Inconvenient Truths About the Income Inequality Bandwagon (Forbes.com) April 10, 2014Posted by daviddavenport in Newspaper Columns/Essays, Op/Eds.
To understand how policy changes in this country, consider the case of income inequality. First comes a huge marketing campaign to change the conventional wisdom about the topic. From President Obama, who has decided it is “the defining challenge of our time,” on down, everyone is talking about income inequality, how it has grown and why that is a problem. Then policy alternatives are discussed: we should increase the minimum wage or raise taxes on the rich. Finally, our elected leaders feel compelled to “do something” and end up passing laws that may not be needed at all, probably won’t solve “the problem” and will be loaded with unintended consequences. That’s the bandwagon we’re on right now with income inequality.
What is needed is a deeper look at the issue itself, whether it is appropriate or feasible for government to act, and what solutions might work. Of course a dialog of this depth rarely occurs, even (especially?) on the floor of the U.S. Senate. Instead the subject is reduced to sound bites and marketing campaigns, followed by a move to take action, some action, any action, regardless of likely impact.
In an effort to slow the income inequality bandwagon, and bring about a more realistic conversation and, ultimately, a more reasoned conventional wisdom about it, consider these inconvenient truths about income inequality:
• Only the incomes of the top 0.01% have really grown—the Lady Gagas and Bill Gates and Tiger Woods. These are people whose brands have gone global, or who built wildly successful companies. Many of them, like Bill Gates, have not grown their piece of the pie at the expense of the poor or anyone else, rather they have grown the pie for everyone. Your average doctor, lawyer, investment banker in the rest of the 1% have seen little growth and even a decline in their share of wealth.
• Income mobility—your ability to move up and down the income scale—has remained about the same for 75 years. This is the more relevant question in an “equality of opportunity” (not an “equality of outcome”) society and the evidence remains strong that America is still a land of opportunity. As economist Thomas Sowell points out, most of us start in the bottom 20% but we rise, with more of us ending up in the top 20% than remaining at the bottom. People who started in the top 20% of incomes had the lowest rate of increase in their incomes.
• Changing demographics have a huge, but underreported, impact on the income figures. The fact is that we have more older people now—who have higher income and wealth, suggesting the figures need to be age-adjusted, which they are not. Household demographics have changed radically, with 2 or more income workers in a family now bringing in far more income at the top, and single people bringing in less at the bottom. Do we seriously want to change marriage policy to address this?
• When we count income, we leave out a great deal of relevant data—including food stamps and government welfare (intended to address the problem) and health and pension payments, which have grown rapidly. Let’s at least get the data right.
• And what is our goal? To transfer more wealth from Bill Gates and Lady Gaga to others? When is income appropriately equal? How serious a problem is it when 90% of Americans living below the poverty line have smart phones, cable TV and cars (70% with two cars)? In short, all incomes are up over time, so is this an appropriate government problem?
• What will the proposed solutions do? The Congressional Budget Office estimates, for example, that increasing the minimum wage to $10.10 will cause half a million people to lose their jobs. The big problem is that we aren’t creating enough jobs and people are leaving the workforce at an alarming rate. Jobs are what cure poverty, not government handouts.
Unfortunately policy is complicated, difficult stuff. A whole lot more work needs to be done to understand incomes, jobs, and poverty in the new global economy. Jumping on the income inequality bandwagon, in the face of these hard questions, will be part of the problem, not part of any constructive solution.