Unequal Doesn’t Mean Unfair

I’ve been thinking about this whole debate about income inequality for a little bit.  The whole debate over whether or not to tax the rich more to slow the rate of growth of the income gap seems a little bit unnecessary to me.  The basic question of the debate should be: Is it bad to have a gap between the rich and the middle class, and between the middle class and the poor?

Here are some ancillary questions:

  1. If the rich get richer as the poor get poorer, is that bad?
  2. If the rich get richer as the poor get richer, is THAT bad?
  3. If the rich get poorer as the poor get richer, is THAT good?

It seems like there are two camps on this issue: one says “It doesn’t matter if there’s a gap, as long as everyone’s standard of living is increasing;” the other says, “There is a point at which the gap becomes too big, and governmental action must be taken to correct it.”

The famous former Enron advisor Paul Krugman, now writing for the New York Times, states that the New Deal caused a “Great Compression” of incomes—redistributing wealth from the rich to the poor—and created a kind of income nirvana in America.  This income distribution nirvana lasted until around 1980, when President Reagan got into office and started to reverse the effects of the New Deal.  Interestingly, in the video below from 2007, he said the reason it lasted for so long is because “once you create institutions, norms, expectations of a relatively equal society, it tends to persist.”

On the other side, you have people like Michael Novak, a Catholic philosopher, theologian, and author.  He says that “it’s a great mistake to worry about the gap [between rich and poor]; it’s a sign of envy.  It suggests that you have to bring down the rich.”  His solution, rather than to creatively redistribute the wealth via higher taxation for the rich, is to “work toward a system that makes it possible for more of the poor to rise more quickly,” and emphasize work rather than welfare.

Richard Epstein, a senior fellow at the Hoover Institute, in an excellent article entitled “Let the Rich Get Richer,” takes a shot at President Obama for his anti-growth policies:

“So the president blissfully advocates programs that reduce overall social wealth in order to soften these wealth differences. But it’s a mug’s game. In the end, it is growth, and only growth, that can cure the national malaise. And that means letting the rich get richer so that they can bring the rest of us along with them. But just as King Canute could not stop the tides, so it is that President Obama cannot draw blood out of a stone. What the president thinks are zero-sum policies are in fact no such thing. Given how they distort market incentives and increase political strife, Obama’s progressive policies translate into a profoundly negative-sum game, which, when replicated over time, will strip this nation of the entrepreneurial spirit that accounted for its past greatness.”

Bottom Line: We need to get over our class envy obsession in this country, be content with what we have, and work towards better lives for ourselves.

Question: Do you think the income gap between the rich and the poor is a problem in America?

Paul Krugman video:

Michael Novak video:

[If you’re having trouble seeing these videos in your RSS reader or email, click here to view them in your browser.]

  • http://brocmiddleton.blogspot.com/ Broc

    Well I have to take issue the premise of your question. The purpose of raising taxes on the wealthy more than the poor is not because anyone is trying to close the money gap, but because the poor struggle to afford those taxes while the rich do not. Simply put, THEY CAN AFFORD IT! If your statement is: Unequal doesn’t mean unfair, then I simply think the opposite that just because the rich have an unequal (higher) tax rate that doesn’t mean it’s unfair. Trickle-down economics do not work because people are greedy; especially people in society now are greedy. The only thing better than lots of money is lots and lots of money. Its not class warfare or class envy….its fair to have those who have more to pay more.

    • Ted

      I would tend to disagree that rich people are greedy. The vast majority of rich people got there by working hard, learning, and taking risks that the poor would not. I think we’re stuck in a 17th-18th century mentality that the rich are oppressors of the serfs. This is not the case. Most rich- I don’t have the exact numbers from ‘The Millionaire Next Door’ are first generation rich, meaning they worked for it.

      • Bob

        Ted, I would agree with you; the vast majority of rich people today are first-generation rich, meaning that they earned their money. I also think that they tend to be honest and generous (on the whole). Sure, there are bad apples (mostly living in New York City), but they’re not the rule.

