The GOP Agenda Meets the Pareto Principle

May 30, 2012

The Pareto Principle — after Italian economist Vilfredo Pareto, observing that 20 percent of the pea pods in his garden contained 80 percent of the peas.

As Hoosiers prepare to elect a new governor and perhaps make changes in the Senate and House leadership we would be wise to measure the effect of envy on our democratic process.

As a political or social strategy, formulated either by the envious or by those who want to avoid being its target, envy is utterly corrosive. It permits even the weakest candidate or policy to sound plausible. That is because anybody, once in office, can confiscate and destroy wealth. To create jobs and wealth, by contrast, a politician will need knowledge and judgment.

Envy is most dangerous when an otherwise reasonable leadership shrinks from challenging it, of taking overdue measures of obvious economic benefit to the community because it fears latent envy or the indignation of those who would lose exception and benefit.

An example? The envy- and guilt-driven secondary-mortgage policies that led to the current recession. Another one, closer to home but more tacit, is a bipartisan economic-development plan headed for Statehouse consideration next session.

It flies under the banner of “Policy Choices for Indiana’s Future.” It is the pluperfect blue-ribbon panel of experts, the roomful of very smart people. (1) The goal? Well, let’s call it civically amorphous, a grab bag of “balanced” programs certain to dodge the arrows of envy but accomplish little else:

“. . . to start the discussion among government, nonprofit and private sector leaders about these topics now (an educated workforce, an environmentally sound energy policy, a balanced tax policy) and to provide policy options for action.” (2)

This initiative, high on the to-do list of the political class, is remarkable only in how carefully it avoids mention of the efficacy of free markets or any criticism of policies that shift power and wealth from the envied to the envious, i.e., public-sector collective bargaining, government pensions and payrolls, Euclidian zoning, progressive taxation, government consolidation.

It is not surprising that Indiana Democrats, their arguments drowning in a recession, would support such economic-development pablum. The puzzle, though, is why so many Republican leaders and corporate executives would choose to placate rather than challenge the institutionalization of envy.

The answer, one suspects, is in the political calculations of the ensconced. The lowest 40 percent of the electorate vote for candidates and policies that will soak the next 40 percent, the middle-class, who in turn demand consideration from the top 20 percent, the producers whose willingness to risk their own money creates jobs and wealth for the rest.

It is a bipartisan process, then, two wolves and a sheep voting on what to have for dinner. The economist Gary North elaborates:

“The middle-class likes to think of itself as productive, but the middle class is productive only in so far as it has been enabled to be productive by the capital, vision, courage and the willingness to bear uncertainty that has been shown by the most productive 20 percent. This is the Pareto Principle, and there are very few cases in life where it is violated over a long period of time.” (3)

Gov. Mitch Daniels violated the Pareto Principle early in his first term. If his proposal to increase the income tax on Indiana’s top earners had been put in place, we would have fit the profile of those states having the greatest difficulty climbing out of the recession. (4)

Breaking down the politics of envy has profound implications. An Austrian sociologist, Helmut Schoeck, whose work predicted in 1966 the failure of Fannie Mae, considers the ability to manage envy and its outrider, manipulated guilt, the key to western civilization:

“The historical achievement of the Christian ethic is to have encouraged and protected, if not to have been actually responsible for the extent of, the exercise of human creative powers through the control of envy.” (5)

Indeed, the admonishment to “love thy neighbor as thy self” is the perfect guard against envy’s destructiveness. And the tablet read, “Thou shall not steal,” not, “Thou shall not steal except if OK’d by a bipartisan, blue-ribbon panel of very smart people.”

 

Resources

1. Jim Arnold and Brandt Hershman. “Agenda for a Stronger Hoosier Economy.” The Fort Wayne Journal Gazette, May 28, 2012.

2. http://www.policyinstitute.iu.edu/PolicyChoices/index.aspx (last viewed May 30, 2012).

3. Gary North. “Conservatives who Hate the Free Market and Hate the Rich Even More.” Gary North’s blog, http://www.garynorth.com/public/9558.cfm (last viewed May 28, 2012).

4. Arthur Laffer and Stephen Moore. “A 50-State Tax Lesson for the President.” The Wall Street Journal, April 20, 2012.

5. Helmut Schoeck. Envy: A Theory of Social Behaviour. Liberty Press, Indianapolis. 1987.



Comments...

  • James Hass says:

    Indiana has a “branch plant economy” for similar reasons. We like employment and facilities, but not the folks who create them. The highest inheritance tax of any state, an income tax and other public policies help encourage talented or successful folks to leave.

  • Leave a Reply

    Your email address will not be published. Required fields are marked *