Does the Wealth Gap Matter?

I used to think it didn’t. I used to ask: So long as the poorest members of society aren’t in desperate straits, what does it matter if there are people at the top whose driveways are paved with gold? Is the “wealth gap crisis” really reflective of anything more than class envy?

I guess you could say that I’ve evolved on this point. I have come to believe that wealth gaps do matter, and that ours probably is sub-optimally large. Further, I think Republicans need to be concerned about…

  1. Bye!

    Your first two solutions don’t directly address the income gap, they are, in fact, stock conservative positions (crony capitalism = bad, freedom = good; government regulation / big gov = bad, liberty = good). Granted, the GOP needs to do a better job of advocating for these ideas, but that’s an entirely separate issue from what you’ve raised here.

    Your third solution is to “tax the rich” as much as it will help society and “support spending or tax breaks that help the middle class”. This ultimately amounts to reducing taxes on the rich (along with everybody else) and cutting spending across the board. In other words, exactly what we’ve been trying to do for years. Again, the GOP needs to do a better job of making the case (as evidenced by your post), but it’s not going to happen by reinforcing idiot ideas like fighting against income disparity and giving credence to class warfare nonsense.

  2. Crow

    We’re talking past one another here.

    The first question is: in the last 40 years, has there been more economic growth at the top or for the middle class?

    Let’s presume that Mendel’s EconTalk reference is correct and that therefore while everyone but every measure has gotten wealthier over the past 40 years, the marginal impact on the middle class has not been anywhere near that of the wealthiest.

    The next question is: does the perception of this fact among some in the middle class translate to the opinion that Republican economic policies benefit the rich more than them? Is that perception crazy? 

    The answers, based on Mendel’s citation, appear to be that this perception is not crazy or illusory, though it may be a very simplistic reading of the data. It is not fallacious, though some solutions to it may be spurious.

    Then this question follows: is this “wealth gap” problematic?

    And the answer to that question may be yes or no, but it is certainly not mutually exclusive from NWM’s point about the exploding regulatory burdens on businesses or NWM’s point that “income mobility”, widely shared prosperity, and opportunity are more important.

  3. Schrodinger

    Redistributive programs actually exacerbate the wealth gap. The ultrarich  have many ways to avoid the effects of tax increases. That is why Buffet and Gates can advocate “taxing the rich”. Any extra they pay will be a pittance to them.

    It is the middle class which suffers most in redistributive schemes because; 1) that is where tax inceases generate the most revenue; and 2) they have few options for avoiding the increases.

    If you want to eleminate the wealth gap, switch to a flat tax and cut transfer payments by 20%.

  4. Devereaux

    Sometimes, Rachel, I think you know the term conservative, but have no idea what it means.

    “Wealth Gap” is the usual drivel that the Left drags out to create class envy. Yet here you propose that we continue just the same ideas “only a LITTLE less”. ?Isn’t that what the republican party has been doing for at least the last 30 years, perhaps longer.

    History clearly shows that man’s historical situation has been poverty. Indeed, extreme poverty. America has been the shining exclusion to that, going all the way back to the late 1600′s and early 1700′s. ?Why do you think that’s true. (Hint: liberty).  ?Did you realize that the standard of living in America in early 1700 was the highest in the world! None in Europe matched ours, and the rest of the world didn’t even come close. 

    You cannot “improve” the lot of man by redistribution, by “sensitivity”, by taxes, by whatever cockamamy proposal the left dreams up next. You can only do that with two things – liberty and faith. WITHOUT those two, you will have zip. THAT is the message that the republican party has not had.

  5. Mendel

    Excellent post.

    I agree with your assessment that technology has driven much of the income gap. Globalization has probably exacerbated the issue as well.

    But whatever the causes, both sides (and especially Democrats) need to stop believing that income inequality is either a) a conspiracy of the rich to unproductively leech off everyone else, or b) a result of tax codes.  As a first step, everyone needs to accept that some disparity in wealth will always exist – and is a positive feature of a free market – and that some natural market conditions will make that gap even larger.

    In that regard, I also disagree with Schrödinger’s Cat.  A flat tax might shrink some of the wealth gap, but likely not enough to make the problem go away politically.

  6. EThompson

    It’s also because American society is genuinely fragmented, with a small portion of us doing extremely well while the rest of society continues to struggle.

    Americans are indeed fragmented because many socio/economic factions no longer share the values espoused by the infamous Protestant Work Ethic that clearly emphasizes the utter necessity of adapting to changing market conditions. Innovation, self-sacrifice, and the willingness to step outside one’s comfort zone were qualities that made this country unique.

