Blaming America: A Comment on Paragraphs 202-204 of the First Draft

It is a good thing that the second draft of the bishops’ pastoral has been delayed. There are several errors of fact and doubtful interpretation in the first draft, to which there really had not been sufficient time to call attention, given the press of other issues.

The errors of fact I have in mind are, typically, of a consistent type. They blame the American people and discredit the American system. On the assumption that different sections of the draft were written by different hands, it may be that not all those in the drafting group have concentrated on all details.

These comments are not intended to detract from the bishops’ real achievement. Admirably, they have started a broad and deep discussion of crucial questions of order (novus ordo seclorum), the sort of discussion the Germans call Ordnungsphilosophie. One is hardpressed to remember a time when so many diverse Catholics, especially the professionals not usually heard from and leaders of the business community, have become so engaged in studying the very bases of Catholic social thought, in order both to exercise it and to stretch it. Both the American experiment in political economy and Catholic social thought should emerge the better for this stretching. The bishops deserve praise for this process.

My comments, then, are directed at making one small section of the text more telling in substance, perspective, and tone. Sometimes a tennis shot does not go off the racquet precisely as intended; then the next try does.

Consider paragraphs 202-204, including the passage most frequently quoted around the world: “In our judgment the distribution of income and wealth in the United States is so inequitable that it violates [the] minimum standard of distributive justice.” This line perfectly suited the worldwide taste for anti-Americanism; as in the Costa-Gavras film “Z”: “Always blame the Americans. Even when you’re wrong, you’re right.” After this passage, there follow six specific accusations. Every single one of them is either wrong or misleading.

The best procedure is probably to quote paragraphs 202-204 consecutively and verbatim, inserting numerals before the six factual assertions, which we can then consider one at a time.

Para. 202 … (1) In 1982 the richest 20 percent of Americans received more income than the bottom 70 percent combined and nearly as much as all other Americans combined. (2) The poorest 20 percent of the people received only about 4 percent of the nation’s income while the poorest 40 percent received only 13 percent.

Para. 203. These figures are particularly disturbing in view of the fact that the degree of inequality has become significantly more pronounced in recent years. (3) The fraction of income received by the richest 20 percent of the population increased from 41.5 percent in 1977 to 49 percent in 1982. (4) On the other hand, the fraction of income received by the poorest 20 percent was lower in 1983 than at any time since the Census Bureau began collecting this information in 1947.

Para. 204. With respect to the ownership of wealth, the disparities are even more extreme. (5) The top five percent of American families own almost 43 percent of the net wealth in the nation. The top 1 percent of families hold almost 20 percent of the net wealth. At the other end of the scale, the bottom 50 percent of the American families hold only 4 percent of the net wealth in the nation. (6) These levels of inequality in the distribution of income and wealth are among the greatest in the Western industrialized world.

Let us take these six points in reverse order.

In reading what follows, it may be useful to keep in mind that in 1983 the top twenty percent of income earners began at an income level of $41,824. In speaking of “the top 20 percent,” the first draft is not speaking of “the rich,” but of many carpenters, electricians, autoworkers, steel workers, professors, and journalists, especially in two-earner families. Let us now turn to the six factual claims, in reverse order.

The footnote to (6) refers to no original or fundamental study but to a single page of a book on a different subject, Ira C. Magaziner and Robert B. Reich: Minding America’s Business (1982). On p. 25, Magaziner and Reich cite quite flimsy figures which in fact do not deal with all twenty-nine nations in “the Western industrialized world,” but only with five nations (the United States, W. Germany, Denmark, Sweden, and the U.K.). Moreover, the figures cited for each nation come from different years, and have been computed by different authors by different methods. The other four nations are smaller and more culturally homogeneous than the U.S. That the profile of the U.S. comes close to theirs is, therefore, a significant moral achievement. Besides, all five rank near the top of 165 nations in the equitable distribution of income and wealth.

Claim (5) cites as its evidence a Federal Reserve Study done for bankers on liquid private wealth. It leaves out the most important forms of wealth possessed by most people: their homes, automobiles, durable goods (furniture, appliances), and personal possessions. It leaves out such intangibles as wealth invested in education. It leaves out the wealth to which citizens are entitled in the future through pensions, insurance, and social security. Moreover, these figures ignore entirely the public wealth of the U.S. A high fraction (perhaps half) of the wealth of the nation (including government-owned land, parks and improved waterways, dams, highways, the military, universities and many other public institutions) is publicly owned. The Federal Reserve Board Survey is by no means counting “the net wealth of the nation,” only that liquid private portion of it in which bankers take a professional interest. Thus, economist Paul Heyne writes in a Cato Institute study of the first draft:

An attached footnote reveals that the survey used in this calculation of net wealth excludes “the value of durable goods, automobiles, and the value of small businesses and private practices. The value of homes and the liability of home mortgages are also excluded.” Not mentioned is the exclusion also of human capital. In short, the survey upon which the Letter relies to show how unequally wealth is distributed in the United States does not count those assets in which the bulk of most Americans’ wealth resides, and which collectively far outweigh the value of the assets counted…. But the bishops’ measure is almost devoid of significance.

