you. They say people are fired, fires and teachers .

are paying more. Are there some things .

that are unfair about super Richard? Are are getting something in america. They are, are they, are they paying their fair share? Is also, if we took a bunch away from them, what they make things Better? Like what's the thing .

about a first of all, if you look at the actual tax data based on how we define income, the tax system is very progressive energy, the most progressive tax system in the world.

an important post use, is the most .

progressive we pay, the more progressive in france. Germany swe more progression than sweat.

not how people think about. People assume that that is less process than.

well, if they, because of this argument, I hate what you know. I will give you twenty five cells knowledge to buy a house. I will give you six cells knowledge you have a child and more.

Raise a refund tax square. You get this check. What are you going pay for? IT h.

What tax are rich? Okay, there's an answer here. Let me give you figure. If you took every pinning of income of billionaires in america, you couldn't fund the nineteen twenty, the two thousand twenty two government for a week. Okay, look, there are picture little bear rich, but are not mariani um yeah, people should never be deceived. That is basically upper middle income amErica who pay the great belt of taxes because there are a lot album and because we have a very progressive taxes.

So we we have a lot, lot of the single in millionaire .

or people really painting from, remember? Yeah, that's why isn't a take? My wife is a perfect example. We told IT, texas a onum. And when I went to congress, he did want to work for the government until regan was alerted. And so SHE work for them two for defense analysis.

And so they paid, like texas h her retirement from the ten years he told and two years he worked at the input ference analysis is worth over two million hours, okay, welds power of compound interest. And there was a long time ago, we're old. The point being that this is all a big myth. Americans are extraordinary, R P up, but prosperous. Some people are very rich, but we're not poor because they are richer at the point i'm poor of because government richer, but i'm not poor because on much is actually, to me.

this seems like the opposite. The parts of the world where they don't let people become billionaire seem to be a lot worse off.

What they are worse.

I want to ask about ability for people to start the bottom and go to the top as well about ability. And there's there's some data from professors like rosh shati at harvard. He tries to argue the economic ding in the U.

S. Is lower than canada. Not what you guys said.

Well, no, we would say absolutely right. But let me explain why canada has a very active legal immigration program. The percentage of their citizens who are immigrants is you just compared to us, and they have a selective immigration program.

So who is immigrating into canada? engineers? data? Sanders? doctors? And so as a result, these people come to canada with nothing.

They don't die with nothing here OK. So and is even true in amErica with legal immigrants, even though we don't do IT the way they do. Um you know you look at the profile of legal immigrants in america. Most households have both natural parents. Children tend to make much Better grades in school, have fewer discipline problems, 嗯， and are driven to achieve because their parents are driven .

to ambitious legal immigration.

So canada, yet chinese right, but for the wrong reasons to canada does have a Better system than we do. I look, let me know. Hate to get in a personal story, but mab brother was the first person in the history of my family to graduate from moscow.

O and I had a big family. wow. mom. Brother was the first personal graduate from my school, first person to go to college, first person to go graduate from college.

K, 呃， my mom came to column as your order work in a cotton meal. OK, so if you going to convent me, that amErica is unfair, you going to get money. You, early in the morning because i've live the american dream and I believe IT not because i'm brilliant.

And if you can be born rich, beautiful and billion do IT yeah, that's my advice. But not being any of those things does not disqualify you in america. If you work in amErica and you make good decisions, you can be successful.

I fail thirty seven and nine grades. I had a reading disability problem that I learned to read. Loves in the death.

Great, amazing. I tried to fail you over and over and over. But in america, especially, if you had a mother like man, you you succeeded. And people succeed every day, every day.

One one of the interesting data points i've seen, I know if you looked into IT IT seems like we may have actually greater disparity in educational outcomes, and we do in wealth, if you looking to that. So I think I think right now, for example, between the races, baby, it's it's not comfortable, but asians to have twenty five percent of them that scores red the at the top level. And math is with his panics is two percent and blacks as one percent. And so IT seems like the wealth disparity is actually less than the educational .

disparity in some ways. Well, look, the the asians have been extraordinary, nearly successful in america. I know if you got children in school, as I get to the point where you start having list of who the support live students are, you're going to find massive numbers of asian because their parents came here, they saw this opportunity, and they instill in their children you can have anything in amErica if you work forward.

So, uh, our asians, on average, smaller, I don't know. And I don't know that IT matters. I know as students, they tend to work hard and they tend to be successful.

And that's that's what amErica is about. I don't have any problem with. I have a problem when you try to fix the game, but I don't have any problem when merit.

So we start american optimists for conversations like this to push back in ism peiser our country. And one thing is a little sad as law, Young people increasingly believe they'll worse than their parents and believe that's been the record the last fifty two, one hundred years.

Can you set the record straight on? It's completely false. Their parents did Better than their parent. The odds are very hard. They're going to do Better than their parents. But the reason their parents did Better than their parents who did Better than their parent is because of economic freedom. China is beginning to fail economically for one reason because they have the government is reducing the economic freedom.

People here when government can um a stay in someone like more and they attack him and destroy, have the equity value of the tech industry in china, you're going to have an impact on growth. So when government is assaulting economic freedom, they are assaulting the opportunity of people who trying to succeed in america, limited economic freedom is bad for you, but is disastrous for Young people that are ambitious, that wanna be successful. And that's why the system, if we can preserve freedom and all, is essential, special economic freedom is no limit. The future of the american people.

Not very well. Sad, good friend. My age actually was to beijing right before taking this company public about to become a new billionaire in china. I known him for fifteen years, and he died in to sleep after saying no to the government about something. So I don't know what actually happened, but IT does seem like they're really cracking down and its really has hurt their growth in that sector. I really hope americans can stay free and not become like that, not along with what cor wide and come on hair seem .

to want to do to the billionaire. Well, if we do, IT will be our choice. They, and want a reason, wrote this bug.

Yes, we need to get the facts straight. We can. We can have a debate unless we know what the facts are. In one of my great frustrations, having been in government at the twenty five years is IT. And i'm not trying to tube moon or i'm just telling the truth.

I'm never knowing ingy in twenty five years in public, golfers said something that I knew went through, and i'm sure I said a lot of things to wear true, but I didn't know IT. Okay, now routinely politicians say things that are very false. If I had made a statement about some economic fact that was wrong, the media would have jumped down my throat.

And I knew IT. And now they let both sides get well once, add more than the other thing, but both sides, depending ding on the media source. And that's very harmful to the system. When somebody says something is wrong, the facts need to be corrected. Well.

i'm of the fact center filter ound the miss amErica and equality.

If you read that book, look, i've given the royals away. If you books down paper back at wall street, drone RAID IT on the top books, a year one, the high act prize, fifty thousand dollars.

Congratulations on not stand a high light gets a cool prize to learn.

I love if you haven't to read this book, you and you believe in freedom, you need to read the book so you know the facts.

Then you make up your own man. Well, thank you for being an american. Patric, fight for .

freedom. Thank you. Operation.