The new year finds the left again beating the drums for urgent action on the alleged problem of income inequality. I use the term alleged because amidst the cries of anguish one struggles to discern an actual explanation of why this phenomenon constitutes a threat, which seems to be much more perceived in the well-compensated halls of academia and the media rather than among its alleged victims (to the left's great frustration). To the extent we are given any kind of reasoning, the critique offered by Robert C. Lieberman in the latest issue of Foreign Affairs is typical:
[Income inequality] breeds political polarization, mistrust, and resentment between the haves and the have-nots and tends to distort the workings of a democratic political system in which money increasingly confers political voice and power.
Actual evidence in support of these assertions, however, are not to be found and appear to be implausible on their face. Political differences do not cleave neatly along income lines and are influenced just as much, if not more, by ethnic background, education, religion, gun ownership, union membership and geographic location among other factors. Mistrust of government, meanwhile, is a long-standing feature of American politics that was deeply ingrained among the Founding Fathers and the latest misfortunes by a slew of self-funded candidates in the 2010 election belie the notion that money guarantees electoral success and political power.
Lieberman goes on to make a number of other false or highly dubious claims, such as that the US is deindustralizing and that US economic dominance ended in the 1970s, neither of which is supported by the data.
The struggle to come up with a coherent argument as to why income inequality should be regarded as a cause for concern comes as no surprise, as common sense tells us this is not a problem. If the average poor person were to see an income reduction of $5,000 but a rich person lost $100,000, income equality would be reduced -- but how could that in any way be considered an improvement? Would this give some kind of grim satisfaction to the poor, knowing that while they remain mired on the bottom level of the societal pyramid that the lot of the rich has suffered to an even greater extent?
While this makes little sense, it is essentially one of the en vogue narratives being peddled to explain the dangers of income inequality. As Nicholas Kristof argues in today's column:
There’s growing evidence that the toll of our stunning inequality is not just economic but also is a melancholy of the soul. The upshot appears to be high rates of violent crime, high narcotics use, high teenage birthrates and even high rates of heart disease.
That’s the argument of an important book by two distinguished British epidemiologists, Richard Wilkinson and Kate Pickett. They argue that gross inequality tears at the human psyche, creating anxiety, distrust and an array of mental and physical ailments — and they cite mountains of data to support their argument.
“If you fail to avoid high inequality, you will need more prisons and more police,” they assert. “You will have to deal with higher rates of mental illness, drug abuse and every other kind of problem.” They explore these issues in their book, “The Spirit Level: Why Greater Equality Makes Societies Stronger.”
If this doesn't seem to pass the giggle test -- that people indulge in drug abuse, violence and other types of social disorder because Bill Gates makes so much more money than themselves -- you're not alone. Although it apparently escaped Kristof's notice, Tino Sanandaji already shredded The Spirit Level in a Wall Street Journal opinion piece last year along with follow up blog postings here, here and here. In a nutshell, Sanandaji notes that the causation runs the other way: people do not engage in anti-social behavior due to stress from knowledge that the rich are so much richer, but that such behavior ensures they will left behind in the race to amass wealth:
So how do Prof. Wilkinson and Ms. Pickett show that almost all social problems are caused by income inequality? One route is by conflating correlation with causation. Social problems cause inequality, and both are rooted in deeper ills. There are few social problems that do not create inequality in some way.In Sweden, for example, inequality has widened since integration of the immigrant population proved to be more difficult than expected. Failed integration can spark an increase in crime, gang formation and drug abuse. These social problems in themselves result in income inequality because young people growing up in environments with crimes, gangs and drug abuse are less likely to succeed in society. We can address these issues by fostering job creation or crime reduction in neighborhoods with social problems. But, by the Wilkinson-Pickett reckoning, inequality is the cause of these problems and not vice versa. This leads us to the improbable conclusion that societal malaise can be alleviated by reducing income in the surrounding neighborhoods.
The effort to gin up concern over income inequality has become a farce. Because the left struggles so mightily to support its thesis that income inequality is an issue deserving of a public policy response, it seems logical that ulterior motives must be at play. Some possible explanations:
- The left needs to drum up new dangers in order to justify expansions of its power. If there is no problem, there cannot be a (government-led) solution. (Such skepticism should be applied to most instances of doom-mongering)
- Support for tax hikes. A quick way of eliminating income inequality is to confiscate income from the rich and redistribute it to the poor via various social welfare schemes administered by government.
- The delegitimization of capitalism. Because capitalism is so self-evidently wildly successful, and plainly the best anti-poverty mechanism ever employed, new criticisms of it must be found to justify government interventions.
None of this is to say, however, that there aren't situations in which great riches coexisting with wrenching levels of poverty indicate a serious problem. Brazil is the classic example of this, where one can find favelas that on a development index rank on par with Gabon only short miles away from neighborhoods rated higher than Norway. It is instructive, however, that such situations tend to be found in developing countries where economic freedom ranks quite low. The problem isn't that the rich are so rich but that the poor are so poor, with poverty invariably a result of too little rather than too much capitalism.
Plainly income is only worth studying from an absolute perspective rather than a relative one the obsession with inequality operates under. Imagine two countries. In country A the average poor person makes $10,000 per year while the average rich person makes $100,000. In country B the average poor person makes $20,000 while the average rich person makes $500,000. In which country is it preferable to be poor? The answer is obvious.
No one, least of all this blog, dismisses or takes lightly the plight of those in poverty and the poor. Wiser heads realize, however, that their fortunes are not ameliorated by attacking the rich. Rather, we should strive to ensure a society in which we have equality of opportunity, not equality of outcomes. If the ranks of the poor are being swelled because the bottom rungs on the ladder of opportunity are being pulled away -- typically by government (minimum wage laws, licensing requirements, etc.) -- then by all means we should seek to restore them. Otherwise, let the chips fall where they may and let us ensure the maximum degree of economic and personal freedom possible.
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