If Bill Gates and I started our own country in which we were the only residents -call it Gatesbergia -it would be wracked by the worst income inequality in the world. The "haves" of the society would make hundreds of thousands of times more money than the "have nots." The disparities of wealth in our nation would be worse than those in Brazil, Nigeria or even -gasp -the United States. And, if Warren Buffet, the Sultan of Brunei and Rupert Murdoch immigrated to Gatesbergia, the problem would be even worse, for the gap would get wider and I would be "left behind."
Now, even though the rich-poor disparity of Gatesbergia would be "bad," I would not be in bad shape. In fact, I could live quite well in Gatesbergia, even though what I make every year is less than a rounding error on Bill Gates' tax return.
Indeed, I could prosper. After all, Bill Gates and the sultan would surely pay me very well to clean their houses, cook their food and tie their shoes. Soon I could become a millionaire, even as the low taxes and pro-business policies of Gatesbergia sent the billionaires even further and faster into the income stratosphere. So, in effect, even as the rich-poor gap got wider, I'd get richer.
I offer this illustration because we're poised to enter another round of hand-wringing over income inequality in America. The editorials and op-eds on the subject are multiplying and intensifying.
The Lilliputian army of politicians running for the Democratic presidential nomination, terrified that the economy might actually rebound before Election Day and hence sweep President Bush to reelection, are laying the ground work to rail against income inequality. The New York Times, The Washington Post and other leading papers have recently run several articles and op-eds bemoaning the rich-poor divide.
Now, the first thing to keep fresh in your mind is that high income inequality is not the same thing as high poverty. As the Gatesbergia example illustrates, you can have outrageous gaps between the rich and poor and the "poor" will still be OK.
For example, according to Robert Rector, an economist with the Heritage Foundation who uses the government's numbers, the typical person in the poorest fifth of U.S. households today spends as much as the person of average wealth in the early 1970s (adjusted for inflation).
The typical "poor" American, according to census data, has a car, air conditioning, a refrigerator, a stove, a VCR and a color TV. It should go without saying -but usually doesn't -that in, say, 1960, someone who had a color TV, a refrigerator, air conditioning and a car would not be considered poor.