The Inequality Smokescreen


US President Barack Obama delivers remarks on the economyDesperate for a diversion from the disasters of Obamacare, the president has conjured up the old leftist “income inequality” cliché. His court-pundits complain that “the richest nation on earth is starting to resemble a banana republic,” according to The New Republic, while Berkeley Professor Robert Reich has thundered against “casino capitalism,” blaming it for “the greatest concentration of the nation’s income and wealth at the very top since the Gilded Age of the nineteenth century, with the richest 400 Americans owning as much as the bottom 150 million put together.” Democrats, no doubt cheered by left-over-leftist Bill de Blasio’s election as mayor of New York, and excited by his Occupy Wall Street rants, apparently believe that such class-warfare rhetoric is a political winner. So be prepared for more of the same, and for demands to raise the minimum wage and gouge even more money from the “millionaires and billionaires.”

Fretting over income inequality, however, has little to do with economic reality. It’s a statistical sleight-of-hand that counts only “money income” and ignores non-cash transfers in order to decry how much more income the top 1% are earning compared to everybody else. In fact, when the value of government transfers such as Medicaid and the Earned Income Tax Credit are included in calculating income, income inequality actually declined 1.8% between 1993 and 2009. Equally revealing is the fact that in 2005 those in the bottom 20% of earners consumed almost twice their income, again because of the value of non-cash transfers. And that doesn’t count the underground economy, everything from working for cash to more unsavory occupations. That’s why the statistical poor enjoy living standards higher than the average European. And that’s the real point––not how much the rich have, but how much everybody else does.

So what is all this hyperventilating about, apart from political demagoguery? Don’t underestimate the sheer ignorance of some people about how free-market capitalism works. They seem to think of wealth in medieval terms, as fixed resources like land, herds, forests, or precious metals that can be divided only so many times, a zero-sum process that requires some to have less for others to have more. Capitalism, of course, creates new wealth that is widely distributed, the riches of one leading to a higher standard of living for many. Microsoft founder Bill Gates is worth $78.5 billion, but his company and related businesses have created 14.7 million jobs globally. For every dollar Microsoft earns, affiliated companies earn $7.79. That’s the genius of capitalism, which allows a few to get rich and in the process make millions of others not necessarily rich, but better off than they were.

More important than ignorance of kindergarten economics, though, is the radical egalitarianism that has always been the bane of democracies since ancient Athens––the notion, as Aristotle said, “that those who are equal in any respect are equal in all respects; because men are equally free, they claim to be absolutely equal.” Genuine equality––the equality of all under the law, and the equality of opportunity––will not satisfy the radical egalitarian. He must have equality of result, and since the most obvious and galling sign of inequality is that of property and wealth, he will then demand redistribution of property to move closer to that aim.

The American Founders understood this nexus of egalitarianism, the unequal distribution of property, and political strife. As James Madison put it, “The diversity in the faculties of men from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of Government. From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately results: and from the influence of these on the sentiments and views of the respective proprietors, ensues a division of the society into different interests and parties.”

Notice that Madison assumes that the unequal distribution of ability, hard work, virtue, or even luck, all of which create the inequality of wealth, is an unchanging fact of human nature. As a result, those with more wealth, and those with less, will form different factions that will attempt to dominate the government in order to advance their interests. The Founders were particularly wary of the majority dominating the government and using its power to redistribute the property of the better off, at the same time they understood that the rich would use political power to their advantage. As Gouverneur Morris said during the Constitutional convention, “The Rich will strive to establish their dominion and enslave the rest. They always did. They always will. The proper security [against] them is to form them into a separate interest. The two forces will then control each other . . . By thus combining and setting apart, the aristocratic interest, the popular interest will be combined [against] it. There will be a mutual check and mutual security.”

Hence the Constitutional order of checks and balances was created on this foundation of clashing interests in order to keep one faction from tyrannizing over everybody else.

Obviously, this harping on income inequality is just another example of how progressivism has discarded the philosophical foundations of the Constitution. Rejecting the unequal distribution of ability and virtue among people that Madison recognized, the Progressives under Woodrow Wilson believed that unjust social and economic institutions accounted for inequality of income, and they wanted to increase the power of the state to correct this injustice. Thus early in the 20th century Progressives pursued what in 1918 economist E.R.A. Seligman called “fiscal justice” by successfully pushing for the Income Tax. Seligman was commenting on the 1917 Tax Act, which lowered exemptions and raised rates. This increase came a year after the 1916 Revenue Act, which had nearly doubled the 7% top rate established 3 years earlier by the Sixteenth Amendment, and created an inheritance tax. The New Republic called this expansion “a powerful equalitarian attack upon swollen incomes.” Since then the income tax has become the ever-expanding revenue stream for achieving the progressive aim to “pass the prosperity around,” as Albert Beveridge said at the 1912 Progressive Party presidential nominating convention. A hundred years on, the progressive Democrats are still attempting to use federal taxing power to defy human nature, the free market, and the Constitution in order to mount an “equalitarian attack on swollen incomes” and to “spread the wealth around,” as Obama famously said.

