The Problem of Income Inequality

To be clear, the primary purpose this discussion serves is a political one. Invoking this talking point, whether in the context of “fairness” as the president does, or comparing New York to France and England during the French Revolution as Mayor DeBlasio based his campaign on, does nothing more than stir up one of the most unproductive of emotions.

Envy.

The same is true about the constant references to the “middle class” from politicians on either side of just about any debate. It should come as no surprise that only 15% of Americans consider themselves to be in the “upper” class, 44% in the “middle class” and 40% in the “lower” class according to an annual survey by Pew Research Center. And it’s understandable why that is. The envious feelings that are stoked in the current political climate (and in the world in general) lead people to define the class they are in not by what they have, but by what others have. Even people who would, by any objective measure, be considered rich, see others who are more well off than they and perceive themselves as being less well off than they really are.

That’s not to say that there is no problem with income inequality. But inequality itself is not a problem. In his book, Pikkety’s core argument is that the current financial reality is a huge indicator of trouble ahead because “when the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.”

Ben Domenech, writing for The Federalist, made this very point to rebut this statement by Pikkety. “So what if the rate of return on capital reproduces itself faster than the rate of return on labor — in real life, the money doesn’t stay in Scrooge McDuck’s vault, it goes into investments which pay more people to do more things. Piketty doesn’t think this will happen — he projects economic growth at levels lower than anything we’ve seen since the industrial revolution. You’ve got to be a pretty high-level doomsayer — well beyond “machines are going to take our jobs and our birthrates will be zero” — to believe that sort of thing.”

But if conservatives dismiss the inequality issue as a non-issue, they are doing so at their own peril. The fact remains that there is a divide between the haves and the have-nots — and most Americans feel it. Despite the fact that there is no downside to that in and of itself, there is another problem that is directly connected to inequality, and that is economic upward mobility. As a matter of fact, it is the inability of the lower classes to move up that is even more responsible for the equality gap.

As the government gets more involved in people’s lives, be it through regulating businesses, financial industry, or even Obamacare, it becomes more and more burdensome to earn real money. (This is besides the issue written about last week, that the expansion of entitlements provides incentives to stay poor.) Dealing with rules and regulations as well as progressive taxation makes it harder for the less well-off. Rules which are there to promote “fairness” end up costing money for compliance, which is easier for the wealthier to swallow. And when the government takes more of the money earned, regardless of whether there is enough capital in place to actually become more upwardly mobile, it makes it harder for those with less capital to compete.

This is the tactic the GOP ought to embrace. Yes, there is a problem of a large inequality gap vis-à-vis income and wealth in general. But this problem, as Lady Thatcher so famously said, will not be addressed the liberal way, because they “would rather have the poor poorer, provided the rich were less rich … So long as the gap is smaller, they would rather have the poor poorer.” Nobody is looking for the “inherent virtue of socialism,” which Winston Churchill said was “the equal sharing of miseries.”

Sure, there need to be anti-poverty programs. But they need to be effective. Who gains from programs that do next to nothing about the problem they are supposed to address?

The Republicans must communicate how much of the government’s $13 trillion spent on anti-poverty programs since President Johnson declared “war on poverty” (which failed so epically that we now have the highest deep poverty rate on record) actually serves as a hindrance to those who are trying to get ahead. Just ignoring this issue  while many people are experiencing it in their lives is simply not an option — nor is it smart politics. There needs to be a way to remind Americans, as President Reagan did, that “The nine most terrifying words in the English language are: I’m from the government and I’m here to help.”

This article appeared in print on page 41 of the April 30th, 2014 edition of Hamodia.