The presence of unimaginably wealthy people enriches our area in both tangible and intangible terms. Its not just the obvious addition to the tax base, or the lavish level of charitable giving with local museums, parklands, performing arts institutions, universities, sports stadiums and much more benefiting handsomely from the generosity of the Gates family, or of his idiosyncratic Microsoft co-founder, Paul Allen. Theres also an energy, a cosmopolitan atmosphere and a sense of world class swagger, that comes to any community thats able to spawn and retain some of the most productive and powerful entrepreneurs in existence. Far from swallowing up limited resources that would otherwise nourish the middle class and the poor, a citys most successful businessmen generate and contribute resources that benefit everyone. States that impose punishing tax rates that chase away their richest residents and most dynamic businesses do nothing to improve the lot of the less fortunate, as recent experiences in Michigan, Ohio, California and New Jersey dramatically demonstrate.

Here in Seattle, the 2001 decision by Boeing to move its corporate headquarters to Chicago (with special tax incentives and concessions from the pliant Illinois legislature) struck all segments of the populace as a disaster. The big aircraft company reassured Washingtonians that they had no plans to close down their major manufacturing facilities in our area, or to end their century-long association with the region, and that the strategic shift to the Midwest would cost only 500 executive jobs. Nevertheless, from Governor Gary Locke (now Secretary of Commerce in the Obama administration) to voluble cab drivers on the scenic streets of Seattle, everyone understood that the departure of top brass from a top international corporation darkened the future for every sort of enterprise. Governments and chambers of commerce arent crazy when they fight ferociously to keep prospering businesses where they are, or to lure new companies from other states. Under the logic of rich-get-richer/poor-get-poorer they should welcome plans by any local enterprise to relocate because that will leave behind more wealth for the working class. Fortunately, most people understand that if a corporation moves away it means fewer jobs and less productive activity in the local economy. It doesnt take some leap of comprehension and logic to then reach the obvious conclusion that its also a blow if the business leaders who provide the jobs and generate productive activity decide to pursue profit somewhere else or even choose to retire to a gated beach resort.

THERE GOES THE NEIGHBORHOOD

If a prominent corporate executive decides to buy a new home on your block theres little chance you'll hear the comment there goes the neighborhood. The addition of a few well-off neighbors can raise property values and prestige for everyone else. When the guy next door begins making more money and goes through a major remodeling or stylish landscaping or even adds a second story, as long as he doesnt block your view (which zoning should prevent) its reason for celebration, not resentment. When the prospering folks across the street get a new roof or a fresh paint job or decide to install a swimming pool, theyve done nothing to damage your enjoyment of your own home. They may inspire other householders in the area to make their own improvements and, at the very worst, theyve provided well-paid employment for contractors and gardeners and maybe even architects. An increase in wealth for one family never causes an increase in poverty for other houses on the block nor, for that matter, takes resources away from strangers on the other side of town.

If, on the other hand, an impoverished family occupies the house a few doors away, its only natural to worry about the future stability of the neighborhood. On occasion, such responses stem from racial prejudice which is both irrational and indecent. In many instances, however, it makes sense to feel concerned about a sudden influx of poor people into the immediate vicinity. The well-established, long-time residents might reasonably worry that a big wave of fresh arrivals could depress home prices, or place major demands on the community without bringing the new resources to help fulfill them. In this situation, the newcomers may ultimately surprise old timers with their unexpected energy, family values or hard work, but its still rare to hear any homeowner welcome poor neighbors because theyll suddenly make him look and feel rich by comparison. No one wants to see the homes on the block become overcrowded and rundown, with peeling paint, unkempt yards and junked cars on cinderblocks on the front lawn, just so the prior residents can now claim to own the nicest remaining houses on the street. The dramatic changes in both deteriorating and gentrifying districts show that even non-related families generally rise or fall together, seeing whole neighborhoods improve or decline. New wealth brings more wealth, just as deepening poverty leads to more poverty. But increased riches for some dont lead to deprivation for others, any more than impoverishment for some guarantees enhanced wealth for others.

