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Income Inequality is not necessarily a Bad Thing

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Published on: June 27, 2015

According to the “progressives,” income inequality is always a terrible thing and makes for a great political talking point around election time. Through the assistance of a complicit, Democrat-compliant media, many Americans have unfortunately bought into this unmitigated lie, hook, line and sinker. However, a very quick and easy illustration proves that income disparity can, in certain instances, actually be a sign of economic growth and vitality.

Imagine, for example, that a particular U.S. state experiences an economic boon and, as a result, there is an across-the-board rise in income, in which every single resident experiences a 10% increase in their average wage. So, the person making $1 million per year receives an additional $100,000, and the person making $25,000 per year now earns $2,500 more. Under normal circumstances, everyone living in that state would be very pleased with regards to their improved financial state of affairs. Since they have each benefited from a completely equal and fair increase in their wages, who could possibly be upset? Well, the answer is easy – an anti-capitalist Leftist, that’s who. Instead of focusing on the rising tide lifting all boats, they would rather harp on the increase in income inequality.

In my above example, everyone is equally better off as percentage of their annual income, but the disparity between the two hypothetical individuals has nominally increased. Originally, the gap was $1 million minus $25,000, or $975,000. However, after the 10% wage increase, the gap has actually increased by $97,500, which results in a new, total income differential of $1,072,500. In other words, even though income inequality remains a statistical and rising reality in this scenario, it is also a predictable consequence of a growing economy.

It has been argued by some, however, that when this disparity becomes too disproportional between those at the top and those at the bottom of the income scale that it may actually become a detriment to a particular state’s or our national economy. And the liberal “answer” to reducing income inequality is always the same — raising taxes on the wealthy, increasing the minimum wage, and expanding welfare/entitlement benefits. However, as usual, the liberal prescription doesn’t mesh well with economic reality. So, it’s my statistically-supported contention that income inequality does not necessarily indicate a problem, but when it does, it’s typically the result of the job-killing, anti-business economic ideologies of the Left.

In layman’s terms, economists Stephen Moore and Richard Vedder explain how income inequality is officially measured in a recent Wall Street Journal article:

The Gini coefficient, a standard measure of income inequality, calculates the ratio of income at     the top of the income scale relative to the income of those at the bottom. The higher the ratio, the more inequality. A Gini coefficient of zero means perfect equality of income and a Gini coefficient of one represents perfect inequality.

Through their insightful analysis of all 50 states, Moore and Vedder also made an interesting statistical discovery.

“The income gap between rich and poor tends to be wider in blue states than in red states,” they assert, “Our state-by-state analysis finds that the more liberal states whose policies are supposed to promote fairness have a bigger gap between higher and lower incomes than do states that have more conservative, pro-growth policies.”

The latest Census Bureau data (2012) further confirms that liberal policies tend to widen the income inequality gap.

“The three places that are most unequal — Washington, D.C., New York and Connecticut — are dominated by liberal policies and politicians. Four of the five states with the lowest Gini coefficients — Wyoming, Alaska, Utah and New Hampshire — are generally red states,” report Moore and Vedder.

The Gini coefficient also reveals that higher tax rates and liberal redistributionist efforts do not comport well with reducing income inequality.

In the Northeast, the state with the lowest Gini coefficient is New Hampshire (.430), which has     no income tax and a lower overall state tax burden than that of its much more liberal neighbors     Massachusetts (Gini coefficient .480) and Vermont (.439). Texas is often regarded as an     unregulated Wild West of winner-take-all-capitalism, while California is held up as the model of     progressive government. Yet Texas has a lower Gini coefficient (.477) and a lower poverty rate     (20.5%) than California (Gini coefficient .482, poverty rate 25.8%).

And a higher minimum wage does not really help either — it actually hurts the poor.

“States with a super minimum wage like Connecticut ($8.70), California ($8), New York ($8) and Vermont ($8.73) have significantly wider gaps between rich and poor than those states that don’t.”

Finally, Moore and Vedder point to a fairly recent Cato Institute report, The Work Versus Welfare Trade-Off: 2013, which indicates that increased welfare benefits do not produce the projected positive results. They write, “In general, the higher the benefit package, the higher the Gini coefficient … there is little evidence over time that progressive policies reduce income inequality.” That’s because our current, broken welfare system encourages dependency and chronic unemployment, creating a permanent underclass that mindlessly keeps on “pulling the lever” for the Democrats in an electorally parasitic relationship.

Moore and Vedder further clarify in their report that these “findings do not show that state redistributionist policies cause more income inequality,” but they do provide powerful evidence illustrating that liberal policies (raising tax rates or minimum wage hikes) “fail to achieve greater equality and may make income gaps wider … because they chase away workers, businesses and capital” from the more left-leaning states. This is exactly the reason why companies like Toyota left California for Texas. And the latest IRS report on interstate migration confirms this trend.

Nationally, President Barack Obama’s policies – expanding the food stamps program, extending unemployment benefits, etc. – have not improved circumstances at all. The income inequality gap has, in fact, widened during his tenure in office.

    The Gini coefficient for the United States has risen in each of the last three years and was higher     in 2012 (.476) than when George W. Bush left office (.469 in 2008), though Mr. Bush was     denounced for economic policies, especially on taxes, that allegedly favored ‘the rich.’

Once again, the evidence strongly supports the conclusion that conservative pro-growth policies – lower taxes, decreased entitlement spending, right-to-work laws, and less governmental regulation, just to name a few – are more effective in creating an economic climate conducive to prosperity and progress. But the liberal “fixes” always end up steering America’s economic engine straight into a ditch.

It’s time to wrest control of the wheel from Leftists and get our country back on the right track.

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