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Yet another flaw in the inequality narrative is that it ignores the tremendous leveling of inequality as it concerns quality of life. The authors’ cite George Mason University economist Tyler Cowen’s observation that, even as income inequality has risen, inequality as measured by living standards has been falling. As Cowen notes:
Bill Gates is much, much richer than I am, yet it is not obvious that he is much happier if, indeed, he is happier at all. I have access to penicillin, air travel, good cheap food, the Internet and virtually all of the technical innovations that Gates does. Like the vast majority of Americans, I have access to some important new pharmaceuticals, such as statins to protect against heart disease. To be sure, Gates receives the very best care from the world’s top doctors, but our health outcomes are in the same ballpark. I don’t have a private jet or take luxury vacations, and — I think it is fair to say — my house is much smaller than his. I can’t meet with the world’s elite on demand. Still, by broad historical standards, what I share with Bill Gates is far more significant than what I don’t share with him.
The same applies to America’s poor, who are not poor as the term has been understood throughout history. A 2011 study by the Heritage Foundation found that, in 2005, the typical household defined as poor by the government not only had access to food, clothing and shelter, but also owned a car, air conditioning, and a wide array of modern amenities – from a satellite TV to a PlayStation – that once might have been affordable solely for the affluent. As the late James Q. Wilson observed, “The poorest Americans today live a better life than all but the richest persons a hundred years ago.” In light of such tremendous progress, it’s perhaps not surprising that the Obama administration has moved to introduce a new definition of poverty that has virtually nothing to do with actual poverty. Only through linguistic legerdemain can Obama maintain that inequality is the dire threat to the American way of life that he has claimed it to be.
Finally, it is far from clear that inequality impedes economic growth. While the issue is still debated among economic researchers, Harvard economist Robert Barro has written that there is “little overall relation between income inequality and rates of growth and investment.” What does slow economic growth in richer countries like America is not income inequality but income redistribution. Barro notes that “active income redistribution appears to involve a tradeoff between the benefits of greater equality and a reduction in overall economic growth.” In other words, Obama can justify his soak-the-rich strategy as a matter of economic “fairness,” but it is hardly a formula for economic growth.
This is not to say that inequality is a non-issue, or that nothing can be done about it. However, one of the more pertinent ways to address the problem is to focus on a driver of inequality that Obama never mentions: bad government policy. Entitlement programs like Social Security and Medicare are a case in point. As structured, these programs are not means tested, and thus financial status is not a factor for eligibility. The result is that many of the workers paying for these programs are younger and less wealthy than many of the recipients. For instance, in 1979, households with incomes in the lowest 20 percent received 54 percent of transfer payments for these programs. By 2007, their share had fallen to just 36 percent. And because these programs are funded by payroll rather than income taxes, the burden of payment falls on low-income workers who pay the former but not the latter. It would be hard to imagine a more clear-cut instance of inequality. Yet Obama, like much of the political class, has been hostile to any proposed reform of entitlement programs.
A truly meaningful focus on reducing inequality would entail finding ways for low-skilled workers to compete in a modern economy that rewards skills and education. It would mean curbing illegal immigration, which places downward pressure on the wages of low-income workers. It would mean reforming government programs that burden the poor to benefit the rich. When Obama harps on inequality, however, what he really means is taxing the rich. That may please his political base, but it shouldn’t be confused with a serious solution.
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