  7. Rachel Lu
    C

    Well, Devereaux, I wasn’t joking when I declared sometime back that I’m not a libertarian. But I did take pains to acknowledge that a wealth gap (and even a fairly sizable one) is neither unhealthy nor bad, and that the rich tend overall to be productive, honest citizens whom we should value. Nevertheless, I think we need to acknowledge that there is actually a good reason why Republicans are branded the party of the rich. It’s because their recommended economic policies *do* very disproportionately help the rich. And in recent decades, they haven’t helped the middle class or working class nearly so much. 

    You could argue that, well, they would if only we embraced a more principled conservatism. Maybe so. But whatever agenda we pitch, I think we need to acknowledge that ordinary Americans have fairly strong reasons to be skeptical. If we can’t find better ways of bringing the benefits home to the ordinary middle-class worker, we won’t get the opportunity to make any reforms, either moderate or sweeping, to the disastrous Democratic agenda.

  8. Mendel
    EThompson:

    Americans are indeed fragmented because many socio/economic factions no longer share the values espoused by the infamous Protestant Work Ethic that clearly emphasizes the utter necessity of adapting to changing market conditions. Innovation, self-sacrifice, and the willingness to step outside one’s comfort zone werequalities that made this country unique.

    Agree.  I think this is another example of how too many people take post-WWII America as a model which should be extended to perpetuity, instead of the big outlier in US history.

    Social conservatives think we should magically harken back to the social structures and mores of the 1950s.  Liberals think we should still be the industrial powerhouse, with well-paying, middle-skilled jobs aplenty.

    Society seems to have lapsed into a state of laziness whereby if you show a minimal modicum of desire to work, a middle-class job should be waiting for you.  How quickly we forget that this country was built by people constantly redefining themselves, not 40-year job security.

  9. Rachel Lu
    C
    EThompson: Americans are indeed fragmented because many socio/economic factions no longer share the values espoused by the infamous Protestant Work Ethic that clearly emphasizes the utter necessity of adapting to changing market conditions. Innovation, self-sacrifice, and the willingness to step outside one’s comfort zone were qualities that made this country unique. · 7 minutes ago

    It’s a multi-faceted problem, indeed. To a large extent we killed that kind of ethic in the over-regulated, over-structured post-WWII society, and it’s hard now to bring it back. But at the end of the day, I think the reforms I want to see would simultaneously help to make the market more genuinely fluid (which it still really isn’t, despite some private-sector movement in that direction), while also giving the middle class some temporary props to help them make the transition.

  10. Rachel Lu
    C
    Mendel

    Social conservatives think we should magically harken back to the social structures and mores of the 1950s.  Liberals think we should still be the industrial powerhouse, with well-paying, middle-skilled jobs aplenty.

    Ha! We do agree on many things, Mendel. This is why I, despite being extremely socially conservative in some respects, perpetually argue that we need to loosen and potentially redraw some of our conservative ideas about family structures and gender roles. They’re more tied to an obsolete economic model than we sometimes realize or want to admit.

  11. EThompson
    Mendel

    EThompson:

    Americans are indeed fragmented because many socio/economic factions no longer share the values espoused by the infamous Protestant Work Ethic that clearly emphasizes the utter necessity of adapting to changing market conditions. Innovation, self-sacrifice, and the willingness to step outside one’s comfort zone werequalities that made this country unique.

    Society seems to have lapsed into a state of laziness whereby if you show a minimal modicum of desire to work, a middle-class job should be waiting for you. 

    Bingo. As my father incessantly preached to his children, there is no such thing as fair.

  12. Ross C

    The idea that the wealth gap makes the poor poorer is just not true.  Quite the opposite.  There is no foreseeable limit to how big the economic pie can get.  The political flap over the wealth gap comes from those economically challenged folks who believe the economy is a fixed size and if one person earns more money another person must necessarily have less.  This is a fallacy that we need to confront.  One of our big failures in the last 4 years is to concede that capitalism is part of the problem. It is the solution, creeping socialism is the problem.  It has shown itself to make everyone poorer all the places it has been tried and yet in our hubris we believe we can adopt socialism piecemeal and it will   somehow work.  2 cheers for the wealth gap.  It is the sign of a healthy opportunity society.