The rhetoric of class warfare, however, exploits a more unsavory dimension of democratic man’s desire for absolute equality, one noticed by Alexis de Tocqueville in Democracy in America. “It cannot be denied,” Tocqueville wrote, “that democratic institutions strongly tend to promote the feeling of envy in the human heart; not so much because they afford to everyone the means of rising to the same level as others as because those means perpetually disappoint the persons who employ them. Democratic institutions awaken and foster a passion for equality which they can never entirely satisfy.” Equality of opportunity means the chance to rise as high as one’s talents, virtues, and hard work can take him. Too often those who fail will refuse to accept their lack of these qualities and blame those who possess them, and in the “acrimony of disappointment,” Tocqueville writes, find “superiority, how legitimate it may be” to be “irksome in [their] sight.”

This envy and resentment is readily fostered and exploited by politicians seeking support for increasing spending on welfare and entitlements in order to maintain their own power and increase that of the state. Meanwhile, welfare destroys the virtues and habits necessary for success, while punitive taxation, deficit spending, bloated government, and intrusive regulation all hurt economic growth and reduce opportunities for those who do want to better themselves.

Obviously, modern “income inequality” rhetoric is a political smokescreen, which explains its inconsistencies. We do not hear Obama and the Democrats decrying the bloated incomes of progressive actors, television talk-show hosts, rap moguls, or sports stars. Their demonization of Wall Street doesn’t stop them from accepting campaign contributions from investment bankers or working for Goldman Sachs after leaving government. Worse yet, they are completely indifferent to the assault on the Constitutional order this rhetoric represents, or the divisiveness sown among the citizens by stirring up destructive passions like envy and resentment. All they care about is keeping their own power and privilege no matter what the social and economic costs.

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  • truebearing

    It is long past the time that the Right starts naming names when it comes to the billionaires behind the revolution. Soros comes to mind, but he is only one of many. Once sufficiently revealed, Obama and his evil minions will have a harder time convincing voters that the Right has all of the money, or even most of it. Maybe some of that envy driven hate that the Left promotes will get redirected at all of those filthy rich Progressives who are worth billions, but don’t seem inclined to share any of it with the poor minorities they use as voting booth dummies.

    • MarilynA

      Soros made his money speculating in currencies and had so much money to work with that he could manipulate a country’s currency to his advantage. Soros came from a Communist country where the state owned everything .My questions are: Where did Soros get the money to do this speculation? remember he almost brought down the British pound at one time. That takes a lot of money. Was Soros an agent of the Soviet government who put up the money to fund his mischief? Was he one of those oligarchs who ended up with Soviet money in his accounts when the USSR went under? Nobody has ever asked nor explained where Soros got the money to undermine and bring down governments by destroying their currency. Is Soros still working for his Soviet backers? It is obvious he is using his vast wealth to promote socialist causes and undermine capitalism.

      • truebearing

        Soros debased more than one country’s currency with his evil tactics, but he is only one of the sociopaths who are behind Obama. They all need to be revealed.

    • Notalibfool

      Some rich Obama minions: Bruce Springsteen, Sean Penn, Michael Moore……we could go on all day.

      • PoppySeedPops

        My observation of Michael Moore has been that he loves making his movies, writing his op-eds, etc. but when in a debate, he gets slaughtered. We need to continue the debates in this country bec it will be harder for them to hide.

  • William S Bandaruk

    Income inequality is based on the inequality of abilities, intelligence and health as well as parentage. I doubt if the government can fix these items.

  • Liberty_Clinger

    Marxist property re-distribution “from each according to his ability, to each according to his need” never creates property equality – because the Marxists in charge of the redistribution first take possession of the working people’s property via collectivization – and the Marxists never fail to feather their own nests as priority number one – only then do the Marxists toss out leftovers in return for votes. No, Marxist re-distribution of property never ends in “social justice” or “equality of property” – it always results in the exact opposite – a much greater inequality of property outcome than before.

