American Elephants

Growing Inequality Isn’t What Matters. What Matters is Good Jobs for the Jobless. by The Elephant's Child

In an attempt to turn the American conversation away from the botched rollout of ObamaCare and the horror stories from new enrollees, President Obama has begun emphasizing income inequality. Envy is always a popular ploy among Democrats that plays well at the polls. Ron Bailey summed it up well at Reason:

Are the rich getting richer? Yes. Are the poor getting poorer? No. Over the past 35 years most Americans got richer. Has income inequality increased in the United States? Yes. Does it matter? President Barack Obama declared in a December speech at the Center for American Progress that “a dangerous and growing inequality and lack of upward mobility” is “the defining challenge of our time.” Is that true? No.

The financial arm of the federal government uses the census and statistics from the IRS to divide the American people into quintiles. In December 2013, the Congressional Budget Office (CBO) examined the after-tax income trends for each quintile of American households since 1979, including not just wages but also benefits and transfer payments. The bottom fifth’s after-tax income in constant dollars rose by 49 percent. The incomes of the middle three quintiles increased by 37 percent, 36 percent and 45 percent respectively.

Gary Burtless, an economist at the Brookings Institution examined CBO data from 1979 to 2010 (the last year for which data are available), and divided the top quintile into four groups: those in the 90th percentile and below, those in the 91st through 95th percentiles and the top 1 percent. During those years, incomes for those fortunate households increased by 54 percent, 67 percent, 79 percent and 202 percent. The rich got richer too, but they got richer faster. Is this when “the one percent” became an ‘important’  buzz word?

What is missing in these statistics is the fact that the people in these quintiles are not the same people over time. Forbes magazine’s annual listings of the richest Americans and world’s richest are manna for the Occupy crowd and the faculty lounge. University professors have always found it enraging that corporate CEOs make huge salaries with enormous benefit packages when they, with their PhDs, are clearly smarter. Envy. But where else do you find so many who disapprove of capitalism?

Economist Alan Reynolds points out that “those who obsess over income shares should welcome stock market crashes and deep recessions because  such calamities invariably reduce ‘inequality.’ Of course, the same recessions also increase poverty  and unemployment.” If you follow Forbes listings, you will notice that some drop off the list and new names appear. But these are not normal times we are living through, as we have an administration determined to fix inequality, but consistently doing the wrong thing about it.

In his December speech, the president suggested that rising inequality is limiting income mobility, leaving poor Americans increasingly stuck and struggling on the lower rungs. The data do not support this claim.

We have had an astounding period of growth that has produced enormous wealth because of internet technology. I don’t know that we have ever before had a technological innovation that meant that every household and every office had to have at least one computer and probably one for each and every  person. Not only that, but the industry is so busy creating and updating and innovating that everyone has to replace everything constantly, and they do so without much complaint, and there are no signs that it ever diminish.

The great defining economic challenge of our time is not putting an end to inequality. The challenge is the persistent joblessness and sluggish economic growth perpetuated by Obama administration policies. A growing economy  will produce more economic mobility. Trying to make the poor stop being poor by redistributing the wealth of the rich has never worked, though often tried.

Intellectuals fretting about income disparity are far too focused on the wealthy, while ignoring the elephant in the room. The strongest statistical correlate of inequality in the United States is the rise of single-parent families during the past 5o years. In 1960, more than 76% of African-Americans and nearly 97% of white were born to married couples. Today the percentage is 30% for blacks and 70% for whites.

This trend, accompanied by high divorce rates means that roughly 25% of all American children now live in single-parent homes, twice the percentage in Europe. Roughly a third of American children live apart from their fathers. It matters. Two parents work better than one.  Even rich kids don’t do as well in single parent families.


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