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Government should not control income equality, with Gordon Lloyd (San Francisco Chronicle) October 13, 2013

Posted by daviddavenport in Newspaper Columns/Essays, Op/Eds.
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Americans are being treated to a UC Berkeley teach-a-thon on income inequality by Professors Robert Reich and Emmanuel Saez. Saez just updated his studies on income inequality with the release of 2012 figures, and former Secretary of Labor Robert Reich, now on the UC Berkeley faculty, has turned up the volume with his new documentary “Inequality for All.”

The emerging inequality narrative is relatively clear: the rich are getting richer at a faster rate than the poor, creating a greater spread of income between the top and bottom of the economic ladder.

But there are several hard questions about this inequality narrative that need to be asked before we take the sort of action President Obama has urged: revised tax rates to further redistribute income and a higher minimum wage.

First, is it really the role of government to equalize Americans’ personal income? Income mobility (the ability to move up or down the scale over time) is more relevant and remains quite strong. Further, President Obama and most economists agree that forces beyond the government such as globalization and technology are root causes, raising the related question of whether government action could make a big difference. Isabel Sawhill at the Brookings Institution adds that changes in American households and in labor markets are major factors, again matters beyond politics and policy.

Second, where and why has income inequality grown? The primary growth at the top is not in wages, salaries and benefits, but in capital gains and the stock market. It is fundamentally because the United States is the country where growth companies – Apple, Microsoft, Facebook, Walmart – are nurtured and grow. Do we really want to discourage those companies from developing and creating jobs in the United States? Heavy taxation and regulation will simply drive them to operate elsewhere, with a huge net loss to the country.

Finally, we have to look more deeply at the data itself. Much of the data, for example, excludes taxes and government transfers, the very tools that have been used to equalize income, and which the equalizers wish to expand. Nearly always ignored is the fact that every income class has enjoyed growth, as has the economy as a whole. Further, as Stanford University and Hoover Institution economist John Taylor points out, the slow economic recovery, caused in  large part by flawed government policy, has been a significant contributor to lower incomes at all levels.

Christian Gheorghe, who immigrated from Romania and has started his own business, said “freedom” was one of the few English words he knew when he arrived and was the answer he gave to the immigration officer on why he had come to America. He added, “freedom has shaped everything in my life since I was allowed to immigrate to America.”

More than 40 percent of Fortune 500 companies and 33 percent of venture-backed companies that went public from 2006-12 had immigrant founders at the helm. We think immigrants, who come to the U.S. for freedom and opportunity and are growing the economic pie, have it right, and intellectuals whose primary focus is on redistribution and regulation to manage the existing pie have it wrong.

Please click on the link to view the article in the San Francisco Chronicle:  http://www.sfgate.com/opinion/openforum/article/Government-should-not-control-income-equality-4892873.php

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