Income Inequality: Fretting over Success

Rich Tucker /

Glow Images/Newscom

World elites are worried about something that, in and of itself, is not a problem: income inequality.

“In a landscape of 50 global risks facing the world over the next 10 years, respondents rated severe income inequality as the most likely global risk,” reported CNBC on a study by the World Economic Forum, which recently hosted its annual Davos Summit, where the elite meet to greet each other in the Swiss Alps.

Income inequality is, according to the study, a bigger problem than food or water shortages, communicable diseases, or “major systemic financial failure.”

It would be tempting to stop right here and cheer. Some people are going to make more money than others in the years ahead; we already knew that. So where’s the problem?

But this has become a cause célèbre for influential liberals. “The non-partisan Congressional Budget Office reported in 2011 that between 1979 and 2007 the top 1 percent of households saw their income grow by 275 percent, while for the bottom 20 percent, income grew by just 20 percent,” CNBC reports. “For the middle 60 percent of Americans, average incomes grew just under 40 percent.”

Again, where’s the problem?

In every cohort, the income arrows are going up. Way up. People at the top are making more. So are people at the bottom. And people in the middle. Yes, income increased more swiftly for people at the top. The wealthy started with more and, in all likelihood, finished with more. But incomes improved substantially at every level. Good news all around.

The credit belongs to our (mostly) free-market economic system. