The Nation's Pulse

Compression at the Mean

It's become the American way.

By 12.3.08

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From the founding of this nation to the present there has been an understandable tension between equality and individualism. Clearly we, as Americans, want both, assuming they are reasonably defined.

Equality presumes equal before the law, equal or roughly equal opportunity and even equal in the eyes of God. But it does not mean or should not mean equal in the race for success and equal economic results.

Yet curiously the nation is moving from the safety net designed to assist those in peril to redistribution or the attempt to equalize economic results, i.e. "spread the wealth around."
 
This condition I would describe as a belief in compression at the mean, a belief that has penetrated almost every aspect of American life. It is the egalitarian project launched by John Dewey in the 1920s and embraced by President-elect Barack Obama.

Take education as an example. Almost all recent funding in this arena is designed to assist those in the bottom quartile of performance. Schools that are not performing well receive more funding than schools that meet state guidelines, based on the assumption that additional funding can influence performance. And in some cases, this has proven to be the case. The bottom moves closer to the middle of the pack. Yet totally ignored in this distribution scheme are those in the highest quartile, those who might be described as excellent. The consequence, of course, is decline at the top of the achievement pyramid, some upward movement at the bottom and a bulge in the middle.

Assume a similar set of conditions in the tax structure where those who earn over $250,000 (or is it $150,000?) are taxed at a higher rate than those who earn less. Since rebates will be given to those in the bottom quartile of the income structure paid for by those in the top quartile, it would appear that progressivity in the tax system is designed to promote compression at the mean. No one too rich and no one too poor.

The problem with this arrangement is that if you eviscerate the incentive for wealth, those who have the capacity to attain it will be disincentivized. Why earn more if the government intends to take it away and give it to others?

The same situation is emerging in the financial and industrial areas. By offering to jump start a faltering economy, Secretary of the Treasury Hank Paulson has advocated assisting some financial houses, but not others. The government assisted J.P. Morgan with the purchase of Bear Stearns, but let Lehman Brothers fail. Consideration is being given to a loan for the Big Three automakers, but not to computer manufacturers. Aside from the fact that government officials can play God and determine who stays in business and who doesn't, these bailouts are predicated on the simple proposition that those companies capable of generating profits and paying taxes will be obliged to assist companies that are failing and need a handout.

The danger is that at some point every company will be asking for assistance. In fact, the egalitarian project will inevitably fail because it destroys the incentive to succeed. By homogenizing economic rewards, government is instituting mediocrity. The society is suggesting that meritorious results should not be sought or valued.

Imagine a situation in which baseball players earning the highest salaries based on performance have to subsidize those who are ".200 hitters." What would baseball become? Who would bother attending games or even watching on TV?

Yet the movement for compression at the mean continues unabated. Where it will lead is clear. Unfortunately, its devotees don't seem to mind.
 

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About the Author

Herbert London is president of the London Center for Policy Research and coauthor (with Jed Babbin) of The BDS War Against Israel.