Inequality

As the president and his supporters look forward to 2014, I'm certain that they have concerns about the future of Obamacare. Barack Obama's signature legislation is a nightmarish landscape of dishonesty, broken promises, coercive policies, and on-the fly, ineffective patches. So ... the president, as he has done throughout his terms in office, sets the stage for still another "pivot"—this time to what he and his Leftist supporters call "income inequality."

It's not that the president and his supporters aren't good at numbers, it's just that they always allow ideological belief to trump simple facts that are illuminated by numbers. This is the case with the his recent claim that "a dangerous and growing inequality and lack of upward mobility" is "the defining challenge of our time." He refuses to acknowledge compelling evidence that economic growth—something that has been sorely lacking during the the Obama administration—is the thing that allows those at the lower end of the income scale to move upward. More on this later, but first, let's examine Obama's central claim. Robert Grady cites some basic numbers:

Virtually all of the data cited by the left to decry the supposed explosion of income inequality, as Lee Ohanian and Kip Hagopian point out in their seminal paper, "The Mismeasure of Inequality" (Policy Review, 2011), use a Census Bureau definition of "money income" that excludes taxes, transfer payments like Medicaid, Medicare, nutrition assistance, the Earned Income Tax Credit, and even costly employee benefits such as health insurance.

Thus the data that is conventionally used to calculate the so-called Gini coefficient—the most commonly used measure of income inequality—ignore America's highly progressive income tax system and the panoply of benefits and transfer payments. According to Messrs. Ohanian and Hagopian, once the effect of taxes and transfer payments is taken into account, "inequality actually declined 1.8% during the 16-year period between 1993 and 2009, when the Gini coefficient dropped from .395 to .388."

In his speech, Mr. Obama cited a recent study from economists at Columbia University that found that already enacted benefits and tax programs have reduced America's effective poverty rate by 40% since 1967—to 16% from 26%. But he ignores all this when he claims that inequality is increasing.

The Left believes that big government can cure income inequality through the redistribution of income via increased taxation. Obama and his supporters refuse to accept the notion that increased taxes reduce the incentive for businesses to grow thereby reducing economic growth, thereby reducing the opportunity of those who currently have low incomes to proceed upward on the economic scale. The president and his supporters dismiss the data that indicates that income mobility is very real and is retarded only when the economy is stagnant (as it has been for the last five years). Again, from Grady:

With respect to upward mobility, longitudinal studies conducted by the U.S. Treasury have found that there was "considerable income mobility" in the decades 1987-1996 and 1996-2005. For example, roughly half of those in the bottom income quintile in 1996 had moved to a higher quintile by 2005. The "median incomes of those initially in the lowest income groups increased more in percentage terms than the median incomes of those in the higher income groups" in that decade, while the real incomes of two-thirds of all taxpayers experienced an increase.

Here is the bottom line: In periods of high economic growth, such as the 1980s and 1990s, the vast majority of Americans gain, and have the opportunity to gain. In periods of slow growth, such as the past four and a half years since the recession officially ended, poor people and the middle class are hurt the most, and opportunity is curbed.

But for the Left, the numbers simply don't matter. They see a billionaire Wall Street guy and a poverty-stricken resident of, say, Detroit, and they fly into a rage, decrying the lack of fairness and the blatant "inequality." They use anecdotal examples, rather than hard data to suggest policies that, like Obamacare, solve the wrong problem in the wrong way. And like Obamacare, this President's clumsy attempts to "solve" income inequalty will lead to a nightmarish landscape of policies that will hurt the very people he purports to help.