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Created Equal

May 6, 2013, Vol. 18, No. 32 • By JAY COST
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Two recent news items highlight the issue of income inequality in America. First, a study by the Pew Research Center found that the net worth of the upper 7 percent has risen by 28 percent since 2009 while the net worth of everybody else has dropped by 4 percent. Second, a recent poll conducted by Gallup found that 52 percent of Americans—an all-time high—think the government should “redistribute wealth by heavy taxes on the rich.”

Alexander Hamilton

Income inequality receives more attention from the left than from the right. Conservatives usually view it as a consequence of a capitalist economy in which individuals of naturally unequal talents operate. It may be regrettable in the short term, but over the long term the same free market that produces inequality raises everybody’s standard of living. Today’s man of few means enjoys a better quality of life than did John D. Rockefeller a century ago, because of progress produced through capitalism.

But that should not be the end of the story. Many of the Founders, whom conservatives rightly admire, were worried about income inequality, even though the concept of governmental redistribution was foreign to them. Thomas Jefferson, James Madison, and their allies did not see wealth per se as a problem, but they worried about the potential for moneyed interests to tilt policy in their direction, at the expense of the public good.

This was the basis, for instance, of their opposition to the Bank of the United States. They saw it as an unconstitutional expansion of government favoring the “stock jobbers” at the expense of the agricultural majority. Worse, they saw how involvement in high finance corrupted public officials: Alexander Hamilton’s assistant at Treasury, William Duer, used insider information to enrich himself and even tried to corner the market on Bank certificates. What’s more, many congressmen acquired enough Bank notes to blur the line between public service and private profit. They worried that the Bank was creating a “Praetorian Guard” of financiers who depended upon government favor and would do anything to protect their rents.

This should all sound familiar in this age of billion-dollar bailouts, crony capitalism, and “too big to fail.” But what might sound strange to modern ears is the Jeffersonian solution to creeping civic inequality: less government and a stricter interpretation of the Constitution. A government powerful enough to do grand things was also powerful enough to play favorites; and if, to accomplish those things, officials disrupted constitutional checks and balances, protections against undue influence would be eroded.

In other words, Jefferson and Madison might today argue that the modern left’s preferred solutions to income inequality inevitably create more civic inequality. One need look no further than Obamacare to see this point. Liberals trumpeted the expansion of coverage to millions of uninsured, which is a worthy goal, but consider the scores of exceptions to Obamacare’s mandates for the politically connected: big business, big labor, and now possibly even federal lawmakers and their aides.

Some measure of income inequality is undoubtedly baked into the cake of modern economies. That doesn’t mean conservatives who rightly oppose government-imposed egalitarianism should throw up their hands. Two policy areas stand out. The first is constant vigilance against the rent-seekers encamped in Washington, D.C. The federal government does play favorites; well-connected interests receive special treatment. And they receive it from both sides of the aisle.

The second point of attack should be on the middle-class squeeze. If conservatives are opposed to government efforts to equalize wealth, they nevertheless can whittle away at the role of government in areas where it is already involved. That suggests an emphasis on the exorbitant costs of higher education, health care, and energy. The Pew study mentioned above is picking up the fact that paychecks have not been rising fast enough to cover these high-ticket items. The role government is already playing in these areas more often than not drives up costs—this should be a priority for conservatives. It’s a good thing in itself to alleviate burdens on middle class families, but it will also reduce the appeal of the left’s call for larger and larger government.

It is important to continue to make the case for free-market reform in Washington, especially regarding the undue regulatory barriers that businesses face. But that is simply not enough. As income inequality rises, so does the salience of the left’s call for government intervention, which will only worsen the already growing problem of civic inequality. The left shouldn’t have the first and last words on the subject. Special interest privileges and the middle-class squeeze are the most obvious places for the right to begin to push back.


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