A Message for Misguided Inequality Alarmists
This article originally appeared in Forbes
Rather than proving to be a fleeting political movement, the perception that the top 1 percent of income earners are gaining at the expense of the other 99 percent has inspired a full-fledged crusade to combat income inequality. Politicians in both parties argue that the middle-class is shrinking, average Americans’ incomes have stagnated, and today’s economic system is rigged against the little guy.
But the reality is not as simple as blaming billionaires. Equal Is Unfair: America’s Misguided Fight Against Income Inequality, a new book by Don Watkins and Yaron Brook that will be published by St. Martin’s Press on March 29, argues that today’s “inequality narrative” is more about bringing down people at the top of the income scale rather than helping those at the bottom. Here Watkins explains what drives the war against income inequality and how policymakers can restore the American Dream.
Jared Meyer: You write, “the forces that have made modern life possible go hand in hand with enormous economic inequality” (emphasis in original). Please explain.
Don Watkins: We have seen an amazing increase in our standard of living over the last hundred fifty years or so, and any economic discussion has to start by asking: what made that possible? It was not physical labor. Marx’s arguments to the contrary notwithstanding, muscles did not make Manhattan.
What transformed human life was the intellectual efforts of inventors, entrepreneurs, and financiers who used their minds to discover and implement new technologies and productive processes.
It started in the 19th century and only in the West because people had an unprecedented amount of freedom to put ideas into action, and to profit from their efforts. Free societies become rich because they liberate human ability and reward achievement.
And ability and achievement are far from equal. Individuals create vastly different amounts of economic value. My wife is a very good teacher, but she provides value to a few dozen children each year. She is inevitably going to make less than Jeff Bezos, who provides value to millions of people through his efforts at Amazon. But so what if he earns more income? Bezos is not taking anything away from her—on the contrary, he is making her life better.
JM: Some income inequality warriors seem to ignore the major role that increased production has in providing widely-shared economic progress. Do you think this hostility towards innovation and productivity gains comes from a misunderstanding of economics, an assumption that there will be no more progress, or a militant devotion to economic equality—even if it makes everyone worse off?
DW: I do not think you can make any universal statements here. Some critics of inequality, such as journalist Naomi Klein, object to progress as such. But most at least pay lip service to the value of progress. In their view, however, economic progress does not benefit everyone unless the government intervenes to regulate successful individuals and to redistribute wealth to less successful individuals.
Now, this is manifestly untrue. As just one piece of evidence, I recommend people read Robert Gordon’s recent book The Rise and Fall of American Growth. He is a critic of economic inequality, and I do not agree with everything in his book, but he shows that economic progress led to widespread prosperity long before the government started regulating business and redistributing wealth in any serious way.
At root, inequality critics are opposed to economic inequality on moral grounds. They view economic equality as a moral ideal, and so they gravitate toward economic theories that are consistent with that ideal—theories that tell us widespread prosperity depends on the government pursuing an equalizing agenda rather than a freedom agenda.
JM: How can anyone argue that average—or even poor—Americans are worse off now than they were in the so-called “golden age” of economic equality that stretched from the 1950s to the 1970s?
DW: What the inequality critics do is conflate statistical categories with individual human beings. When we hear that “the middle class has stagnated since 1979,” we are led to envision millions of people working for thirty plus years without a raise. But the inequality critics know that is not what happened.
You cannot draw conclusions about individuals by looking at statistical categories. Anyone who merely points to some statistic and says, “Look, we’re stagnating,” is misusing statistics. In our book, we dig into the statistics but also look at other big picture evidence of living standards. What we show is that the vast majority of individual Americans has enjoyed a significant increase in its standard of living since the 1970s.
JM: The idea of the American Dream (and its impending death) is animating political campaigns on both sides of the spectrum. How do you define the American Dream? And is it dying?
DW: We quote James Truslow Adams, who coined the phrase, “that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.” The American Dream is about opportunity—an open road for producers, who are free to rise as high as their ambitions and abilities will take them.
What makes the American Dream possible is not economic equality but political equality. Political equality means that government protects our equal rights to life, liberty, and the pursuit of happiness. No one gets special privileges, no one faces special penalties. That was the American ideal, in contrast to Europe, where aristocracy and government insiders enjoyed special privileges from the state at the expense of everyone else. (I say political equality was an ideal in America because we obviously and tragically did not fully live up to it.)
Today, the American Dream is not dead, but it definitely is not fully alive because of rising political inequality. On the special privileges side, for example, you have cronyism and sundry wealth redistribution schemes, and on the special penalties side you have occupational licensing laws, the minimum wage, anti-trust—the list is truly endless.
A less obvious example of political inequality, but maybe the most destructive, is government schooling. The government has long monopolized the field of education, virtually preventing innovators from entering the field, and forcing all but the most affluent to send their children to schools that all too often don’t educate.
What this all adds up to is that it is becoming harder to rise by means of your own effort and ability (especially if you are starting at the bottom), and it is becoming easier to live off the effort and ability of others.
JM: You argue that restoring economic opportunity—not combating income inequality—is the defining challenge of our time. Why do you want to shift the opportunity debate away from promoting economic mobility, which is a goal that many conservatives have signed on to?
DW: I am all for mobility, if that means the freedom to be able to rise from rags to riches by means of your own productive ability. What I am against is the idea that we should value mobility as such—people moving up, not by means of their productive achievements, but by means of handouts paid for by the achievements of others.
Take an analogy. I think it is desirable that teachers strive to see all their students improve their grades—to rise from F students to C students and from D students to A students. But I do not think it is a moral achievement to redistribute test scores so that we lift up D students by taking points away from A students. That is obviously unfair, and yet many of the proposals we hear for increasing mobility amount to just that.
But let me come back to the first part of your question. The inequality critics see the world in zero-sum terms. The only way to lift up those at the bottom is equalize society by pulling down those at the top. And since that, too, is obviously immoral, they first go to great lengths to demonize those at the top. But does anyone really believe that we can revive the American Dream by vilifying those who epitomize the American Dream?
If we reject the zero-sum view of the world and recognize that all individuals have the power to lift themselves up through their own productive efforts, then we are led to a different ideal: opportunity. Remove the barriers that prevent people from rising—namely government intervention—and we can have a society where we are each free to make the best of our own lives.
That is the choice we face. The future of this country will depend on which ideal we pursue.
JM: There is obviously much more to say on the complex questions of economic inequality and mobility. However, it is important to highlight that everyone cares about promoting opportunity, but simply cutting down those at the top of the income scale in the name of equality will do nothing to help those at the bottom rise up.
Jared Meyer is a fellow at the Manhattan Institute for Policy Research. Follow him on Twitter here.
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