Challenging ‘fallacies of inequality’

According to Phil Gramm, former experienced U.S. legislator and economist, there’s nothing inherently wrong with uneven income or wealth distribution in the country.

The issues emerge when the federal government attempts to create a fair playing field, whether through rigid corporate anti-trust laws or through aid initiatives for the less fortunate, stated the Texas Republican, who served approximately three terms in both the House and Senate, during a discussion last Tuesday at Harvard Kennedy School.

“Individuals possess diverse skills and interests, varying levels of effort, and inequality is a natural result of competition. I’m not distressed by inequality,” Gramm conveyed to Harvard economist Larry Summers during a dialogue on economic policy.

The two collaborated in the late 1990s when Gramm chaired the Senate Banking Committee, and Summers was appointed U.S. Treasury secretary by then-President Bill Clinton.

Gramm, who earned a Ph.D. from the University of Georgia and lectured at Texas A&M, examined what he referred to as “fallacies” of significant periods in U.S. economic history, from the Industrial Revolution to the 2008-2009 financial crisis, which is the focus of his 2022 book, “The Myth of American Inequality: How Government Biases Policy Debate.”

The discourse on income and wealth disparity has been influenced by progressive critics, such as French economist Thomas Piketty, who often exaggerate the divide between the affluent and the impoverished by solely considering earned income and disregarding the value of benefits most lower-income individuals obtain from the government, like Medicaid or food assistance, Gramm asserted.

“Thus, when you observe that the poverty-stricken family has an income of $29,000, that’s excluding a refundable tax credit because they don’t factor in taxes; that’s not taking into account food assistance, where you receive a debit card to shop; that’s not including housing assistance, nor Medicaid,” Gramm explained. “If you consider all those factors, the ratio of the highest quintile to the lowest is not 16, 17 to 1, but 4 to 1.”

Summers, the Charles W. Eliot University Professor and the Frank and Denie Weil Director of the Mossavar-Rahmani Center for Business and Government at HKS, concurred that many official figures undervalue the income of lower-income individuals, making them seem worse off than they truly are, which some utilize as a foundation for advocating more assistance programs.

Even when those initiatives effectively decrease the number of impoverished individuals, government figures frequently do not reflect that, he noted.

Theda Skocpol, Ph.D. ’75, Victor S. Thomas Professor of Government and Sociology, countered Gramm’s claim.

Regardless of the accuracy of his statements, she remarked, “Disparities in wealth and income have still surged to an astonishing extent since the late 1970s.”

The major beneficiaries during the Industrial Revolution, magnates like Andrew Carnegie, greatly profited from federal subsidies, Skocpol noted.

“Many of those fortunes were generated through government contracts awarded via patronage capitalism during and after the Civil War,” a situation that persists today to “an extraordinary degree,” she claimed.

“Numerous fortunes amassed by those attending high-profile dinners at the White House are being made through preferential government contracts, and we can’t ensure that this will optimize efficiency, let alone enhance opportunities for innovation in a dynamic capitalist economy.”

Gramm also commented on the choice made by the Trump administration to allow the government to acquire equity in private firms such as Intel. He stated he strongly opposed this method due to its potential negative consequences for the economy.

“It’s susceptible to corruption and preferential treatment, and once again, you must recognize that when you embark on this type of initiative, even if your motivations are commendable and even if your initial selectees are suitable, you have to accept that it’s going to be” repeated without end, he indicated.

Gramm advocated for a more straightforward tax structure with fewer deductions and reduced rates in the context of a discussion on the benefits of instant income taxation while permitting capital gains to be protected until assets are sold.

The seasoned legislator was queried regarding whether the significant wealth of Silicon Valley tech magnates like Elon Musk, who has accumulated nearly $1 trillion, should be somehow regulated.

He hesitated, asserting that Musk generated that $1 trillion in value for shareholders, and his products benefit consumers.

“He contributed more positively by creating it than he’ll ever do by distributing it,” he stated.