Why Is Income Inequality So Important?

No economic issue means as much to the Left as income equality. As President Obama said in the 2012 State of the Union address, “No challenge is more urgent. No debate is more important. We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules.” 

Other issues, such as unemployment, the deficit, revenue collection, or even economic growth, are of relatively minor import to the Left. In 2008, for example, when a moderator asked Senator Obama about his support for raising the capital gains tax, pointing out that “history shows that when you drop the capital gains tax, the revenues go up,” Obama shrugged: “Well, that might happen, or it might not.” It was more important, said Obama, to raise the capital gains tax “for purposes of fairness.”

Robert Reich, one of the Left’s favorite economists, has made such a reputation attacking income inequality that he is now earning $242,000 to teach a single class at the University of California, Berkley – a taxpayer funded school that could cost close to $30,000 a year for in-state students and over $50,000 a year for students who are out-of-state. 

Many others are making a lot of money, or advancing politically, by complaining about income inequality as well. Bookshelves are filled with books decrying it, including the now-maligned best-seller “Capital in the Twenty-First Century” by economist Thomas Piketty, which makes the hysterical claim that the growing gap between the rich and the poor is a threat to democracy. This is a notion with which Hillary Clinton, our presumptive 45th president, says she agrees.  (Of course, Hillary, if she is to be our next president, has to agree with such claims, or she will not win her party’s nomination over her two most likely challengers, Bernie Sanders and Elizabeth Warren.)

According to this week’s Census Bureau report, income inequality has increased 4.9% since 1993.  This is the result of the rich getting richer. According to the CBO, after-tax income between 1979 and 2007 for the 275% for the top 1% of households. And as if to rub it in,  the number of global billionaires have increased 7% this year, up 155 to a record 2,325.

According to this week’s Census Bureau report, income inequality has increased 4.9% since 1993.  This is the result of the rich getting richer. According to the CBO, after-tax income between 1979 and 2007 for the 275% for the top 1% of households. And as if to rub it in,  the number of global billionaires have increased 7% this year, up 155 to a record 2,325.

I was not one of these new billionaires, unfortunately.

The same CBO report also shows that the income for the bottom 20% (holla!) also grew, by 18%. In fact, income for all quintiles grew during this period. Furthermore, it is interesting to note that while the top 1% really began pulling away from the rest of us beginning in the mid to late 70s, the US poverty rate has remained flat during this period, pegged at about 14-15%, as it has for nearly 50 years now.

Globally, in fact, according to the World Bank, “The number of people living on less than $1.25 per day has decreased dramatically in the past three decades, from half the citizens in the developing world in 1981 to 21 percent in 2010, despite a 59 percent increase in the developing world population.” Much of this progress has been made in Africa and Latin America, the two regions with the highest income inequality in the world. The World Bank reports that  “the extreme poverty rate fell 10 percentage points in [Sub-Saharan Africa] between 1999 and 2010 and is now at 48 percent—an impressive 17 percent decline in one decade. In [Latin America and the Caribbean], after remaining stable at approximately 12 percent for the last two decades of the 20th century, extreme poverty was cut in half between 1999 and 2010 and is now at 6 percent.”

This is not to argue that poverty here or internationally is acceptable, but rather to suggest that a proper focus on poverty reduction would center on job creation primarily by way of economic growth. Although as I referenced earlier President Obama sees inequality, “fairness,” as more worthy of his attention than growth, it is primarily with growth that we would create the jobs to lift the poor out of poverty. In the US (according to this White House, ironically) the rough rule of thumb is that 1% of GDP growth equals 1 million jobs created. 

The focus should not be on income inequality and its specious link to poverty. What link is there, after all, of the deleterious effect of income inequality on the poor if inequality hasn’t increased US poverty levels, and in the global regions where income inequality is at its greatest, poverty is actually being reduced?

–DK

About DarkKnight3565

A graduate of Rutgers University, DK enjoys music, movies, comic books, and political discourse. Follow him on Twitter at @DarkKnight3565.
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