Yes, Income Inequality Matters

Cory Massimino
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Posted: Jan 13, 2015 12:01 AM
Yes, Income Inequality Matters

My colleague, Gannon LeBlanc, recently wrote a piece in Townhall arguing income inequality is not an underlying problem in America. Gannon argues income inequality doomsayers are focusing on “income,” when they should be focused on “wealth.” He also points out that someone as liberal as Paul Krugman found some problems in the arguments against income inequality put forth by Joseph Stiglitz, not to mention the fact that even the poorest Americans are among the richest people in the entire world.

I largely agree with these points, but they don’t address the fundamental issue. Gannon understands this and correctly points out, “The real problem behind the income inequality debate shouldn’t be about the digits in one citizens bank account compared to another, but about the ability of citizens to gain wealth and a higher quality of living.” This brings us to the central issue: to what extent do coercive measures prevent citizens from gaining wealth and achieving a higher standard of living and how much inequality is rooted in those measurers?

It turns out a lot.

The United States has already slipped to 13th on the Index of Economic Freedom and many government policies intended to help the poor just create more poverty. The economy is infested with various government regulations, taxes, barriers to entry, and other coercive interventions that do exactly what Gannon identifies as the real issue. A whole host of state intervention incessantly and systematically prevents the ability of Americans to improve their quality of life and earn a living – creating the inequality itself.

As I’ve written elsewhere:

"Monetary policy rewards the first receivers of new money (big banks) at the expense of everyone else who face higher prices once the new dollars trickle down to them. Intellectual property protects artificial rights and prevents newcomers from competing. Zoning laws, licensing restrictions, safety regulations, capitalization requirements, and other kinds of red tape impede competition and benefit already existing, larger firms at the expense of smaller firms, potential newcomers, start-ups, and alternative forms of employment. The list goes on."

Gannon writes, “Companies throughout history like Ford, Walmart, Microsoft, McDonalds, and Standard Oil that have found ways of making goods more affordable and accessible to more people so that people with lower income can have a better standard of living.” But these leviathan corporations have ascended and thrived in decidedly un-free markets. The kind of economy that prevailed when all of these companies were created and made so much money was and is, to the core, statist. None of them faced hard nosed, free market competition. They didn’t grow so large because they produced better products at lower prices than their competition. They grew so large because government stifled their competitors.

Gannon’s defense of large corporations as though they characterized real free markets is an example of what Kevin Carson calls “vulgar libertarianism.” Kevin writes, “they seem to have trouble remembering, from one moment to the next, whether they’re defending actually existing capitalism or free market principles.” Gannon defends Wal-Mart and the like as though they are successes of the free market, but he later writes, “it’s government barriers and cronyism that prevents the middle class Americans from being able to easily start up businesses. By fixing regulations and lowering barriers to entry, and the income gap will fix itself.”

So which is it? Do we have a free market or is government intervention hurting the poor and least well off? Is income inequality a non-issue or will it go away by “fixing regulations and lowering barriers to entry?” And if inequality is rooted in government coercion, which Gannon seems to partly acknowledge, then doesn’t that seem like a very pressing issue?

Nobel prize winning, free market economist, Milton Friedman pointed out the relationship between so-called industrialists and the government:

"I do not believe it’s proper to put the situation as “Industrialists vs Government. On the contrary, one of the reasons I’m in favor of less government is because when you have more government, industrialists take it over and the two together for a coalition against the ordinary worker and the consumer."

Is income inequality a problem that requires political intervention to solve? Gannon doesn’t think so, and I agree. It needs political un-intervention. It requires a scaling back of government power and an end to the long list of corporatist, inequality-enforcing policies. Only in a truly freed market will income inequality no longer be a problem.