Wednesday, June 5, 2019

The Upside of Inequality

Many people hear the term “income inequality” and think: “We gotta do something to fix that!”

Which almost always means pass more legislation and give more power to government officials.

Ed Conard, former managing partner of Bain Capital, thinks differently. He sees rising income inequality as a good sign for an economy, not as a negative.

As he writes in his eminently readable book, “The Upside of Inequality: How Good Intentions Undermine the Middle Class”:

“Rising income inequality is the by-product of an economy that has deployed its talent and wealth more effectively than that of other economies — and not from the rich stealing from the middle and working classes.”

How can an increasing amount of wealth in the hands of relatively few people at the top of the wealth ladder be “good” for America when the press and the left keep telling us that the middle-class is disappearing and the poor and near-poor are starving to death?

Since time immemorial, poor and working-class people have viewed rich people with a mixture of envy, distrust and distance. For good reason. Prior to World War I, working people the world over were essentially serfs to the king of the country or the powerful oligarchs who ruled commerce and government with an iron fist to protect their wealth, interests and superior way of life.

Robber-barons of the late 19th century used unscrupulous methods and bribery to gain their wealth at the expense of competitors, and they kept many workers as close to poverty as possible to maximize their personal profits.

As a result of that experience 100 years ago, the left sees capitalism as a zero-sum game; the rich get richer while the poor get poorer. Vote for them and they will fix it, they say. With more government, more laws and more distortions to market forces.

Conard takes a penetrating look at the root causes of income inequality at its core in economic terms, not emotional or political terms. He cites study after study that confirmed what most people know intuitively: “high-wage economies that diminish incentives to produce innovation by taxing success more heavily, increasing government spending and distributing incomes more equally have grown more slowly with lower median incomes.”

The reason for stagnant low wages for unskilled and uneducated people in America can be attributed, he says, primarily to three factors: a near unlimited supply of low-skilled, low-wage workers domestically and abroad; lack of proper education to meet the needs of 21st century businesses; and anything that diminishes the appetite to take on higher levels of risk by investors and entrepreneurs.

Conard’s book is a compendium of useful facts and figures anyone interested in this issue should have handy. To prove his point about American free enterprise being the best vehicle for job growth, he cites many facts including:

  • Since 1980, five times as many companies have been created in the U.S. that became worth more than $1 billion than in all of Europe combined.
  • Since the mid-1970s, not one single company has been created in France that has grown to be worth more than $1 billion. 
  • Since 1980, the U.S. economy has produced enough jobs to increase employment by 50%, twice the growth rate of Germany and France and three times the rate of Japan.
  • Employment has surged from 99 million people working in 1980 to 156 million today in America.
  • Median after-tax incomes for Americans are 15-30% higher than for Europeans and Japan

We should be overjoyed and thankful to have had the good fortune to have lived during such a time.

Instead, we have a political left and a compliant press painting a dystopian present and future for all Americans almost exclusively for political purposes.

The 2020 elections will offer us a country a clear choice between capitalism and socialism. Why choose socialism when capitalism offers much higher prosperity and standards of living for everyone?

(first published in North State Journal 6/5/19)

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