Forget About Income Inequality… Its Income Mobility Stupid!!

Progressives Want to Make Us Feel Better About Income Inequality, Not Necessarily Solve a Problem.

Ask any progressive social justice warrior in America these days and they will rail against the growing gap between the wealthy and the poor. Their solution to this so-called problem is to adopt “middle-out” economic policy; in other words, tax the rich and redistribute wealth to the middle class and poor. But are progressives proposing a real solution to a real problem or are they just trying to make us “feel” better about the plight of America’s less fortunate? The truth is that income inequality is not the problem progressives say it is. The real problem is economic mobility, and here are three reasons why.

Reason #1: Income Inequality is Normal in a Growing Free-Market Economy.

During robust economic times as we see in America today, income inequality does not shrink but rather grows. This is normal. This may seem counterintuitive to those on the Left who remain myopically focused on gaps in relative wealth. But the free market has an amazing feature. It creates broad-based economic opportunity and distributes wealth to the rich, the middle class, and yes even the poor, albeit at different rates. If the rich benefit more than the middle-class and poor in terms of raw earned income, it is because their skills allow them to create more wealth. Conservatives understand this and encourage more people to become wealthy so that more aggregate wealth is created and shared, thereby enabling others to move up the economic ladder. Progressive Leftists, on the other hand, remain mired in their social justice propaganda by trying to convince the middle-class and poor that wealth creators are exploiting them.

Reason #2: Income Inequality is Not Unique to America.

Researchby the Organization for Economic Cooperation and Development (OECD) has shown that income inequality has grown for most OECD countries during the past 30 years. Therefore, income inequality is not a result of U.S. economic and fiscal policies per se but is instead a global phenomenon. Economic globalization has contributed to this trend, hitting the middle class and poor hardest as companies take advantage of cheap labor by outsourcing to foreign markets. Commercial investment in robotics, self-service kiosks, artificial intelligence, and automation technologies are also likely to eliminate some middle-class and entry level jobs, thereby exacerbating income gaps. Progressive proposals to tax the rich will do nothing to reverse these trends. Instead, they will harm the middle class and poor by creating incentives for the rich to shelter their wealth in tax dodges. Sound public policy would encourage the wealthy to invest in the free market here in America where it can grow and create jobs.

Reason #3: The Middle Class is Not Shrinking. It is Moving Up the Economic Ladder.

Mainstream media reports on income inequality have presented a distorted picture of how the middle class has been fairing. For example, the media have widely reported on research by academics Thomas Piketty and Emmanuel Saez, work that was referenced by the Obama Administration as evidence of growing income inequality. However, the Piketty/Saez research was myopically focused on analysis of pre-tax income across wealth classes (e.g., circa 2007-2015) and has ignored income benefits derived from corporate benefits (e.g., employer paid health insurance) and government transfer payments (e.g., food stamps, Medicare/Medicaid). When considering such payments and subsidies that support lower- and middle-class individuals, and when analyzing income trends over longer time periods (e.g., 1980 to 2012), research by Brian Domitrovic suggests that real incomes rose for all economic classes. Further, Mark Perry of the University of Michigan has researched what he acknowledges has been a shrinking middle-class in America since the 1970s. However, he points out they are shrinking because the middle-class is moving up the economic ladder without being replaced by advancement from the ranks of the poor. 

The Real Problem: Enabling Income Mobility of the Poor into the Middle Class.

The progressive Left’s obsession with income inequality and demonizing the rich makes for good politics because it fosters a sense of victimization, a primary strategy they use for building their political power base. However, it does little to solve a real-world problem. Income inequality is not a problem, but rather a symptom of a problem. The real problem is the inability of some of America’s poor to move up the income ladder. There is good research to support this conclusion. In 2012, researchers at the Pew Charitable Trusts exhaustively studied the issues surrounding income mobility and drew several relevant conclusions. Among these were:

• Eighty-four percent (84%) of Americans have higher family incomes than their parents enjoyed at an equivalent age. This means that an overwhelming majority of American families are moving up the income ladder in line with the American Dream.

• A large percentage of Americans in the top quintile (i.e., top 20%) and bottom quintile (i.e., bottom 20%) are likely to remain in their income brackets once reaching adulthood. This reflects income stagnation among the lowest quintile suggesting the poor are challenged in elevating their standard of living.

Pew describes the propensity to remain in the same income bracket upon reaching adulthood as “stickiness at the ends.” Therefore, this should be enough encouragement for policy makers to focus like a laser on how we can enable those in the lower income brackets to fill the ranks of the middle-class.  

Income Mobility is Primarily Up to the Individual, And Government Cannot Change That.

While everyone should agree that elevating the economic well-being of the poor is a noble concern, there are limits to what government can do about the problem. The biggest challenges in enabling able-bodied individuals to elevate themselves out of poverty are ultimately under the control of the individual. Factors that empower people to avoid poverty include: (1) getting married and avoiding out-of-wedlock births; (2) making a lifetime commitment to education and training so that you retain employable skills; and (3) seeking and completing treatment for alcohol and/or drug addiction. Government can provide loans or grants for education and training, but it cannot make people attend classes. The same applies to drug and alcohol treatment, because successful treatment requires commitment on the part of the individual. Further, government cannot force two people to stay married, and no amount of progressive social engineering or government welfare can change that. In fact, what we already know about the track record of government welfare is that it can destroy family cohesiveness instead of strengthening it.

It may be that the best public policy is one of encouraging able-bodied individuals to learn as much as they can so they can earn as much as they can, this while avoiding single parenthood. Progressives will reject this idea as simplistic because their go-to answer involves social engineering and wealth redistribution. However, when you are focused on the wrong problem, how do you expect to solve the problem?

How Can You Learn More About Income Inequality and Income Mobility?

If you are the parent of a millennial and want to inspire them to understand more about American exceptionalism, free markets, and the topic of income inequality, there is something that you can do. Give them a copy of Conquering the Political Divide – How the Constitution Can Heal Our Polarized Nation. This book provides the grounding we all need in basic civics and economics to help us defend ourselves from progressive ideology. Order your copy today by clicking here.

If you would like to suggest a topic for a future blog, or to provide us with feedback on this commentary, email us at: [email protected]

Eric Beck
Editor-In-Chief
Free Nation Media LLC
Greenville, SC

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