Fixing Income Inequality

In a recent op-ed in Barron's (April 18, 2019), Professor Michael Pettis of Peking University points out the dangers of income inequality, comparing our situation today with that of the late 1920s. This comparison is commonplace among progressives, who seem to think that the mere mention of "late 1920s" is enough to stampede the public into demanding progressive government interventions. In this case, it amounts to extortion: share the wealth, or we'll have another Great Depression. But if you share the wealth, both poor and rich will thrive. "The benefits would eventually trickle up — even to the rich," Pettis writes. Who could argue against making everyone rich? The problem is how to do it.

Pettis claims that "if income were more widely distributed, the U.S. economy would grow faster" due to increased spending and demand. But neither Pettis, with his demand-side economics, nor many of the other advocates of income equality specify just how income is to be "more widely distributed." (Give Elizabeth Warren credit on this point: by her own admission, her solution is not at all different from Lenin's: steal it.) Before getting to the solution, let's consider why income inequality has been rising, as it most certainly was under Obama-Biden. It rose because of the increasing gap between skilled workers and those who fail to obtain an education and skills. Progressives like to pretend "the system" is unfair to low-income workers. In reality, a high school dropout who doesn't work hard is probably overpaid at $8 an hour. By contrast, a brilliant entrepreneur like Larry Ellison, founder of Oracle, deserves every bit of what he has earned. He has created a company that provides useful products for hundreds of millions of businesses and individuals. Simply put, the high level of income inequality today is the result of cynicism on the part of those who have no intention of working hard either in school or on the work site — and cynicism on the part of politicians who encourage such thinking. There are more slackers today because many believe that if they band together, government will take care of them. Those who feed them with illusions of universal basic income are promoting failure. Does Bernie really believe that those who have worked so hard to succeed want to spend the rest of their lives subsidizing parasites? Given the failure of so many to obtain education and skills, income inequality is inevitable. This is particularly the case in a global job market. If a young person in Chicago cares only about partying through his twenties, there are plenty of young men and women in India and Vietnam who are willing to take his place in the job market, and they will. In The Expertise Economy, Kelly Palmer and David Blake studied various approaches to improving worker skills around the world. Palmer reports that the most effective of these, Singapore's SkillsFuture, is a partnership of private businesses and government offering training opportunities for every citizen "through workshops, work-study programs, and massive open online courses." To be successful, these programs require initiative on the part of participants. That initiative is not widespread in America, and progressive promises of "Free Everything" only make things worse. It's clear that Democrat presidential candidates would rather keep workers on the government reservation rather than see them succeed in the private sector. It's not just that liberals aren't good at job training: they don't want to be. Job Corps is an example of just how bad government job-training programs can be. Created 55 years ago as part of LBJ's Great Society, Job Corps has continued ever since, receiving billions in taxpayer funding and, according to GAO annual reports, offering little in return. At an annual cost of about $45,000 per student, Job Corps turns out graduates — the minority who graduate — whose long-term earnings are not at all different from those of others from the same background. And Job Corps is just one of 45 different federal job training programs. Critics have long suspected that young people would get better training at Burger King. Responsibility is definitely not what progressives have in mind. They wish to increase the dependence of young people on government — by forgiving student debt (much of it incurred by students taking six or more years to complete a degree, if they ever do complete it) and by offering free health care, free housing, free food, and a guaranteed income for life. That broad safety net in itself would not reduce income inequality; it would increase it, since it would encourage even more young people to ignore the consequences of failure. If workers refuse to take responsibility for their own skills and work, the only way for government to bring about income equality is to redistribute large amounts of income. That is exactly what progressives have in mind, though like Bernie they disguise their intentions by pretending they will tax only "the rich." Sanders would lower the death tax exemption to $3.5 million, thus destroying millions of small family businesses and family farms. There is a solution to income inequality, but it is not income redistribution. The solution is for young people to be told they must work hard to achieve a more equal income. Pretending government can ensure income equality by "more widely distributing" income is not merely a lie — it is complicity in spoiling the chances of millions of young people just starting out in life. There are hopeful signs that many Americans are starting to realize this. The Labor Participation Rate, which fell steadily under Obama and Biden, has been rising since Donald Trump was elected, as workers of all ages enter or re-enter the labor force. Also, consumer income expectations are now at their highest level in the last 15 years, according to the University of Michigan's Index of Consumer Sentiment. Maybe workers are starting to get the message, despite all that Bernie and his pals can do to discourage them. Jeffrey Folks is the author of many books and articles on American culture including Heartland of the Imagination (2011).