It's Not Inequality, Stupid

WashingtonTimes.com

Decrying income inequality is growing more popular with the shrill voices on the left as their policy nostrums, including the stimulus that didn’t stimulate, have left crippled the economy, with more than 40 million Americans looking for jobs.

Standard and Poor’s, one of the three major credit-rating agencies, joins this chorus, cutting its 10-year forecast of economic growth of the American economy from 2.8 percent to 2.5 percent and blaming it on “income inequality.” S&P urges more spending on education and infrastructure to fix it. But S&P misreads the fundamental nature of the stagnation, so it’s hardly surprising that its solutions miss the mark.

The credit-rating agency ventures into new territory, reading off the same page as French economist Thomas Piketty, warning of declining social mobility in the United States. It points a quivering finger at the share of wealth the top 1 percent control in America. There are fundamental problems with this analysis of what’s wrong.

Harvard economist Raj Chetty and his colleagues have documented a decline in social mobility in America, but to emphasize the wealth of those of the 1 percent, most of whom are productive and have earned the wealth they control. To ignore the damage done by federal, state and local governments to small entrepreneurs — from hair-braiders and Uber drivers to craft brewers — is to worry about a hangnail on a man in the midst of a cardiac arrest.

Government holds far more people from moving up the income and wealth ladder than wealthy people do. S&P recognizes the damage a higher minimum wage could cause, but it nonetheless urges policies that would encourage more young people to go to college even in the face of underemployment, mounting student debt and growing job opportunities in skilled trades that go unfilled.

The increasing mismatch between jobs and skills is a problem that can’t be solved by funneling great numbers of 18-year-olds into four-year colleges and encouraging them to take on debt that might be larger than a mortgage on a house.

State governments are guilty of restraining Americans of modest means with dreams of owning a business. Expensive licensing requirements demanding endless layers of permits make it difficult to start a small business. Occupational-licensing laws are pernicious in their effect on the poor trying to bootstrap their way into the middle class. Easing or eliminating these laws would do more good than subsidizing college loans, but pork-mongering that does little good continues. Spending on public schools has increased steadily since the 1970s and test scores remain flat.

Lowering the tax and regulatory burden is the most effective way to get the economy going. Economic growth and job creation go hand in hand. The most effective way to reduce poverty is to provide jobs for those who want them and don’t have them. That will do far more for everybody than making speeches about the sins of the filthy rich. Jobs are the start of reducing inequality.