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Is income inequality that bad?

| Wednesday, January 27, 2016

At a rally in Wisconsin in July, in the earlier months of this exciting presidential race, Democratic contender Bernie Sanders proclaimed, “The issue of wealth and income inequality, to my mind, is the great moral issue of our time. It is the greatest economic issue of our time, and it is the great political issue of our time.” Based on his poll numbers and on current political discourse, many people seem to agree. Even President Obama has called income inequality “the defining challenge of our time.”

However, I do not think income inequality is the biggest issue of our time by any means. I would go so far as to say I don’t think it’s a problem at all.

Capitalism, especially unfettered capitalism, is often presented as an uncontrollable monstrosity, and the numbers seem to support that. How can one percent of the population own almost 36 percent of the country’s wealth? How is a society with both the lavishly rich and the ridiculously poor people fair or desirable?

There are a few preliminary problems with the arguments of income-inequality alarmists that I would like to point out. First, the alarmists fail to determine what level of inequality is acceptable, and without a level of comparison, today’s numbers are basically arbitrary. Further, income inequality alarmists struggle to pinpoint practical, nonpartisan implications of today’s level of income inequality. Some will argue that income inequality causes economic instability and even recessions, but this is hardly a settled matter. A study by the Cato Institute, a libertarian organization, point out that most statistics ignore the value of government payments to the poor and increasing workers benefits that have kept reported salaries stagnant while increasing the real value of low and middle income workers’ compensation.

But even if the statistics were correct, even if income inequality were increasing at alarming rates, it wouldn’t matter, because income inequality statistics do not give any indication of the measure the general standard of living or standard of living disparities in a society. Why does it matter how much the richest person in the country has, so long as the rest of the country lives comfortably? I do not mean to say the whole country currently does live comfortably, though the standard of living in the United States is relatively high compared of the rest of the world. Instead, I mean that unless there is a direct connection between how much the rich have and the poverty level, the gap doesn’t matter. If the gap does not hurt the overall economic health of the nation or speak to the level of poverty or the quality of life of the poor, complaining that some have too much is, at best, a call for blanket redistribution for the sake of some ideological definition of “fairness” and, at worst, a natural human instinct to resent the front-runners in our economic system.

Wealth is not stagnant, and wages are not the product of a zero sum game. There is much more in this country to go around than there was in 1920 or even 1980. Politicians who catastrophize income inequality often come up with solutions that divide the current wealth more equally, ignoring that encouraging growth instead may be the better way to help the poor and raise the real standard of living for everyone.

In measuring inequality, doing so in terms of the standard of living is perhaps more important than in terms of income. Dinesh D’Souza points out in his book, “What’s So Great About America,” that standard of living inequality has shrunk over time, even as such improvements created vastly rich people. There was a time when only the rich could afford refrigerators, phones and computers. As income inequality has grown, standard of living inequality has shrunk. Today, most working Americans have the same basic appliances and necessities as the rich. With globalization and an increase in manufacturing technologies, products for Americans of all income levels are cheaper than ever, and every income bracket has seen the benefits.

The people we can thank for this, people like Bill Gates, Steve Jobs and Jeff Bezos, have become extremely rich, but they have made everyone better off. As income inequality grows, the tangible standard of living inequality is shrinking. People are paid the worth of what they bring into the economy, and those who make their income through honest channels contribute to the creation of wealth that works to lift up all members of our society. We should give capitalism at least part of the credit for encouraging the creation of better and cheaper technology.

All of this begs the question: Is combating income equality really our highest objective? I don’t know about the rest of you, but I would rather live in this country than the economically struggling Japan, despite their shocking level of income equality. I’d skip Pakistan and Vietnam as well. I’d much rather focus on our GDP growth and absolute poverty levels, which are a much better indicator of economic health.

All of this is not to say that opportunity inequality and a lack of social mobility do not matter. However, they are not necessarily connected to income inequality. The alleviation of poverty and extension of economic opportunity is of utmost importance. However, economic growth, technological innovation and good old-fashioned capitalism has done that over the past few hundred years far better than any redistributive program could. Focusing on income inequality doesn’t help the poor. Honestly, I’m not sure what it does to help, other than rallying misguided support for certain Democratic presidential nominees.

You have probably guessed by now that I am a conservative. I don’t pretend that this article is unbiased, nor do I deny that conservatives and liberals have different ideological beliefs that cannot be compromised or reconciled.

