Jim Webb’s Crazy Economy

Hopefully, most Americans missed Sen. Jim Webb’s (D – Va.) response to the President’s State of the Union late Tuesday night. In large part, Sen. Webb’s speech was an angry call to more “fairly share” the nation’s resources. It was a disturbing return to class warfare and the politics of envy and greed. Just as troubling was Jim Webb’s zero-sum worldview and his misunderstanding of the national economy. Here is a reality check on Sen. Webb’s points:

“The first relates to how we see the health of our economy ­ how we measure it, and how we ensure that its benefits are properly shared among all Americans.”

The problem is not one of “sharing” (also known as “socialism”), as though wealthier Americans are somehow grabbing an “unfair” share of the national economic pie. In fact, high-earning Americans already pay a disproportionate share of income to the federal government. According to the Tax Foundation, in 2005 the top 25 percent of wage-earners paid 83.6 percent of the nation’s income tax. The bottom 50 percent of wage-earners paid only 3.6 percent of the total income tax burden. Attempts to extract even more money from top earners—the highly educated professionals and entrepreneurs—is unfair and damaging to America’s overall competitiveness.

Having said that, median incomes have mostly stagnated over the past five years, and Republicans have done a terrible job addressing the insecurities of pocketbook voters. The problem is overregulation (especially in energy, health care, and telecom markets), runaway lawsuits, rising state, local, and, in some cases, federal taxes, and the failure of K-12 public education, which leaves one-half of America reading on an eighth grade level.

“When one looks at the health of our economy, it's almost as if we are living in two different countries. Some say that things have never been better. The stock market is at an all-time high, and so are corporate profits. But these benefits are not being fairly shared.”

Clearly, the half of America that is not invested in the stock market is not directly enjoying all of the economic benefits of the current economy. The answer is not attacks on our world class companies, or the 50 percent of Americans fortunate enough to have 401(k)s and stock portfolios, but rather to expand participation in capital markets to all Americans. The single best way to do that is to convert workers’ payroll taxes into large personal retirement accounts that workers own, control, and can pass on to their loved ones. Today, Congress is taking 1/8 of the average American’s paycheck in payroll taxes; let’s allow workers to put that money to work in the stock market by creating personal accounts.

“When I graduated from college, the average corporate CEO made 20 times what the average worker did; today, it's nearly 400 times. In other words, it takes the average worker more than a year to make the money that his or her boss makes in one day.”

This is a meaningless way to measure the economy. The reality is that, because of globalization, the economic importance (and paychecks) of the best managers have grown in size. Of course, there are positive policy steps Congress could take to give shareholders stronger ownership rights over their firms, which might reduce CEO pay. But who knows? Hey, I am personally offended that the average professional basketball player makes over 100 times what the average worker makes. I would like one of those NBA jobs myself, although I might not be qualified or capable. Either way, I am content to let the market sort these things out.

“Medical costs have skyrocketed. College tuition rates are off the charts.”

Yes, because wanton government subsidies and tax distortions have completely twisted the markets for health care and college education. Is it any surprise that the markets where the government already intervenes the most are the ones where prices are growing unchecked? Return competition to health care and education, and costs will come into line.

“Our manufacturing base is being dismantled and sent overseas. Good American jobs are being sent along with them.”

Manufacturing employment as a share of the economy has been declining for at least half a century. One reason: we are more productive and need fewer manufacturing workers to produce the same amount of goods. The same thing happened in agriculture and no one laments that shift. Another reason our industrial base is under pressure is that taxes, lawsuits, overregulation, and high energy costs are driving some jobs offshore. We also do not have enough engineers and other technical specialists. Congress needs to fix the tax code and regulatory job killers here in America.

“In short, the middle class of this country, our historic backbone and our best hope for a strong society in the future, is losing its place at the table. Our workers know this, through painful experience. Our white-collar professionals are beginning to understand it, as their jobs start disappearing also.”

America is creating millions of new jobs and enjoys record low unemployment. In fact, the average new college graduate majoring in chemical engineering earned $55,900 in 2006. Even new liberal arts majors, the lowest paid group, found jobs earning over $30,800 on average, according National Association of Colleges & Employers. There are still plenty of “good” jobs here in America—we just need the entrepreneurial space to create them and the educated workforce to take them.

The bottom line, Sen. Webb: Who should decide the “fair share” of the dynamic, innovative American economy—the most productive wealth producing machine in human history? Is it Congress and the special interests that fuel Washington, D.C., or is it the free market, which rewards hard-work, education, and risk-taking? The reality behind the rhetoric is this: Jim Webb’s “sharing” is really just another excuse by Washington to grab more money and more power, which ends up making all Americans poorer and less free. We should reject Sen. Webb’s negative, zero-sum worldview with its angry pitchfork workers demanding a “fair share,” and instead get to work on the real factors— education, overregulation, and over-taxation— that slow growth and keep Americans from reaching their full potential.