    “It had long been realized that the only secure basis for oligarchy is collectivism. Wealth and privilege are most easily defended when they are possessed jointly. The so-called “abolition of private property” [Communist Manifesto] meant in effect the concentration of property in far fewer hands than before… In the years following the Revolution it [The Socialist Party of Oceania] was able to step into this commanding position almost un-opposed because the whole process was represented as an act of collectivization… It had always been assumed that if the Capitalist Class were expropriated Socialism must follow; and unquestionably the Capitalists had been expropriated. Factories, mines, land, houses, transport, everything had been taken away from them; and since these things were no longer private property it followed that they must be public property. Ingsoc [Socialist Principles of Oceania], which grew out of the earlier Socialist movement and inherited its phraseology, has in fact carried out the main item in the Socialist program with the result; foreseen and intended beforehand, that economic inequality has been made permanent.” George Orwell – 1984

    • MarilynA

      From each according to his ability, to each according to his needs was part of the Mayflower Pact. After one year of that nonsense, it was changed to “If you don’t work, you don’t eat.” because nobody put forth their best effort knowing they would have an equal share whether they worked or not. Nobody works because they want to. The incentive to survive is what motivates people to work. Take away that incentive and everybody will starve because nobody is going to work so everybody else can live high on the hog while he does the work.

  • kilfincelt

    Why don’t we demand that Obama and the rest of the rich Progressives distribute their wealth among the poor first and see what happens.

    • Notalibfool

      I always wondered how Bruce Springsteen could write songs pretending to care about average, working-class people while stockpiling a huge fortune. He prances about in blue jeans and a flannel shirt attempting to imitate the average Joe; meanwhile he advocates for all this progressive crap that hurts us commoners.

      Guess The Boss doesn’t practice what he preaches.

      • Crassus

        Bruce Springsteen is no Bob Seger. Seger doesn’t do political.

        • Notalibfool

          Not to mention Seger is a better singer.

  • sprinklerman

    “We have no government armed with power capable of contending with human
    passions unbridled by morality and religion. Avarice, ambition,
    revenge, or gallantry, would break the strongest cords of our
    Constitution as a whale goes through a net. Our Constitution was made
    only for a moral and religious people. It is wholly inadequate to the
    government of any other.” – John Adams, October 11, 1798

    One of the ten commandments says that to “covet your neighbors house” is a sin. Socialists, marxists and communists must first destroy Christianity before they can convince others that our Constitution doesn’t mean what it says.

  • Kwan

    Right let’s bring back the 160% tax rate for all those evil rich robber barons who make over $40,000 per year.

  • De Doc

    Regarding this topic governments keep making the same mistakes and expecting different results. When the failure of wealth redistribution kicks in, it is usually too late and the society is already tearing itself to shreds.

    Recall the words of John Adams: “Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide.”

  • Jeff Ludwig

    Amen Bruce. Everything you have written in this article is true. Thank you.

  • vladimirval

    These are the same tactics used by Hitler and Stalin. Hitler stoke hate-tread of the Jews and all Slavs. Stalin fed animosities between the classes and Obama is doing the same to us. He is cooking up hatred between various factions of our society, black against White, ethnic groups against ethnic group, big business against blue color workers, employees against small business owners, and all other groups he can identify against each other. Obama’s hate mongering has eclipsed that of Jessy Jackson and others who profit from spreading hate. Oh and BTW, Obama has amassed a considerable fortune since he started in politics. Instead of serving the people he has served him self,

  • Phương Trinh

    Nobody has ever asked nor explained where Soros got the money to undermine and bring down governments by destroying their currency

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  • PoppySeedPops

    Great article. Nevermind the fact that the ACA will implode the middle class but that requires more brain cells than eating up envy rhetoric. And let us not forget the billions given to other countries for wasteful EPA projects that benefit our country in no way at all, billions mistakenly given to illegals in tax $..