If you find any inequality in a civilized society unfair, I won’t tell you you are objectively wrong, even though I would disagree. But I would challenge you to look at statistics and consider that their only real impact is in shock value used for political purposes. I would challenge you to consider what you think is fair and why. I would challenge you to consider what is really best for the alleviation of poverty and growth of social mobility in the long run. And I would challenge you to consider if Bernie Sanders and all these other politicians using income inequality as their rallying cry aren’t perhaps ignoring more important issues.

Mimi Teixeira is a sophomore in Lyons Hall majoring in economics and political science. She can be reached at mteixeir@nd.edu

BridgeND is a bipartisan student organization that brings students together from across the political spectrum together in discussions concerning public policy issues. The viewpoints expressed in this column are those of the author and not necessarily BridgeND. Contact BridgeND at bridgend@nd.edu or follow them on Twitter at @bridgeND

The views expressed in this column are those of the author and not necessarily those of The Observer.

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About BridgeND

BridgeND is a bipartisan student political organization that brings together Democrats, Republicans, and all those in between to discuss public policy issues of national importance. They meet Tuesday nights (starting Sept.8) from 8-9pm in the McNeil room of LaFortune. They can be reached at bridgend@nd.edu or by following them on Twitter @bridge_ND

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  • Kennon Gilson

    OP:Thanks. See http://www.libertarian-international.org for more on what Libertarians are doing in every country…

  • HolyHandGrenade

    Perhaps inequality is not inherently evil. Perhaps great wealth of specific individuals like Elon Musk can catalyze progress and economic growth. Yet inequality in a vacuum is not what people like Bernie Sanders are fighting against.He’s fighting against the exploitative nature of the system itself, which is biased to the wealthy. There is a great disparity in income gains from growth, and if you’re saying that the wealthy should be allowed to do what they want with all they have, then you’re advocating the system that circularly snowballs on itself.

    Conservatives like to sling verbal abuse at socialism, yet here and now we have socialism regarding big money much more so than regular citizens (besides welfare). The bail out and excessive subsidies in certain industries are examples of this. Saying that inequality isn’t so bad by citing its success under a government that promotes it isn’t great logic.

    Also, inequality that engenders an ease of entrepreneurship and growth at the top isn’t the only way for the economy to flourish. Sanders’ plan for healthcare reform that is funded by progressive taxes would put thousands into the hands of normal citizens, and I find it hard to believe this would be less energizing to the economy than some new businesses or products.

  • ConscientiousStudent

    If you want to focus solely on GDP growth and Absolute Poverty I suggest you read the IMF Staff paper published June 2015 (https://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf) on income inequality causes and effects in which they note through recorded data that income increase in the top 20% of earners leads to a negative effect on GDP while increases amongst lower income earners have a positive effect. Also, if you’d like to play around with numbers more I strongly encourage you to view the income inequality numbers in the years just before the Great Depression and the 2008 crisis (http://www.wid.world/). I can’t truly prove a causal relationship, but it can be noted that in the years just prior to economic failures in the U.S. we were at some of our highest recorded levels of income owned by the top percents.

  • Gordon Stanton

    I’ve heard this conversation about income inequality and standard of living inequality (more often known as consumption inequality) many a time before, and I must admit it is very frustrating.

    The most simple thing that is always ignored is what it means when these two things are growing at significantly different rates.

    If income inequality is rising because wages are stagnant (and just so you know benefits have not been getting better for those at the bottom for some time now), and yet consumption inequality is actually shrinking, then something isn’t adding up. So what’s the source of this difference. DEBT.

    The debt of the middle and lower class in America has been rising and rising even as wages have stayed stagnant. Do people have more stuff? Yes absolutely. But that’s because the have more debt, which they’ve been encouraged to do in order to keep up with the advances in society.

    This is incredibly important because debt has a huge affect on multi-generational poverty, and the growth of opportunity inequality which you mentioned here. Basically, if we cover up income inequality by creating a culture that encourages middle and working class families to go into debt, we begin to create a caste system that is in fact anathema to everything America stands for.

  • Dorothy Mantooth

    Illogical and ill-informed trash that isn’t worth a response. Articles like this make me ashamed to be a Notre Dame alumna. The saddest part is, this isn’t the worst thing The Observer has published in recent years.

    • João Pedro Santos

      Well, it’s a viewpoint. You can’t expect a viewpoint to be always logical and informed. Plus, Notre Dame as thousands of students, you can’t judge all of them because some of them write this kind of viewpoints.

