Income inequality makes the world go ’round

Loyal Opposition

Jacob-Grant-Full

One of the articles of faith on the left is the idea that income inequality is a dire economic problem for our country. But there is nothing inherently wrong with an unequal distribution of income. Without income inequality, there would be no bonuses, raises, promotions or advancement; no way to reward education, hard work, skill or experience; no way to incentivize entrepreneurial risks or innovation. Many of us are at UC Berkeley at least in part because it will increase our future earnings — something only possible with inequality.

Of course, few would really protest this sort of income inequality. Rather, the main protest the large and supposedly increasing statistical inequality in the distribution of income throughout the country. But this brings to mind Mark Twain’s quip regarding lies, damned lies and statistics. There is extensive research showing that those in that dreaded cohort “the 1 percent” are not the same people every year. Twelve percent of Americans will spend at least one year as part of the 1 percent, but only 0.6 percent will spend as much as a decade in that vaunted group. Among the super-wealthy, the turnover is just as high: three-quarters of the top 400 taxpayers in any given year make the list just once. Mark Zuckerberg may have made a windfall when Facebook went public, but that kind of income boom rarely repeats itself for individuals. And even below the 1 percent, there is a great deal of economic mobility, with more than half of taxpayers moving into a different income quintile every decade.

After any meaningful analysis, it becomes clear that the idea that there is some sort of permanent caste of high-income earners, or that there is a perpetual division between the 1 and 99 percent, is absurd.

And if your argument is that the distribution of income, even with all its mobility, just isn’t “fair,” then I would refer you to William F. Buckley.

The entire issue of income inequality is merely a red herring. It involves lots of big numbers and scary-sounding statistics that, as I’ve pointed out, aren’t actually that meaningful. Simply concentrating on reducing the difference between income at the top and at the bottom will only reduce income overall and helps no one. There will always be rich and poor; in our society, there will always be those making huge profits and those who are struggling or just starting out, even if only briefly, whether or not you believe that they truly “deserve” their profits or poverty. The goal is to ensure that there is always an opportunity to move up.

Instead, the focus should be on generating real economic growth and thereby raising the standard of living for everyone. This is best achieved through broad reductions in taxes and the elimination of ineffective and unhelpful regulation — which is not the same thing as corporate welfare or blind deregulation.

One prime example near and dear to Berkeley is the gentrification in San Francisco. Tax breaks for companies such as Twitter have incentivized them to move to or stay in the city, bringing their employees with them. These employees have disposable income and create demand for local goods and services, increasing employment and driving up wages for locals who aren’t part of the tech industry. The result is real economic growth at the community level, making everyone better off in the long run. (Although this growth would be best served by broad reductions in city payroll taxes, rather than targeted tax breaks for specific companies.)

Some have argued that such gentrification is more harmful to locals than it is helpful. But many of the problems these protesters bemoan — higher rent, increased evictions, limited housing supply — are the result of decades of government action intended to protect lower- and middle-class residents. Restrictions on new buildings, regulatory hoops, rent control and city planning and zoning laws have made it extraordinarily difficult to expand the housing supply.

With no change in supply and increased demand, prices naturally go up. While no easy immediate solution exists, the city should focus on increasing the city’s housing supply in the future, even if it means relaxing some regulations. But these problems aren’t exclusive to San Francisco, or even the wider Bay Area. There is a need to trim back harmful, even if well-intentioned, regulation at every level of government — local, state and national — if we are actually going to improve the economic situation for people at every level of income.

Berkeley students are already heavily involved in the debate over gentrification and inequality. Our proximity to the nexus of the former and the apparent natural inclination as college students to crusade against the latter give us a real chance to impact the debate about both subjects in a meaningful way. If we want to actually make a difference, to actually improve things for those we purport to fight for, we will use this chance to focus on real solutions to real problems.

Jacob F. Grant writes the Thursday political column. Contact him at [email protected] or follow him on Twitter: @Jacob_at_Cal.

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  • Charles_Siegel

    No one claims that it is bad to have any inequality. Many say that it is bad that American inequality has increased so rapidly.

    America now has the worst inequality of any major industrial nation.

    Our economy was more successful in the 1950s and 1960s, when we had much less inequality and much more social mobility than we have now.

    • Mel Content

      Our economy was more successful in the 1950s and 1960s, when we had much
      less inequality and much more social mobility than we have now.

      Somehow I am of the belief that many black Americans would disagree about the “social mobility” part…

  • Dan

    BREAKING! Heterosexual white male claims inequality isn’t so bad and that we should be more business friendly! *GASP* I am literally speechless. I cannot believe this is happening!! So brave!

    • Bob Bell

      Read Thomas Sowell or Walter Williams; they are heterosexual black males (with PhDs in economics) who say the same things. Or try Veronique du Rugy (HWF), ditto. Be very careful Mike, I’m afraid an original thought and a cold glass of water might prove fatal for you.

  • Most people are not against a little income inequality for the same reasons you stated. What we worry about is that this inequality has been rising drastically and is much higher than in other developed countries. It “always” hasn’t been this way, there was a nice 40 year period in the mid 20th century where income inequality was realitvely low (there was still lots of rich people). This leads to most people in the US being worse off than they could be (or even were 50 years ago). This infamous chart illustrates that http://i.imgur.com/PyOM0qD.jpg

    “but only 0.6 percent will spend as much as a decade in that vaunted group”. So you’re telling me that 60% of the 1% stays in the 1% perpetually. How is that conductive to your argument if most of them stay there? You are talking about Social Mobility, and the fact here is that it is pretty low in the United States. People born poor are likely to stay poor, while people born rich are likely to stay rich. Another chart: http://i.imgur.com/2zW3ZF4.png

    • Andrew Lazarus

      I went to Grant’s source. It’s a 44-year long longitudinal sample, and 60% of the top 1% spent at least 10 consecutive years in that category. I agree, this suggests very little downward mobility.