Over the past several years, elites in America have unleashed a tidal wave of propaganda about the curse of economic inequality in our country. President Obama has made it one of his signature themes, calling income inequality “the defining challenge of our day” in a widely reported speech in December 2013.
When reflecting on this topic, it is incumbent upon us never to forget the incredible suffering and the tens of millions of deaths which resulted in the Soviet Union, China, North Korea, Cambodia, Cuba and other communist countries whose goal was equality of income and wealth. The empirical evidence is clear that the utopian goal of economic equality destroys wealth and creates poverty in its place.
Nevertheless, it is important to acknowledge that significant income inequality does exist in America, as it does in every country which values liberty and economic choice. Countries, which are both democratic and capitalist, will inevitably produce a citizenry with widely different levels of income. The real question, however, is: Is income inequality morally offensive?
Is it morally wrong for one household to earn $50,000 annually and another to bring in $100,000? Is it morally wrong for one person to earn $25,000 and another $50,000? The answer, I believe, is a definite no. Should all people earn the same amount? Of course not!
The best discussion of the moral aspects of income inequality that I have read recently is a short (89 page) book by Harry G. Frankfurt titled “On Inequality.” Frankfurt makes the key point that it is misguided, and even potentially harmful to the society, to regard economic equality as being, in itself, a morally important goal. He goes on to state that “our moral and political concepts may be better focused on ensuring that people have enough.” In other words, what is morally offensive is not income inequality between one citizen and another but a lack of sufficient means to live on.
Why is so much attention currently being paid to the economic equality in the U.S.? One of the main reasons is that liberals and leftists, both here and abroad, endorse the politics of envy. As Michael Novak writes in his superb book, “Business as a Calling,” envy is the most destructive social passion and is the chief cause of the downfall of republics. Surely the progressives in this country do not seek the downfall of this great democratic “experiment” called America, but they routinely use envy as a level of political power in seeking and staying in office. The reason that this demagogic rhetoric has gained traction in America is that there has unquestionably been a greater concentration of wealth in the hands of the upper middle class in recent years which has helped spark the debate over income inequality.
There are many reasons for this development, but here are the two most important which are rarely if ever mentioned: America’s remarkably generous immigration policy has resulted in over 35 million legal immigrants coming to the U.S. since 1970, the great majority of whom arrive with little education, modest earnings power and few financial assets. This wave of legal immigration, not to mention the 11 million or more illegal immigrants who live in America, represents more than 10 percent of the U.S .population, and this fact naturally accentuates income inequality in the short run.
Initially the income level of many immigrants will be modest, and like previous waves of immigrants to America, they will need to work, earn, save and send their children and grandchildren to schools which will enable them to achieve higher incomes. It is often said that it takes three generations for immigrant families in America to reach middle class and beyond. The first generation often works in menial jobs; their children complete high school and often college and they enter the service and manufacturing work force, and they in turn send their children to graduate schools which train them for the professions.
The other major reason for income inequality is the dramatic breakdown of the traditional two parent family in America. The numbers are so overwhelmingly clear that even President Obama was forced to address this theme in 2010, writing, “we know the statistics – that children who grow up without a father are five times more likely to live in poverty…” Here in the Commonwealth, according to a report by Massachusetts Family Institute, married-couple families had a median annual income in 2013 of more than $114,376, while income for female-headed households with children was more than 75 percent lower at $26,999. And in Massachusetts, more than a third of all children live in single parent homes.
So what is the answer to the question of income inequality? The wrong answer is to pursue socialist policies which destroy wealth. The correct answer is to implement policies which grow the pie – not to cut it into ever smaller pieces. The answer is also to recognize that as roughly 50 percent of income earners already pay no income tax, taxing the 50 percent who do pay income tax at ever higher levels is counter-productive. Another lesson is that strong and intact families matter. And finally, it is vital to ensure that there is a strong safety net so there are sufficient means for those who have difficulty making ends meet.
Robert Bradley is an investment advisor and entrepreneur. The views expressed in this column are his own and not those of his investment management firm.
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