Today is Election Day, so I want to talk about an issue that is the driving electoral message of hundreds of political candidates nationwide. That issue is income inequality.
Now the first thing to understand is that, in a free society, income inequality will always exist at some level. If given the liberty to do so, enterprising individuals will find a way to make more money – in some cases a LOT more money – than their neighbors. If nothing else, the history of our nation is a testament to this: There have always been rich people, middle income people, and poor people.
Of course, to acknowledge this reality as reality is not saying we should accept extreme income inequality simply as a fact of life. When growing income inequality reflects higher barriers to economic mobility for the poor and middle class, that problem must be addressed. For a conservative, this is first because the respect that we owe to the human dignity of our lower-income neighbors as free and reasoning individuals places a moral duty on us to ensure that they have reasonable opportunities to flourish as human beings, including the chance to improve their economic standing. It is also because the thriving free market economy that conservatives value requires a free market economy that is worth living in.
But the sad reality is that many who publicly lament today’s high levels of income inequality have no serious plan for addressing the problem, and are just using the issue to manipulate people’s emotions in order to capture their votes. And in today’s politics, this is especially true among political progressives.
Income inequality has become the latest fad in progressive policy circles, partly driven by an economic recovery to refuses to act or feel like a genuine economic recovery, and partly driven by the popularity of French economist Thomas Piketty’s book Capital in the 21st Century. Predictably, the progressive focus on the issue has been accompanied by calls for higher taxes on the wealthy and increasing the minimum wage, which it seems are the only ideas that progressives ever have about income inequality.
For my part, I have never understood this approach. After all, how is raising taxes and making people unemployable by raising the minimum wage above the market value of the skills of many low-income Americans going to make it easier for them and their families to achieve the American dream?
For those familiar with Piketty’s arguments about income inequality and the criticisms of his argument, the reality of the issue is more complicated than can be solved by simply taking money from the wealthy and attempting to mandate away the problems of the working poor.
A study published last month by the National Bureau of Economic Research identified two conflicting forces underlying income inequality. Encouraging inequality is the entrepreneurial desire to significantly increase one’s income. Limiting inequality is the “creative destruction” caused by disruptive innovations which shift income-earning potential from one individual, business, or market sector to another, thus naturally limiting how much income any one person or business can accumulate.
Among other things, the researchers conclude that policies which prevent entrenched business interests from blocking new innovation and competition will serve to decrease income inequality.
There are many examples of policies that block or limit new competition or innovation. One includes ridiculous professional licensing schemes that require thousands of hours of formal education before a low-income individual can open a business in which they have some basic skill. Another is economic development policies that offer multimillion dollar tax incentives to multi-billion dollar corporations willing to relocate, effectively granting them the privilege of a better effective tax rate than their smaller and often more innovative competitors.
If we seriously mean to address income inequality and economic mobility, then we have to do more than the progressive platitudes of raising taxes and minimum wages. We have to reject calls from those representing big business to protect their privilege to special tax incentives. And above all, we have to genuinely embrace the principle of the free market in our policymaking, and reflect that principle in areas like business licensing and regulation, and economic development policy.
Otherwise, all this railing about income inequality amounts to little more than grubbing for votes.
For Sutherland Institute, I’m Derek Monson. Thanks for listening.
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