      • Dorothy Mantooth

        Maybe I can’t expect all viewpoints to be logical, but I can be disappointed when a Political Science and Economics major can’t form a coherent thought on a topic that falls into both domains. And I never said I was judging all Notre Dame students; I’m simply embarrassed to be affiliated in any way with the author of this piece.

    • ArlenD

      I disagree, Dorothy. While I am a liberal, this author makes good points that what we should aim to value is quality of life, not necessarily wealth itself. This article is coherent and intelligent, not sensationalist. While she does not address how disparities in wealth can influence political power, it is quite right to say that the quality of life itself has improved in America over the last centuries (albeit with liberal policies protecting the rights of workers and the public good, such as through improvements in public health, playing a large role). The poor ARE better off than they were in the 1800s.

      “I would challenge you to look at statistics and consider that their only real impact is in shock value used for political purposes.” This is advice coming from a levelheaded person, one that I wish all politically active people should follow. And in turn, I advise you to argue against an author’s points rather than just dismiss it as “trash”- then you will be actually using your ND degree for what it’s worth.

      • Andrew

        “The poor ARE better off than they were in the 1800s.”

        Really, ArlenD? I can’t believe you would say that. Do you honestly consider this an accurate standard in which to measure income inequality? OF COURSE the poor are better off than in the 1800’s — we’ve been through an industrial and a technological revolution. What’s next — should we stop working on improving modern medicine because the life expectancy of people has gone up since the 1800’s too?

        It is fine to write an article saying how we should take into account quality of life measures when we talk about income inequality; it is not fine to say that income equality is not a problem in this country when the top one-tenth of 1% holds more wealth than the bottom 90% of this country combined. It’s the worst it’s been since 1928. Tell that one to the Cato Institute.

        Fellow ND ’15er

        • ArlenD

          Of COURSE they’re better off? No, I don’t see why that would be a necessity. Why would that necessarily result in a reduction of poverty? Imagine if it resulted in further class stratification due to exclusion of lower income groups. To say otherwise is to fall victim to hindsight bias.

          I strongly urge you to reread my comment and the author’s article. The “political’ position I have endorsed and that you are strongly reacting to is that Quality of Life matters more than absolute wealth. Do you disagree with this? If so, why? Defend your position.

          Nowhere in there do I suggest that we should become apathetic. As a current medical student, I am pursuing a career in improving life expectancy and quality. Let me be clear: I do not disagree with you that the degree of income inequality is shocking. BUT we use wealth as a proxy for quality of life, which is the true value we desire to maximize. I hope that you can understand this perspective.

      • Dorothy Mantooth

        If she had many any logical points, I would have responded to them. No duh the quality of life has improved in America thanks to improvements in healthcare and science (often based on research funded by government initiatives). The poor are better off now than in the days before we had indoor plumbing and electricity! Who woulda thunk it? That fact has absolutely no bearing on her overarching claim that income inequality isn’t “a problem at all.” The “only real impact” of statistics “is in their shock value used for political purposes?” Tell that to the millions of Americans who live in food insecure households (having a fridge doesn’t mean squat if you can’t afford to stock it) and/or don’t have access to basic health care. It wouldn’t have been hard for the author to find one, since there are literally millions of them (we know that from statistics…but then again, what good have those ever done us?). Thanks to the critical thinking skills I acquired at least in part at ND (my degree is just a piece of paper that shows I went there), I was able to quickly read this article, realize it had no intellectual merit whatsoever, and easily dismiss it as trash. But I can hardly wait for the next riveting Observer viewpoint article: “Is racism that bad?”

        • MC

          The point the author is trying to make is that income inequality doesn’t actually determine the number of impoverished people. They clearly state over and over again that alleviating poverty is important. They never said that there isn’t poverty in this country or that poverty is okay. Your response isn’t really being fair to the article.

  • Hugh Phelan

    I think income inequality is both a reasonable issue, economically and socially.

    Economically, part of the problem of income inequality is that there is a marginal propensity to consume that diminishes as income increases. This means that for every dollar a household earns, they will spend part of that dollar and save the rest. As a household earns more dollars, they spend proportionally less and save more. How does this apply to wealth inequality? Wealthy individuals have a severely diminished propensity to consume (as described above). When the nation’s income is concentrated in the hands of a small number of wealthy individuals, their income does not contribute to aggregate demand, which, in turn, stimulates the economy to the same extent that income distributed across a broad middle class with higher marginal propensity to consume would; it “trickles down” at a rate far less. For this reason, I think it is fair to address income inequality as an economic issue.

