The Magazine

The Inequality Trap

Feb 6, 2012, Vol. 17, No. 20 • By MATTHEW CONTINETTI
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Why are America’s political, media, and intellectual classes engaged in a head-spinning debate over inequality? Beats us. The difference in incomes between rich and poor is neither the most important issue facing the country nor even a pressing one. Certainly the public doesn’t think so. Recent surveys by Gallup and Pew show that the electorate’s top priorities are the economy and jobs.

Photo of Obama giving a speech in Osawatomie, Kansas

Osawatomie High School in Kansas, December 6, 2011

NEWSCOM

Yet the press goes wild at the mere mention of the words “income inequality.” They covered Occupy Wall Street as though it were the American version of the Arab Spring. They slobbered and wagged their tails in December when President Obama did his best Teddy Roosevelt impersonation in a speech at Osawatomie, Kansas. They thought the takeaway from Obama’s State of the Union was his call for a new alternative minimum tax for millionaires, even though the president buried that proposal under a mound of patriotic gauze and technocratic red tape. At the World Economic Forum in Davos, Switzerland, last week, heads of state and billionaires from around the globe lamented the fact that some people are not as well off as they are, and called for government to do something about it. Then they went skiing.

Maybe the reason for the focus on inequality is that it deflects attention from the terrible record of the Davos elite. Europe is a mess, and green shoots are few and far between in the forest of weeds that Americans call an economy. The Obama years have given us 1.7 million lost jobs, a credit downgrade, falling median incomes, fewer people participating in the labor market, a hemorrhaging deficit and debt, a housing market that still hasn’t hit bottom, an unpopular and ineffective economic stimulus and health care overhaul, and no pipeline from Canada to bring jobs and energy to the Lower 48. Every minute spent tickling Occupy Wall Street’s fancy is time not spent discussing the best ways to increase economic growth, make entitlement programs sustainable, and attack the roots of poverty, which lie in broken families, decrepit education for low-income youth, and teenage pregnancy.

Worse yet, Republicans seem happy to join in the diversion. They’ve fallen into the inequality trap, where the rules are rigged to favor Democrats. You can argue, correctly, that Mitt Romney’s effective tax rate is actually higher than 14 percent until you are red in the face. Liberals won’t be satisfied, and voters will go with the candidate who promises “fairness” over one who does nothing but discuss, explain, and defend his personal fortune. If the American people decide over the next nine months that President Obama will be more effective than the Republican nominee at balancing the interests of wage-earners with those of investors, he will win reelection.

The solution is to seize the banner of fairness. Start by asking which is more fair: a tax reform that encourages work and investment, closes loopholes while lowering rates, and ends penalties for marriage and childrearing; or a policy that narrows the base while increasing rates, creates opportunities for rent-seeking with loopholes and subsidies, and adds a new layer of complexity to the tax code? Which is more fair: an energy plan that unlocks America’s oil, natural gas, and nuclear resources so that they might reach their fullest potential, or a policy that caters to the green lobby and shovels taxpayer dollars at pie-in-the-sky, bankrupt wind and solar companies? And while we are on the subject of fairness, exactly how “fair” is it to the young and unborn to do nothing as America’s fiscal liabilities pile up higher and higher?

One could also point out that ensnaring working people in networks of dependence is the very opposite of fairness. Safety nets can protect, but they can also capture, and important research by John D. Mueller at the Ethics and Public Policy Center and Charles Murray at the American Enterprise Institute shows an inverse relationship between means-tested welfare benefits and participation in the workforce. So, to help the poor, enact policies that promote growth, job creation, hard work, self-discipline, and thrift. There are many such policies. A tax increase isn’t one of them.

What the Republicans teetering at the edge of the inequality trap need to do is catch a screening of The Iron Lady. A generation ago, another raving band of egalitarians claimed more power for the government in the name of “fairness.” The result was stagnation. It was Margaret Thatcher who had the courage to point out, as she put it in her final prime minister’s questions appearance in 1990, that for egalitarians, it didn’t matter if everyone got poorer, “so long as the gap [between rich and poor] is smaller.” Listen to the lady. And don’t go wobbly.

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