Claim (4) that “the fraction of income [4.7 percent) received by the poorest 20 percent was lower in 1983 than at any time since the Census Bureau began collecting this information in 1947” is not quite right. At the beginning, in 1947, the fraction was 5.0. After that the high (in 1968 and 1969) was 5.6 percent, but the low was 4.5 percent (1949, 1950, 1952). In these three years, the fraction was lower than in 1983. Perhaps the drafters meant to emphasize the downtick from 5.1 in 1980, to 5.0 in 1981, to 4.7 percent in both 1982 and 1983. What is most striking is the relative constancy of this figure over time. The average in the years 1947-1983 was 5.1 percent. (The Statistical History of the United States gives figures from 1935-1964, with somewhat different figures from those of the Census Bureau but showing similar consistency.) Further, by not observing that the Census Bureau figures from 1947-1983 simply omit the non-cash benefits to the poor, which began pouring into this income stream in 1965, the draft deprives “The War on Poverty” of due credit. (It thus gives ground to those who say that that vast social effort achieved little or no success.)

Claim (3) seems to be seriously in error, perhaps through a typographical miscue. The text asserts: “The fraction of income received by the richest 20 percent of the population increased from 41.5 percent in 1977 to 49 percent in 1982.” Actually, the correct increase given in the source cited, the Federal Reserve Survey of 1984, is from 48 percent to 49 percent; this is a whopping error. Also, the year given in the source is 1976, not 1977. Further, the authors of that Survey make a judgment which at first seems diametrically opposed to that of the bishops’ authors. The bishops say, “The degree of inequality has become significantly more pronounced in recent years.” The Federal Reserve Survey says: “The share of aggregate family income received by the highest income decile increased a little from 1969 to 1976, rising from 29 percent to 32 percent; it then remained virtually unchanged through 1982.”

On this same point, the drafting committee might consult the parallel Census Bureau figures for 1977 and 1982. They are, respectively, 41.5 percent and 42.7 percent. These figures support the general conclusion of The Federal Reserve Survey, that the overall figures have become “only slightly more unequal since 1969.”

There has also been a steady decline in the percent of all personal wealth in the U.S. held by the top one percent of adults. In 1929 it was 36.3 percent; in 1972, it had fallen to 20.7 percent. The share of net worth held by the top one percent of all persons shows a similar secular decline: from 27 percent in 1962 to 19 percent in 1976 (See Statistical Abstract, 1984, p. 481).

Claim (2) holds that “the poorest 20 percent of the people received only about 4 percent of the nation’s income.” But the poll done for The Federal Reserve Survey, on which this text rests, consisted of interviews with 3,824 families; it excluded information about non-cash benefits. The Current Population Reports (Series P-60, No. 140, 1983) shows that the lowest 20 percent of families earned 4.7 percent of aggregate pre-tax income (excluding non-cash benefits). Here let us perform some very rough estimates. The aggregate of pre-tax personal income in 1982 (IRS 1982 Statistics of Income) was $1.852 trillion, of which 4.7 percent comes to $74 billion. This comes to $6,600 per family. To lift all the 11,200,000 families of the lowest 20 percent above the poverty line of 1982 ($9,862), assuming that they are all non-farm families of four, would cost another $36 billion. More than that was made available to the poor in non-cash benefits for food, housing, medical care, and the like. The standard of the official U.S. poverty level—in 1982 nearly $10,000 per family—is high by international standards, and is deliberately designed to be above the level of “basic necessities.”

Here, a digression may help establish perspective. Catholic social thought, the bishops’ draft notes, “does not suggest that absolute equality is required.” By definition, the poor receive less than equal shares of income. If the bottom 20 percent earned 20 percent of income, it would not be poor. That the poorest 20 percent should receive almost 5 percent of income (a ratio of about 4 to 1) is far from being a moral failure. For although 4.7 percent is not egalitarian, its aggregate dollar value sets a standard of per capital income, considerably higher than that even of many not-poor persons in the Catholic nations of Southern Europe or Latin America.

Claim (1) is true but stated in misleading terms. Four comments are in order.

(a) If the top 20 percent received 49 percent of income (the actual figure given in the footnote), and this is considered to be excessive, it seems to follow that the wealth of the top 20 percent should be redistributed, either through limits upon income or through taxation. But the figures given are pre-tax figures. The top 20 percent of income earners in 1982 (i.e., all those above $30,000) paid 66 percent of all federal income taxes, while the bottom 50 percent paid 8 percent. In addition, in counting the income of the poor, non-cash welfare benefits are not counted. When both federal income taxes paid and federal welfare received are counted, the gap narrows.