    Hollywood has no place in politics. The sooner more people realize that, the better off this country will be. You’d be doing a service to your country to spread that fact around. This is not about hating them for being successful since that is what Capitalism has afforded them. It’s about the hypocrisy of George Clooney telling everyone to accept Obamacare as the law of the land already when he not only won’t be affected by the law but like many in congress, have barely taken it upon himself to even understand the disastrous dynamics of the law. These are the people who use their money and influence to help get certain people elected and then once that is done, they flee from sight and cease to vet anything. It is the same problem with celebrities in a commercial telling you we need more gun control. Once again, these people live in gated estates where it is not likely they will need to protect themselves from intruders. They also have armed body guards but seemingly don’t think an average American should have the same rights they enjoy (see Cuomo’s gun law exemption for Hollywood in NY state). Also, many city dwellers need to remember that a huge portion of this country is country and farmland and the cops will not be able to get there in time. Hollywood and many of us are so far removed from our country that it is sad. What right does someone in a crowded city have to tell a woman living on a desolate farm that she cannot protect herself and her family? It’s inhumane and intellectually dishonest. It’s the ole “do as I say and not as I do” cancer. More Americans should be furious. These celebrities could care less if people are getting groped by the TSA. Where’s the commercial about that? It’s because they take private jets. Like Wall St. moguls, these celebs can donate a lot to politics and in their favor. I find it insulting that they even still try to open their mouths considering the disaster they have given us in the last few years. We need to start calling them out. They have a huge influence over Americans and are very responsible for the demise in this country. They preach the progressive side of things for their career because thinking for themselves could harm their career. The only time I have seen celebrity used for political good are when more intellectual celebs like John Cusack and Maggie Gylenhaal appear in commercials alongside Daniel Ellsberg (a real whistle-blower) and ask the NSA to stop spying on all of us. This makes sense because this is something that affects ALL of us. When it comes to things like healthcare, income inequality, and gun control, they’d be better off keeping their mouths shut. The next time a Hollywood celeb wants to cry about not taxing the rich enough, you tell or tweet them, “you first.” Or ask Katy Perry why she tweeted she was embarrassed to be an American after the Zimmerman verdict. Is she not concerned about the blacks who get murdered by other blacks in inner city crime which has now surpassed 10,000 a year? Chris Rock made a speech against guns by saying that the President and First Lady were like our mom and dad and that we should listen to what our mom and dad tell us. It was cringe-worthy. The truth is, our youth is more intelligent than many of these celeb robots. We need to take our youth back. Adam Carolla has a great rant on the hypocrisy of Hollywood w/ wealth and politics: http://www.youtube.com/watch?v=HKZLQFomAUg

    The cry for inequality as a means for political gain has gotten to a point where it is painful to hear. I hope even the low info voters are starting to connect the dots. One can only hope. But it is up to all of us to do our part. I am guessing most who read this article and comment on it are all preaching to the choir. I try hard to wake up my liberal New Yorker friends on a daily basis. What you will also find with these kinds of people is that they never seem interested in debating. It’s because at the end of the day, they can dish it out but can’t take it. Make them debate. Force the little man to come out behind the great and powerful Oz curtain. I also find this to be prevalent on college campuses. Marxism is always the more attractive and chic philosophy on campuses because it sounds more compassionate. We need to adopt a person a week and get more people to get it–especially in important swing states. We need to break this myth of this misleading and dangerous rhetoric. The Emperor has no clothes.

  • robertdavidhummel

    A-TEN-SHUN:

    NOW is the TIME for all GOOD Veterans PATRIOTS to COME to the AID of Our COUNTRY…to REGAIN the PRIVILEGE of Our CONSTITUTIONAL HERITAGE,to…
    “LET FREEDOM RING”, …as WE DEFENDED since JUNE 16 1775…
    “PERIOD”.

    Robert David Hummel says:
    January 3, 2014 at 12:40
    am

    MAJ.GEN. Paul E. Vallely (RET.),
    Retired Army General Calling For The
    Forced Resignation Of Obama
    http://www.youtube.com

    “OPERATION AMERICAN SPRING:

    Beginning Of
    Tyranny Housecleaning!!!!

    May 16, 2014 We the People MARCH ON DC!

    Sir,

    It is with sincere respect and honor
    that I privilege myself to LAUD and HONOR; your LOYAL, EARNEST, and TRUTHFUL,
    effort to IDENTIFY the Present; “DESTRUCTIVE & DEVASTATING, Failed
    Leadership”, facts of Pres.B Hussein Obama, and his Administrative CZAR’s, The
    Democratic Senate, along with the many RHINO’s in both Houses of Our
    Congress….One of your most efffective measures …Is your PLAIN SPEAKING…in a
    manner that even a Eighth Grader can understand and define in your Talking
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    I am Willing to be accountable to render you my sincere and loyal
    support, in any manner appropriate, with in the limits of my capabilities in any
    AIDE I can provide to your mission Challenge’ ,…PERIOD.

    I would rather
    endure the Dangers of Freedom than enjoy the Peace of
    Slavery…PERIOD.

    Again Sir, THANK YOU, CALL ON ME, and May Our Creator
    Bless your Patriotic and Military Professional Leadership in the Mission at
    hand.

    Robert David Hummel, USA,Ret(Sfc) 352-726-141, Inverness,
    Florida