February 18, 2007

Inequality Builds Character

By: David White

Everywhere you turn, people are talking about income inequality.

New York Times columnist Paul Krugman has turned into a one-trick pony, fretting about “the rise of a narrow oligarchy” twice each week.

CNN’s Lou Dobbs, whose daily program averages nearly one million viewers, spends each night grumbling about the “war on the middle class.” His culprit? The “excesses of capitalism.”

In the 2006 elections, the candidates who complained loudest about income inequality were swept into victory, as long as they blamed illegal immigration, free trade, globalization, off-shoring, or other examples of “corporate greed” for America’s woes.

Even President Bush has joined the chorus. In a speech last month, he worried about “our dynamic economy … leaving working people behind,” and proclaimed that “income inequality is real, [and has] been rising for more than 25 years.”

The cited statistics are always the same. Over the last 25 years, inflation-adjusted wages grew by 34 percent for those whose jobs paid them at the 90th percentile of earnings, while those in the top one percent saw their wages rise even faster.

According to the census bureau, the nation’s median household income fell 5.9 percent between 2000 and 2005, from $49,133 to $46,242. Health care costs have risen rapidly over the past decade, far outpacing inflation.

When newly-elected Virginia Senator Jim Webb graduated from college, as he told the nation in the Democratic response to the State of the Union, “the average corporate CEO made 20 times what the average worker did. Today, it’s 400 times.”

So sure, the rich are getting richer. And they’re gaining wealth quite rapidly.

But so is everyone else.

As measured by the census bureau, those in the lowest quintile saw their inflation-adjusted wages increase by 14 percent over the last 25 years. Those in the middle quintile saw their wages rise by 20 percent.

Meanwhile, according to the bureau of labor statistics, the prices of most consumer products have plummeted. In just the last five years, the cost of a television set has dropped by 55.4 percent. Toys are 25.8 percent less expensive than they were five years ago, and appliances are down 6.5 percent. Nearly 70 percent of America’s families own their homes, and about half of all families have money in the stock market.

And on a broad range of consumer goods, what used to be considered a luxury is now considered a necessity.

According to a new survey from the Pew Research Center, nine in 10 Americans can’t live without a car. Seven in 10 can’t live without air conditioning and a microwave. Well more than half of all U.S. citizens can’t live without a television and a home computer. And just about half of the U.S. populace simply couldn’t survive without a cell phone.

Further, as defined for most of human history, poverty in America hardly even exists. Whereas poverty has always been defined by a scarcity of things like food, shelter, and other essentials, few Americans go without these things today.

Only 35 years ago, undernourishment was still a serious issue for America’s poor. These days, more than 25 percent of those Americans living below the poverty level are obese.

Quite simply, America’s prosperity continues to grow astronomically.

So if absolute standards are increasing for everyone, why is income inequality a problem?

The answer, according to the Krugmans of the world, is fairness. Is it really fair, they would ask, for the CEO of Home Depot to take home a $200 million severance package while the company’s cashiers take home $8 an hour?

Unfortunately for Krugman and his allies, such a question is irrelevant. Because, as Ben Bernanke recently explained, “without the possibility of unequal outcomes tied to differences in effort and skill, the economic incentive for productive behavior would be eliminated.”

Theoretically, as long as America’s wage gap creates the right incentives, the nation’s poorest citizens will learn that to get ahead, they have to adopt the behaviors of those who have made it to the top. This includes getting an education, finding a spouse, not breaking the law, and managing money responsibly.

Indeed, according to the National Bureau of Economic Research, a college graduate will earn an average of $51,000 each year for his career. A high school diploma, on the other hand, yields just $28,000 grand a year. Over a 45-year working career, that translates to more than $1 million.

America strives to provide equality of economic opportunity. Not of economic outcomes. As long as the rules of the game are fair to start with — as long as everyone has an equal chance of doing as well as possible — then there’s nothing inherently unfair about people ending up with different outcomes.

Inequality is a simple side effect of that social contract. And in a country where three in ten individuals say they can’t live without high-speed Internet, we shouldn’t be too concerned.

David White, a writer in Washington, is a regular columnist for Brainwash.

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