The Crusade Against U.S. Income Inequality

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The Crusade Against U.S. Income Inequality

Americans have rarely been so disappointed in the direction of their country, in their own economic prospects and those of their children. While this dissatisfaction is widespread, there is a sharp division in terms of the perceived nature of the problem, the possibility of finding a solution, and the specific policy solutions that will lead to a desirable outcome.

Some people see the problem in terms of an unequal allocation of wealth and income. In a December 2013 speech, President Obama described rising income inequality as the “defining challenge of our time” and promised that for the rest of his presidency, he and his administration would focus all of their efforts to stop the increase in income inequality.1 2016 Presidential candidates Bernie Sanders and Hillary Clinton similarly argue that fighting rising income inequality should be central to U.S. economic policy.

On the other hand, there is a widely held view that sees our problem in terms of an economic malaise, in which all Americans have less wealth and income than they would if market forces were allowed to work.

A central focus of former-President George W. Bush’s foundation is “The 4 Percent Solution” dedicated to supporting policies aimed at returning to 4 percent or greater long-term growth. 2016 candidates including Jeb Bush, Ted Cruz, and Carly Fiorina have made this central to their economic platform.

Obviously, the efficacy of specific policy prescriptions depends upon which problem we’re seeking to solve.

So how can something so fundamental and so divisive exist when intelligent people have access to the same data? Maybe this is another example of a phenomenon once described so clearly by H.L. Mencken. Mencken wrote, “The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.”

Could it be that “rising income inequality” is, in fact, just an imaginary hobgoblin, created solely for the purpose of gaining political advantage? Or maybe it’s the possibility of escaping the “new normal” of 2 percent long-term growth that’s really the politically motivated fantasy?

Fortunately, while every person is entitled to his own opinion, he is not entitled to his own set of facts. Let’s examine the underlying assumptions for each position and see what the data tell us...

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