Income inequality just a red herring

Published on Saturday, 25 January 2014 00:01 - Written by

On Tuesday, President Obama in his State of the Union address will again raise the specter of “income inequality” as our most pressing social and economic problem. He’s wrong in the diagnosis, and more importantly, he’s wrong in his prescription for the nation.

“Economic inequality has become the left’s great hope for recovering its political integrity after the Obamacare disaster,” says Jim DeMint of the Heritage Foundation. “President Obama, trying to change the subject, has latched onto the issue … This is a serious subject deserving serious consideration in the marketplace of ideas. Unfortunately, that doesn’t mean we’re about to get a thoughtful debate.”

Instead, we should expect some tired Democratic talking points.

“The president mischaracterizes the problem and offers a simplistic solution: There are just too many rich people, and they are causing the problem,” DeMint explains. “So, he proposes, let’s take more money from those successful people and redistribute it to the poor through welfare, raising the minimum wage, extending endless unemployment benefits and other government handouts.”

That’s the wrong approach for two reasons. First, it’s based on a misunderstanding of some pretty basic economic principles.

The Brookings Institution is a left-leaning think tank, and according to the University of Pennsylvania’s rankings, the most influential think tank in the world.

But even Brookings has parted with Obama over his reading of the economics of “inequality.”

“First, the very good news: President Obama is helping to keep social mobility on the agenda,” Brookings says. “The less good news: he risks creating more heat than light by over-stating, and over-simplifying, the problems at hand. Moving the needle on social mobility will require cool analysis, bipartisan alliances, and a long-term strategy. It’s the wrong issue for knock-about politics.”

There has also been bipartisan agreement that Obama’s prescription for inequality — redistribution — fails more often than it succeeds.

“As sensible Republicans and Democrats agreed in reforming welfare in the mid-1990s, federal government poverty programs are no longer safety nets — they are snares that trap people in poverty and dependency,” DeMint explains. “Marriage penalties and ‘cliff effects’ make it all but impossible for people to get off government assistance. They thwart America’s legendary upward mobility by destroying the financial and social capital required for Americans to grab the ladder of opportunity and climb as high as they can dream.”

In fact, income inequality is a red herring, DeMint contends. The real problem is a lack of income mobility — the ability for people to rise out of poverty and the middle class and into a better way of life.

“Upward mobility has declined, but not because of income disparities,” he says. “For the real culprit, one must look to broken families and communities. But these are often caused by government action, not fixed by it. What we need, then, is to reform our welfare system to promote work and individual success, not dependency on government.”

When Obama travels to Capitol Hill on Tuesday and takes the podium, he would do well to focus on ways we can increase opportunity for all Americans.