THE POOR LIVE MOSTLY ON THE RICH

This economic interdependence becomes even more obvious in the workplace than in residential districts. Bosses and workers, the allegedly opposing castes endlessly invoked by class struggle rabble rousers, actually depend on the success of precisely the same companies. In the fierce competition of free markets, bosses gain nothing if a seething workforce feels short-changed and exploited, and the employees earn no long-term benefit if the company they serve starts losing money. Its true that increased revenue wont necessarily bring higher wages (since a short-sighted boss might choose maximizing profits over improving living standards), but business success certainly increases the likelihood of better salaries (and bonuses). With all the fervent hostility of the smash-capitalism agitators of the last century, no theorist has been able to explain how damaging your own employer or striking out against the economic system in general will help you win a better deal at work.

The baleful experience of General Motors, once counted among the most dynamic and powerful of all US corporations, provides an instructive example. For several decades, the United Auto Workers secured contracts that meant that workers did better than the company that wrote their checks, but this imbalance brought an implacable reckoning. After the government bail-out (or takeover, to use the less delicate phrase) no one can mistake the reality that workers and bosses (and federal administrators) will either fail together or succeed together (especially since the union now owns the biggest share of the company). Even before bankruptcy and restructuring, it should have been obvious that employees would suffer if their company suffered, and would gain if their corporation gained. Any worker in any field who believes that hell benefit if the boss suffers business reverses is, quite simply, too stupid for continued employment.

THE INFAMOUS INCOME GAP VERSUS PROGRESS FOR THE POOR

Unable to muster any sort of logical support for their attempt to associate soaring prosperity for the most fortunate with deepening poverty for the least fortunate, inequality obsessives resort to the manipulation of data and history. While no studies in the last generation show the poor actually getting poorer, there is abundant indication of a growing wealth gap between those at the top and the bottom of the income scale. As the rich get richer, the poor also get richer dramatically richer -- but redistributionists express horror at the fact that the distance between the least and most successful continues to increase.

In a typical jeremiad from the Age of Reagan (September 7, 1986), Barbara Ehrenreich posed a painful question in the New York Times Magazine under the headline, Is the Middle Class Doomed? She reported that some economists have predicted that the middle class will disappear altogether, leaving the country torn, like many third world countries, between an affluent minority and throngs of the desperately poor. Some twenty years later, Lou Dobbs made a strikingly similar prediction in his book War on the Middle Class, suggesting that doom was in fact on hand for the Great American Bourgeoisie: Our political, business, and academic elites are waging an outright war on Americans, and I doubt the middle class can survive the continued assault by forces unleashed over the past five years if they go on unchecked.

As Arthur Laffer, Stephen Moore and Peter Tanous make clear in their hugely important book The End of Prosperity (2008), reports of middle class doom and demise have been greatly exaggerated. Heres the truth, they write. The purchasing power of the median income family, that is, families at the midpoint of the income continuum, rose to $54,061 in 2004, an $8,228 real increase since 1980. The middle class is not disappearing it is getting richer.

In fact, the entire nation has gotten richer, very much including the poor. Americas net worth increased in real, constant dollar terms from $25 trillion in 1980 to $57 trillion in 2007. As Laffer, Moore and Tanous note, more wealth was created in the United States over the past twenty five years than in the previous two hundred years. In 1967 only one in 25 families earned an income of $100,000 or more in real income (in 2004 dollars), whereas now, almost one in four families do.

All evidence of a rising income gap reflects spectacularly increased wealth for the most prosperous rather than any falling living standards for the poor, and even this famous gap itself represents something of a statistical anomaly. A recent study by the Congressional Budget Office (May, 2007) showed that from 1994 to 2004 the poorest Americans enjoyed the highest increase in incomes. In other words, far from being left behind, the least privileged Americans are making faster progress than any other segment of the population. A subsequent report by the Treasury Department (Income Mobility in the U.S. from 1996 to 2005; November 13, 2007) reached the same conclusions, with those in the bottom 20% of wage earners improving their income by a breathtaking 109% (inflation adjusted). The Nobel Prize-winning economic historian Robert Fogel observed in 2004: In every measure that we have bearing on the standard of living the gains of the lower classes have been far grater than those experienced by the population on a whole.

With this sort of encouraging progress for the least prosperous Americans, how could the wealth gap possibly increase? The answer involves a statistical anomaly, and the contradiction between government figures measuring income rise in percentage terms, and numbers that report the rich-and-poor gap in raw dollars.