    • Bob

      Broc, there are two reasons to tax the rich; one that you’re talking about (because they can afford it), and one that some Democrats are talking about (to level the income playing field).

      The one you’re talking about is OK, but undesirable economically; the other is both ethically tricky, and economically bad. The way that these Democrats are talking about the income gap, it IS an envy thing–they’re pitting one class against another.

  • Dan

    I’m no economist (I’ll throw that caveat out there to start), but it seems to me that our country’s recent economic collapse resulted from irresponsible fiscal policy and individual behaviors centered around the concept of “letting the rich get richer and the poor get richer too”. It seemed in my eyes that all sorts of monetary measurements were growing at a fast pace – lower interest rates, value of property and housing, among many others – and I doubt that the “realistic” value of these things was enough to justify it all.

    With that, I would suggest the notion that, relatively speaking, there is a “finite quantity” of wealth to go around, such as the gold in Fort Knox that supposedly backs up the value of the dollar. If we ignore these physical parameters and pump up all of these figures on paper in the stock market and such, that to me seems like a socialistic approach – the “wealth for all” concept, nevermind the math that does or does not back it up.

    If my conclusion, then, is merited, then we’re down to two opposite scenarios: Either the rich get poorer & the poor get richer, or the rich get richer & the poor poorer. Conceptually, again, there would only be X amount of wealth to go around, with the debate being how to divide it. I see that statement as being not some sort of political ideal, but rather a reality that we as a nation need to acknowledge and change to accommodate.

    • Bob

      Dan, thanks for the comment. Your premise that the recent economic collapse was BECAUSE of this concept of everybody gets richer is incorrect, I think (I may be wrong, and I often am), if you analyze it correctly. One of the drivers of the collapse was the housing crisis, which was brought on by the collapse of sub-prime mortgage, which was (arguably) brought on by government forcing banks to give mortgages to those who couldn’t afford it. This was government trying to FORCE the market to create a compression in income/wages in the private sector (i.e. trying to force the poor to become richer). It didn’t work (obviously).

      I guess my basic argument is that, naturally, as the rich get richer, the poor get richer as well, but the government shouldn’t try to force this. This is how the market works.

  • http://brocmiddleton.blogspot.com/ Broc

    Wow comment explosion, so much to respond to its crazy

    1. I think we should define who we are talking about “the rich” is a bit broad. We talking small business people who make $250,000 or the top 3-4% of income earner. Its a big difference.

    2. It’s not class warfare pitting one class against another; it’s not us against them or team poor vs. team rich. It’s simple, you have the ability to pay more and other don’t…it’s not complex.

    3. You continually say that Democrats tax policies are bad for the economy but tell me when in the last 100 years did the US have a balanced budget? What were the tax rates during that time when we had a real surplus? Clinton years ring a bell? Democrats have an actually success story they can point to and say look our policy works. Under what Republican tax plan has our government had a balanced budget. Now SPENDING is another story but historical fact versus economic thoery matters.

    4. The housing market crisis was brought on by regulators being asleep at the wheel and wealthy Wall Street investors gambling on that failure and then making huge profits from selling junk to the public. I understand you want less regulation in the private sector because you THINK it will help business however business have proved with their actions over and over that they will not protect consumers and they only care and making money no matter who is hurts. Lead products, cheap materials, ignoring saftey procedures, etc.

    • Bob

      Re #3: A couple of points on this one: yes, there was a period of time in the 1990s where we had a balanced budget, but the balanced budget was NOT due to tax levels. We could balance the budget at TODAY’S spending levels if we raised taxes on everyone, but pretty much everyone agrees that raising taxes to sustain our current level of spending is not wise, and is not good for our economy. We could cut everybody’s taxes to 15% (a flat tax), and balance our budget there, but would that be good? Probably not. It would mean tremendous growth for the economy (because lower taxes encourages investment), but it would mean huge, sudden cuts in everything, and that would be detrimental to our society. Second point: Democrats did not cause the prosperity or the balanced budget of the 1990s. The Republicans controlled Congress during the time when the budget was balanced, and Clinton capitulated to a bunch of wide-ranging reforms after the Republican onslaught of 1994.

