It is already becoming clear that one of the major issues that the 2016 presidential election will turn upon is income inequality. Republicans should be able to win that struggle if they turn the conversation to economic growth. As I note in my new column for Defining Ideas, there are plenty of conceptual weaknesses in the progressive argument that the GOP can seize upon:
Let’s start with this fundamental observation: It is possible to reduce income inequality in one of two ways: lower the income at the top or raise it at the bottom. Indeed, it is possible, but only by extreme measures, to eliminate all inequality by spreading the wealth of the richest individuals around so that everyone has the same income. Yet none of the critics of income inequality will go that far, because they realize that that strategy will depress the income of the poor as well as the rich. So instead these critics moderate their demands: they are willing to sacrifice some measure of overall social welfare to obtain greater benefits at the bottom. Their theoretical position is that the substantial gains in utility for the poor will override the relatively small losses in personal satisfaction and living standards that the top income earners will experience as a result of redistribution.
Pity is, they have no idea how to steer this middle course. Politics is a very imperfect science to say the least, so that it is all too easy for these progressive policies to overshoot the mark, as it is much easier to lower levels of wealth than it is to raise them. Put simply, it is an intellectual fantasy to think that it is possible to address questions of inequality without taking into account any productivity losses that these proposals may take. Those difficulties do not arise if the first emphasis is placed instead upon the creation of wealth. Indeed it is altogether possible to improve the position of the worst off in society by a set of productive measures that widen the income gap between rich and poor.
Assume that we have just two groups in society, one of whose members all have wealth at the level of 10 and the second, far smaller, have wealth at the level of 1,000. A change in legal position that increases the wealth of the bottom group from 10 to 15 and the top group from 1,000 to 1,200 will increase absolute inequality even as it improves the position of the people at the bottom. Ironically, it will also give larger percentage increases to those at the bottom. Indeed, many social changes do produce gains across the board. But it is typically beyond the capacity of any social planner to steer productive activity in ways that ensure that whatever growth does take place will result in a reduction of any income gap by any system of state taxation and regulation.
Read the full column here and let me know what you think in the comments.