    Socially, I understand your argument that that income inequality should not be considered as “unfair” because the high earners in this country have raised the general welfare/living standards of the population and have earned their income through hard work. People should not resent success and should instead aspire to it. However, as income inequality grows, it reduces the possibility of socioeconomic mobility encompassed in the American dream. When 36% of all wealth is held by 1% of the population, their children have access to better education and opportunities – privileges they did not earn. The wealth becomes entrenched and this trend continues over time, as has been witnessed. This is not fair. Why should I have a much easier time of becoming wealthy due to my privileged status given to me at birth than someone who does not have these advantages? Addtionally, this does not even take into account the fact that people without talents/abilities should not have to suffer for their unfortunate draw in the natural lottery.

    So, while I do not think that the solutions proposed by “certain Democratic presidential nominees” are necessarily correct, I also do not think that their focus on income inequality is misguided. Perhaps a better solution than a simple tax-driven redistribution of wealth or increase in social welfare programs would be an overhaul of public education in which tax revenue would be allocated to the schools that need it (instead of the current system in which wealthy areas have wealthy schools that set students up for success, and poor areas have poor schools that doom their students from the get-go). A successful overhaul would serve to level the playing field to some extent, diminishing the causes of entrenched wealth inequality and resulting in a larger middle class in the long-term. Additionally, I know that education is a Republican tenet, so whether or not Republicans believe wealth inequality is a problem, their belief in equality of opportunity facilitated by equality of public education seems to have the desired affect of increasing the size of the middle class and its living standards. By focusing on the causes of wealth inequality, the poor are, in fact, helped.

  • João Pedro Santos

    So you say income inequality isn’t “that bad”? Look at this map:
    With the exception of the US, all developped countries have low income inequality. Of course there are a lot of third world countries with low income inequality but, among the developped ones, the US is the only exception. And since you talk about Japan, Japan has a low income inequality.

    • MC

      Did you read the article…?

    • Mr. Pockets

      If you look through the chart, Singapore is up there as well. The important thing to keep in mind isn’t to focus on which countries have low inequality (there are plenty of pretty poor and corrupt countries on the map with low gini indexes), but articulating why inequality is an issue. There’s a correlation shown, now why is it important

  • Brendan

    Great article, Mimi! This is only another liberal attempt to redistribute wealth and vilify success. However, concerns about corporate welfare (bailouts, energy subsidies, clean energy subsidies, sugar subsidies, etc.) do need to be addressed. Those receiving these subsidies and their allies in government will defend their own interests and argue that their product is critical and needs the subsidies to compete internationally (https://www.youtube.com/watch?v=MRfvMo3te1g). We need to get the Washington Cartel out of the business of picking winners and losers.

  • Nikolai228

    Wow. I was only able to make the first few meetings for this club and I loved it, but other commitments stacked up and I haven’t been in months. For those of you who don’t know Bridge ND is a bipartisan political club that focuses on discussing and resolving issues that face the country, rather than pushing for one party or the other to WIN.

    This is a phenomenal article. Even if you don’t agree with it, it is hard to say it’s not an extremely level-headed and well developed argument. Even as a center-right conservative, I hadn’t even considered the idea that income inequality was as much of a problem as people say it is. It’s easy to treat it as a forgone conclusion that it’s a calamity when you look at the charts and the data, but I love this point:
    “If the gap does not hurt the overall economic health of the nation or speak to the level of poverty or the quality of life of the poor, complaining that some have too much is, at best, a call for blanket redistribution for the sake of some ideological definition of “fairness” and, at worst, a natural human instinct to resent the front-runners in our economic system.”

    Clearly the discussions at the weekly club meetings have been productive. This is fantastic.

  • Andrew

    The Cato Institute? You got your statistics about income inequality from the Cato Institute? You mean the Cato Institute that is owned and funded by the Koch Brothers? That Cato Institute?


    • Jonestown

      The author also quotes Dinesh D’Sousa, who was convicted of a felony for breaking campaign finance laws. She only uses conservative sources after saying “Further, income inequality alarmists struggle to pinpoint practical, nonpartisan implications of today’s level of income inequality.” There are plenty of economists who would disagree.