      Re #4 – I can halfway agree with you about this; the housing crisis was brought about partially by regulators being asleep at the wheel. However, regulators were required by law to “encourage” banks to make sub-prime mortgages (by the Community Reinvestment Act) to people that couldn’t afford them. This is not the fault of any one party; both parties contributed to the passage of the CRA, which was irresponsible.

      Also, I’m not against regulation of the private sector; I’m against irresponsible regulation of the private sector. I’m all for responsible, common sense regulation. The regulations that you cite would fall into that category. I’m not an advocate for irresponsible business.

      • http://brocmiddleton.blogspot.com/ Broc

        Yes a balanced approach of higher tax rates and lower spending led to a balanced budget…gee who ever would have guessed that! Why do people see a formula that worked and then say we should do something else? Unfortunately partisanship has not allowed this balanced approach to see the light of day since the 1990’s. While under Republican led Bush the economy nose dived, and we still haven’t recovered.

        The housing market crash is a great example of lack of responsibility of all sides, Banks should not have been granting the loans but they wanted the business and interest rates, individuals wanted the biggest house they could get, not the best house they could afford. Agree both parties are to blame but let’s not forget to blame individuals who knew they couldn’t afford what they were buying. Hence the need for regulation…think of the American public as a big stupid child. See you can’t be trusted to buy a house you can afford so…regulation, now we have to verify income out the wazoo, Food industry you can’t be trusted not to poison America so regulation. Oil companies you can’t drill without spilling million of barrels of crude oil into the gulf….regulation…etc.

        See the thing about “irresponsible regulation” is that everyone’s line in the sand for what is irresponsible differs from person to person.

        • Bob

          Here’s two questions for you, Broc (kind of off topic, but interesting):
          1. Do you think the best type of government is a divided government (i.e. a president of one party, and a Congress of the other)? Why or why not?
          2. If yes, would you prefer that the president be Democrat or Republican? And the Congress?

  • http://brocmiddleton.blogspot.com/ Broc

    1. Yes I absolutely believe that a divided government is best. Example: I disagree with the Tea Party on most issues however I welcome their voice to the political process because it has forced an agenda of spending cuts into the federal budget debate. Of course I don’t believe eliminating the EPA, Department of Education and others are good ideas but it’s a voice that should be heard. GENERALLY SPEAKING the problem right now with our two party system is that neither side has a balanced policy or agenda. Republican views on social issues seem too stuck in the 1950’s and a fairy tail version of the “American Ideal.” While Democrats view government involvement as the answer to all. I posted on Facebook a very simple solution to this current budget crisis; Let Republicans set the spending and Democrats set the tax level. After its done we might actually get a balanced budget…and politicians would still have plenty of topics to play politics with. Think about it, it democrats went crazy with tax level they would lose alot of support, and if Republicans starting slashing everything they would lose support. See if you give responsiblity for something to one side they have to own it. The tax levels are too high…your spending doesn’t protect the poor… blah blah blah

    2. I don’t think I would general care about who had the white house vs. the congress however, we could talk about Veto power, ability to override a veto, and filibuster as well but I believe it would really depend on the type of man the President would be about the type of congress and its leadership. But if I had a gun to head and had to pick just generally I would choose a Democrat in the white house and a republican controlled House and Senate but perhaps I am still traumatized by Bush and have trust issues with a Republican President. I would really prefer moderate of each (moderate republican congress and a moderate democrat in the white house) in a perfect world because a lot would get done but that is a lot to ask.

  • heather johnson

    Well, it says you have 11 comments, but I can’t see any of them. I want to see what other people are saying!!! I agree that worrying about the gap between rich and poor is a sign of class envy/warfare.

    • http://bobewoldt.com Robert Ewoldt

      Heather, the earlier comments must have been made before I switched to the Disqus comment platform, which is why they’re not appearing.  I’ll look into whether or not I can make them appear.

    • http://bobewoldt.com Robert Ewoldt

      Heather, I was able to import all the old comments into Disqus, so you can see them now.

  • evelyngarone

    AMEN to the bottom line!!!!!