  13. Paul Dougherty
    Devereaux: You cannot “improve” the lot of man by redistribution, by “sensitivity”, by taxes, by whatever cockamamy proposal the left dreams up next. You can only do that with two things – liberty and faith. WITHOUT those two, you will have zip. THAT is the message that the republican party has not had. · 27 minutes ago

    While all that you put forth may be true. A bigger problem with being right is being able to sell that you are right. It is too easy to characterize wealth inequality as “unjust” at its face. It is easier for a mob to internalize that “they the rich” are the root of my unhappiness than for the same to think that “more liberty” is the cure. Especially when the solutions are for the “rich to give” verses “we to earn”.

  14. Rachel Lu
    C

    Ross, you’re right that the poor don’t get poorer just because the rich get richer. I for one always understood that; it’s why I used to think that “wealth gaps” don’t matter. But here’s what I came to understand. People don’t just care about how much they have in absolute material terms. They care about social access, and it’s reasonable for them to care about that; it’s not just a question of class envy. If you have a class of very rich people who largely control the society, and who give their kids all kinds of advantages to help them take over those same roles, and who are basically out of touch with how the rest of America thinks and lives, that creates an unhappy situation for the people at the bottom even if they do have insulated houses and personal computers.

    The goal isn’t to shrink the wealth gap as much as possible, but only to make everyone feel that they are contributing and valued members of society. Man does not live by bread alone.

  15. DocJay
    EThompson

    Mendel

    EThompson:

    Americans are indeed fragmented because many socio/economic factions no longer share the values espoused by the infamous Protestant Work Ethic that clearly emphasizes the utter necessity of adapting to changing market conditions. Innovation, self-sacrifice, and the willingness to step outside one’s comfort zone werequalities that made this country unique.

    Society seems to have lapsed into a state of laziness whereby if you show a minimal modicum of desire to work, a middle-class job should be waiting for you. 

    Bingo. As my father incessantly preached to his children, there is no such thing as fair. · 19 minutes ago

    Good father!

  16. Schrodinger
    Rachel L.:

    Man does not live by bread alone. · 0 minutes ago

    2

    And you shall remember that the Lord your God led you all the way these forty years in the wilderness, to humble you and test you, to know what was in your heart, whether you would keep His commandments or not. 3 So He humbled you, allowed you to hunger, and fed you with manna which you did not know nor did your fathers know, that He might make you know that man shall not live by bread alone; but man lives by every word that proceeds from the mouth of the Lord.Deuteronomy 8:2-3

  17. Zafar

    Rachel – is your argument that a society’s stability is to some extent dependent on people feeling that they have a stake in that society – the higher the proportion of invested people, the more stable that society – and that this feeling is a function of people’s perception of the opportunities for improvement that society offers as much as of any absolute historical material improvement?

    If so, would higher taxes on the rich be justifiable if spent on things like scholarships and small business start-up loans and support (like access to group insurance) and not on any redistribution for just consumption?

  18. Bye!

    This post is based on the false notion that “the rich” from the past are the same individuals as “the rich” in the present and will remain the same in the future. You can’t track groups of people and assume they remain static collections of the same people. Your entire extrapolation from this false premise is predictably nonsense.

    The “gaps” between income levels are not a concern. What we should be concerned about is income mobility, the ability to move from one income level to another throughout the course of your life. This is becoming more and more of an issue within America because of our ever greater strides towards socialism and is a problem worth addressing; but your incorrect assumptions (based on faulty economic understanding based on Marxist lies) have led you to dangerously bad conclusions.

  19. Rachel Lu
    C

    The only thing needed to get my analysis off the ground, NoWayer, is for people to identify themselves with a socioeconomic class. Which they do. Actually, if Charles Murray is right, we really don’t have that much upward mobility anymore, but the more important thing is that people know that there are rich people out there, and that they aren’t them.

  20. Bye!
    Rachel L.: The only thing needed to get my analysis off the ground, NoWayer, is for people to identify themselves with a socioeconomic class. Which they do.

    You’re accepting a false premise. I understand that people’s perception of themselves matter, but it’s that perception that we need to change. Telling them they are, in fact, part of and stuck in an economic class will not help the situation.

    We need to address the growing difficulty of income mobility by returning to freedom and liberty, not by increasing redistribution.

    We need to show people the perceived wealth gap is a fallacy, because it is.

    If you want proof, look up the wealth gap in other nations. You’ll find that those with a small gap are societies with terrible economies and low class mobility. IE Mexico has a very small wealth gap. Nobody wants their economy. Bringing their socialism here, along with their narrow wealth gap, will only hurt more Americans.

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