(b) Further, the total contributions of the top 20 percent to the imagination, invention and leadership that led to the sum of all income may or may not exceed 49 percent. Since under less talented management, the entire work force of Chrysler may have lost their jobs, Lee laccoca’s inspired leadership at Chrysler may have been worth more to the actual success of his company than the combined salaries of 50 autoworkers working on the line. The inventiveness of Steve Jobs and Steve Wozniak at Apple Computer has no doubt been amply rewarded financially; but without them, no one at Apple Computer would have been brought together to share the total payroll. Justice itself would seem to require higher rewards for larger contributions.

(c) The ratio by which the top 20 percent receive 49 percent of income seems in line, furthermore, with analogous distributions of talent and reward. In 1982, the top 20 percent of writers, artists, musicians, actors and rock stars probably received at least 49 percent of public acclaim (not to mention income) among their peers. The top half percent of baseball players in the nation in 1982 would seem to have received more than 49 percent of popular acclaim (and of income) from playing baseball. It is probably true that the top 20 percent of book owners in the nation own more than 49 percent of all books, and that the top 20 percent of book readers have read more than 49 percent of all books read. Indeed, the top 20 percent of recipients of God’s graces and talents may have received more than 49 percent thereof. God is no egalitarian. The ratio 20 percent/49 percent has no intrinsic moral significance.

(d) Joseph A. Pechman’s recent work, Who Paid the Taxes 1966-1985 (The Brookings Institution, 1985), concludes that “The distribution before taxes remained virtually unchanged from 1966 to 1985. There were small variations in the income shares received by the various quintiles, but these variations were unsystematic and tended to be reversed in later years.” For example: “The before-tax share of the top quintile was 47.7 percent in 1966; it then declined to 46.5 percent in 1970, rose to 48.9 percent in 1980, and declined again to 47.7 percent in 1985.” Pechman’s numbers, based on Brookings files, are even more refined and carefully arrived at than those of the Census Bureau; they include transfer payments.

Indeed, one of the important points Pechman makes is that the rise in transfer payments after 1966 offset the growing inequalities in “market activity” income, maintaining a remarkable constancy in distribution. Interestingly enough, in all Pechman’s charts, based on variant assumptions (before and after taxes), the income share of the top quintile declined slightly from 1980-1985: From 48.9 to 47.7; 48.0 to 47.3; 48.4 to 47.3 and 48.8 to 48.0 (p. 74). However, the top quintile after taxes did gain slightly from 1966-1985, but not at the expense of the lowest two quintiles (which remained constant), rather at the expense of the two middle quintiles, which declined slightly.

A little earlier, in “The Rich, the Poor and the Taxes They Pay: An Update” (The Public Interest, Fall 1984), Pechman and Mark J. Mazur again examined (as they had fifteen years earlier) income, tax and transfer figures from 1952-1981. They concluded: “Since transfers rose rapidly between 1952 and 1980, the inequality in the distribution of income after taxes and transfers must have been greatly reduced. This growth in equality may have been reversed by the Reagan budget and tax cuts beginning in 1981, but the figures to measure the extent of the reversal will not be available for some time.” Meanwhile, they point out that an important shift in income distribution has occurred—but not towards the rich: “The shares received by the richest taxpayers (say, those in the top 5 percent) have remained remarkably constant over the last three decades.” the most dramatic change has been in favor of those who earn between $34,600 and $49,200 (1981). Those who have benefited most, they note, such as “the readers of this journal,” do not think of themselves as rich; they think of themselves as the beleaguered middle class. The following table clarifies the record:

AFTER TAX INCOME SHARES

  Top 1% of Tax Units Top 2% of Tax Units Top 5% of Tax Units Top 10% of Tax Units Top 15% of Tax Units
1952 7% 10% 16% 24% 30%
1963 7% 10% 17% 26% 33%
1967 7% 11% 17% 26% 34%
1972 7% 10% 17% 27% 35%
1977 6% 10% 17% 27% 35%
1981 7% 10% 17% 27% 35%

 

This table makes as clear as St. Peter’s dome in the sunlight that the after-tax income shares of the top 1%, top 2%, and top 5% of income earners has remained almost perfectly constant for thirty years. It is the next lower two brackets of middle-class earner—from the top 5% down to 10%; and from the top 10% down to 15%—that show substantial gains. Their gain of a full 8 percent of income is, of course, at the expense of the lower 85 percent. In part, of course, this dramatic gain has occurred through the steady upward mobility of the families of college-educated professionals (the so-called “new class”) and two-earner families, among others.

