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July 03, 2020 • 11:23 AM

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Obama’s Inequality Canard Print
By Troy Senik
Wednesday, December 18 2013
The one arm of the economy that is truly coercive is the one that’s so beloved by those who fret about inequality: government.

If President Obama is to be believed — a dependent clause that collapses under its own weight — the single greatest malady afflicting the American economy is the plague of economic inequality. In a speech earlier this month, he labeled it “the defining challenge of our time,” the sort of cheap superlative at which this president excels.

Now, to be sure, however troubled Obama may be by wealth disparities, there’s also an element of political convenience in all of this. When we talk about “defining challenges of our time,” the half-decade long sleepwalk of the American economy and the implosion of ObamaCare surely rank higher than income inequality.

Unlike those two areas, however, the president actually feels that there’s some political hay to make here. What’s even better, by choosing an issue that can never be resolved, he can milk this for as long as there’s breath in his body.

Let’s start with the obvious fact: Some level of material inequality is a natural byproduct of a free society. When individuals are left to accrue income on the basis of their talents and interests, it is inevitable that outcomes will vary. Some people simply add more value to a business enterprise than others; it’s inevitable that there will be a concomitant disparity in wages.

There’s also a matter of priorities. Imagine a talented pitcher who’s also deeply religious. He may choose to go to work for his local church rather than playing big league baseball, leading to dramatically lower earnings. Compare him with someone else who’s chosen to play in the major leagues, and you’ll find two people with comparable talents but wildly different incomes.

The individual serving his faith, however, has made a rational choice based on the fact that not all value is monetary.  By reducing the analysis exclusively to money, liberals like President Obama lose the complexity that animates these decisions in the real world.

Of course, there are plenty of people who are involuntarily earning less than they’d like and that’s the major source of anxiety on this issue. But what should be done? We long ago passed the point where rhetoric about people “starving in the streets” should have been taken seriously.

As Scott Winship of the economic think tank E21 noted in a recent commentary, the federal safety net is generous enough that all of the loss in median household income since the beginning of the Great Recession has actually been made up through government aid. It’s exceedingly hard for people to slip through the cracks of society these days unless they suffer from ailments that make them non compos mentis — mental illness or substance abuse, for instance.

Creating a safeguard for people on the bottom rungs of the socioeconomic ladder is one thing. Trying to bring everyone to rough parity is another. And there’s an irony that undergirds that effort. Advocates of greater economic equality often speak about the market in terms that are, whether implicitly or explicitly, zero-sum. That is, they imagine that the wealthy get rich at the expense of everyone else. But think about the way your spending operates on a day-to-day basis. You’re never compelled to spend money.

Sure, there are basic necessities — mortgage or rent payments, a car, groceries — that everyone has to purchase … but all of these goods are sold on competitive markets. You can look for cheaper apartments, more affordable cars or discounted food.

The one arm of the economy that is truly coercive is the one that’s so beloved by those who fret about inequality: government. And the only people who grow wealthy by doing something other than providing goods or services that individuals value enough to buy are those that get the largesse of government without delivering any corresponding value on the market (Solyndra, anyone?).

Moreover, the focus on inequality errs by focusing on ordinal rather than cardinal values; that is, it doesn’t ask about your overall wealth, just your level of wealth relative to someone else.

Consider two individuals: one makes $20,000 a year, the other $1 million. Let’s say the former’s income triples to $60,000 while the latter’s doubles to $2 million. Both are better off, but they are more unequal, with the wealth gap between them increasing by $960,000. Both have better lives (at least in a financial sense), but if inequality is the way you measure their standing, you’d see nothing but a problem. Inequality doesn’t produce misery, poverty does. Inequality qua inequality is little more than an envy index.

There’s one other practical consideration to keep in mind: Most measures of inequality are comparing apples to oranges. As the great economist Thomas Sowell is fond of pointing out, comparing how the top 1 percent or bottom 20 percent are doing today versus in the past suffers from a huge analytical flaw: You’re likely talking about different groups of people. The reason: The United States has substantial enough economic mobility that most people’s earnings rise and fall dramatically over the course of their lives.

When we compare the bottom 20 percent of a decade ago, for instance, against the bottom 20 percent of today, we thus omit the fact that we’re largely talking about different people. Many of yesterday’s poor are today’s middle class. Some of them may even be among the wealthy. A similar dynamic is at work when we talk about household wealth. With greater mobility, households have fewer people today than in days past. It’s thus inevitable that a household of one or two would have a lower income than a household of three or four.

While it may seem as if the president is trying to pivot to a new topic, income inequality is little more than a fig leaf for more of the same: making the American people imagine that they are each other’s economic adversaries and that the goal of public policy should be to level collective wealth rather than growing individual wealth. It’s a bad prescription, but there is one silver lining: The American people long ago discovered that this president doesn’t know what he’s talking about when it comes to the economy.

Question of the Week   
John Adams, then-delegate to the Continental Congress and signatory to the Declaration of Independence, said this “… will be the most memorable in the history of America …” with regard to which historic day?
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