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The Truth About Income Inequality That Liberals Won't Admit
Recently in the magazine, “The Atlantic”, New York Times investigative reporter, Raymond Bonner, wrote an article entitled, “Massive Riots: Britain Today, America Tomorrow”? The article subheading read, “Joblessness, rising inequality, and a frustrated underclass are all being blamed for the violence that's sweeping the U.K.”
The gist of the article was that Britons rioters were largely the victims of societal injustices and were being made scapegoats of problems that they didn’t create. The rising inequality between the wealthy and the poor seemed to be the underlying theme of the article. Another implication was if America won’t fix its own wealth gap, rioting in America is inevitable.
Will Wilkinson, writing for the Cato Institute, has an entirely different view on the wealth gap. In his October 2009 article, “Economic Inequality and the Mirage of Injustice”, Wilkinson tackles the liberal collectivist view on inequality and how it applies to gaps in income.
Wilkinson makes three main points:
1. Actual economic inequality America is a lot less than is widely believed
2. Economic inequality is a poor indicator of injustice
3. The inequality issue diverts attention from the real injustices of society
The focus of economic inequality is on gaps in income when the more relevant issue should be gaps in true standard of living. The Standard of living is more accurately measured in terms of consumption rather than by income levels. Levels of inequality in consumption have remained much more static than that of income.
There is now also considerable evidence of inflated statistics regarding income gaps. A number of recent studies have revealed that traditional methods of measuring price indices have inflated estimates of inequality. For instance, the prices of products used proportionately more by lower income consumers, fell considerably from 1994 – 2005, thereby increasing the buying power of the lower income group.
Contrary the popular narrative that poor and middle class income has stagnated for years, the truth is that from 1979-2005 real wages of the poor have risen 30%.
Inequality in Income is Not Injustice
Inequality in income may or may not indicate an underlying injustice. A country may have less income inequality than another country but have more injustice inherent in their institutions. For example a country with a demographic of an older population will show a greater income gap than other countries. An increase in entitlements for the poor inflates the income gap because much of what the poor consume is not counted as income.
Changes in Census surveys, have exaggerated income levels of higher earners. Recorded income increases of the top 1% of wage earners have been inflated by CBO miscalculations of corporate profits. Households with higher incomes had more people working for a greater numbers of hours than those of lower incomes. The poorest citizens in America are often wealthier than the wealthy in many African countries, America has the same income gap as Ghana in Africa, and does that mean there is a greater institutional injustice in America? I don’t think so!
Societies Real Injustices
If income inequality reflects an underlying problem in society such as institutional abuse by the wealthy or a pattern of minority exclusion from opportunities, then we should address those issues in very specific terms. To speak of inequality in general terms, as it often is by those on the left, is to indulge in political demagoguery.
The fallacy of the left is that they see a gain made by one citizen to be a loss by another. They can’t seem to comprehend that wealth is not a bad thing, that productive exchanges in the economy benefit everyone, as a rising tide lifts all boats. They seem to believe if everyone were poor there is a greater justice accomplished.
Another overlooked demographic is that there is a high level of economic mobility in America, many who are poor today, in ten years are often in very different circumstances and the same is true for those with high incomes who later on have substantial income loses. The Left inexplicably see the free market as a source of corruption and inequality when in fact a high level of accountability is built into the system. On the other hand, the same people will put their trust in an institution that least deserves it; the government!