Imagine two citizens, the well-to-do Smith and the struggling Jones. Smith earns $200,000 a year and increases his income by an impressive 10%. Jones, on the other hand, brings home only $20,000 a year but succeeds in raising his earnings by a spectacular 20%. That means Jones receives $24,000 the next year while Smith gets $220,000.

In other words, even though the poor, hard-working Jones has lifted his earnings twice as fast as the wealthy Smith, the income gap between them has still increased from $180,000 to $196,000. Because Jones starts from a much lower base income, even a far more rapid improvement cant stop the expansion of the overall earnings differential.

By focusing almost exclusively on the disparity between those who earn most and those who earn the least, rather than reporting on the remarkable progress in income and living standards for even the poorest among us, major media distort and exaggerate the problems of poverty and inequality. As David R. Henderson of the Hoover Institution at Stanford University suggests, because of the problems with measuring income and adjusting for inflation, theres a better way to measure the wellbeing of a household: see whats in the house.

Robert Rector of the Heritage Foundation did just that in an important paper in August, 2007, using detailed and authoritative government figures. According to this research, among the 37 million Americans officially classified as living below the poverty line, 97% own color televisions, more than 50% own two or more color TVs. Seventy-eight percent have a VCR or a DVD player, and 62 percent receive cable or satellite TV reception. Eighty percent of poor households boast air-conditioning, 89% have microwave ovens, and nearly three quarters own a car. An impressive 31% drive two or more cars.

DAMAGING OTHERS BY EARNING MORE?

This insight puts the proper perspective on the common complaints about the unfair distribution of income and the demand that our political leaders do something to correct it. This pressure seems to presume that all income flows to some centralized authority, where all-powerful potentates decide precisely how they should hand it out. Even in the Obama Era, with the federal government ambitiously assuming a broad array of unprecedented functions, theres been no effort (so far) to establish a Department of Income Allocation. As William L. Anderson of the Mises Institute writes in The Income Inequality Hoax: Income is not something that just randomly flows into an economy. It is the result of individuals providing productive services that are purchased in a marketplace.

If someone takes home more than his neighbor, its not because hes exerted more influence on the powerful people who dispense societys goodies to one and all, but because his employer has freely agreed to higher payment for the services that the fortunate earner has freely agreed to perform.

Yet even if theres nothing inherently unjust about different people earning very different salaries for the very different work they perform, many social critics worry about the wounding psychological impact of income inequality. An individual may feel small, frustrated, vulnerable and ashamed if hes regularly reminded that he makes vastly less than other people at the same company or in the same neighborhood. According to this argument, self-esteem may suffer an even more substantial blow if the struggling worker believes his own low salary is justified.

An extreme example of such logic came in a bizarre 2005 international bestseller by Richard Layard, a member of the British House of Lords. In Happiness: Lessons from a New Science, Lord Layard draws some spectacularly unscientific conclusions. Over the last 50 years, we in the west have enjoyed unparalleled economic growth, he allows. We have better homes, cars, holidays, jobs, education, and above all, health. But are we happier? Not in the least, and this worried me. Economics is all to do with growth and national prosperity. But whats the point of more cash in the pockets if people are more miserable?

To discourage those who work harder and earn more, increasing pressure and resentment from the populace at large, Lord Layard recommends punitive taxes like those we use to decrease consumption of tobacco. If we make taxes commensurate to the damage that an individual does to others when he earns more, then he will only work harder if there is a true net benefit to society as a whole. It is efficient to discourage work effort that makes society worse off, he writes.

Arthur Brooks of the American Enterprise Institute scoffs at the notion of a special tax to suppress hard work and productivity and notes the utter lack of evidence that income disparities produce unhappiness or self pity. As he writes in the Wall Street Journal (July 19, 2007): The evidence reveals that it is not economic inequality that frustrates Americans. It is a perceived lack of opportunity. To focus our policies on inequality, instead of opportunity, is to make a serious error one that will worsen the very problem that we seek to solve and make us generally unhappier.

In his book, Gross National Happiness, Brooks tartly observes that policymakers and economists rarely denounce the scandal of inequality in work effort, creativity, talent, or enthusiasm. We almost never hear about the outrage that is Americas inequality in time with friends, love, faith, or fun even though these are things most of us care about more than we do money. To believe that we truly redress inequality in our society by moving cash around is to take a materialistic and totally unrealistic view of life. To focus on income redistribution is to profess a mechanistic and impoverished understanding of the resources Americans truly value.