Pechman and Mazur note that the richest 1% earned above $91,000 in 1981, the richest 2% above $70,800, the richest 5% above $49,200, the top 10% above $39,400, and the top 15% above $34,600. The readers of this journal, too, like the drafting staff of the pastoral, may thus rank themselves. Most will probably be surprised to find themselves ranked among “the rich” in the top 15% of all income earners. They have found the enemy (“Soak the rich!”), and it is them.

* * *

Relying upon these systematic errors, and without the necessary qualifications, paras. 202-04 seems to have set out to make an indictment: that the disparity of the incomes of Americans are “so inequitable” that they “violate the minimum standard of distributive justice.”

If so, what is the “minimum standard” of distributive justice? For Aristotle, that standard was not egalitarian in terms of income. Neither was it so in any age in Catholic history, or in any significant Catholic thinker—not in von Ketteler, not in Pesch. Leo XIII wrote:

It is impossible to reduce human society to a level. The Socialists may do their utmost, but all striving against nature is vain. There naturally exists among mankind innumerable differences of the most important kind; people differ in capability, in diligence, in health, and in strength; and unequal fortune is a necessary result of inequality in condition. Such inequality is far from being disadvantageous either to individuals or to the community; social and public life can only go on by the help of various kinds of capacity and the playing of many parts, and each man, as a rule, chooses the part which peculiarly suits his case.

Actually, the first draft of the bishops’ letter employs two quite different criteria for equality of income. The first is the “basic necessities of life.” This, to Catholic thought, is the crucial moral issue. The second is the conceptually quite different criterion of relative equality. Here is what the first draft says (para. 202):

As noted earlier Catholic social teaching does not suggest that absolute equality in the distribution of income and wealth is required. Some degree of inequality is not only acceptable, but may be desirable for economic and social reasons. However, gross inequalities are morally unjustifiable, particularly when millions lack even the basic necessities of life.

Everyone, we can all agree, ought to have the “basic necessities of life.” No one can walk the streets of our squalid urban sectors and not be moved by the sheer visibility of poverty. Is such poverty fully described in terms merely of inequalities of income? It cannot even be described in terms of a lack of “basic necessities.”

Most Americans sense instinctively that during the decade 1970-1980, more immigrants came to these shores than in any preceding decade, and that most of these immigrants (particularly from Asia) do not seem to be mired in poverty. They seem to be advancing quickly, just as earlier immigrants did. Thus, to most Americans, what is peculiarly depressing about poverty among native-born Americans is that it is so unnecessary; there is something about it that defies rationality. Clearly, it seems to have a spiritual component, of discouragement and (some say) despair. For, by contrast, many others, having even less money but more hope, soon enough advance. Moreover, who cannot see that in precisely those places where unemployment is highest, there is most visible an immense amount of work to be done? Improvements in the housing stock and in the physical environment cry out to be made. Instead, demoralization seems to prevail. Demoralization would seem Jo require an analysis in terms of rather more than money. This is the new frontier of thinking about poverty today. It is not inconsistent with the spiritual office of bishops.

On a worldwide scale, these days, “basic necessities” are defined at a far lower level than that of the U.S. Census Bureau poverty level. One might argue that the U.S. simply ought to give enough income to the poor to raise all of them immediately above the poverty line. But that might be done without any significant effect upon income distribution. To raise all the U.S. poor above the federally defined poverty line by direct cash grants (or through non-cash benefits) would come to about $50 billion.

In a book sharply critical of what he understood by capitalism, Aminatore Fanfani summarized the tradition of Catholic social thought even about those extreme forms of wealth common to traditional, highly stratified and static societies:

“Of many Saints we read that they were very rich, They climbed up on this tower, on this mountain, and they were nearer to God. The more they had, and climbed up on it, the higher they were and the nearer to heaven, grateful to God for it and thanking him for it and loving him the more for it.” (Blessed Giordano da Rivalto, 1304) In this idea, that the evil lies not in possession of wealth but in making it the end of life, all the scholastics are agreed, from St. Thomas to St. Antonino of Florence, and Cardinal Gaetano. Their teaching was reasserted in the Encyclicals of Leo XIII and Pius XI.

In order to inspire Americans to do better, it is not necessary to blame them. One can learn something from those great leaders of this nation who have known how to inspire the people. Is it not done by praising the people for what they already do well, while adding: “And, with your help, we can do better?”

Michael Novak

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Michael Novak held for many years the George Frederick Jewett Chair in Religion and Public Policy at the American Enterprise Institute and is now a trustee and visiting professor at Ave Maria University. He is a philosopher, theologian, and author, as well as the 1994 recipient of the Templeton Prize for Progress in Religion. He has been an emissary to the United Nations Human Rights Commission and to the Conference on Security and Cooperation in Europe. He has written over twenty-seven books on the philosophy and theology of culture, especially the essential elements of a free society. He also founded Crisis Magazine with Ralph McInerny in 1982.

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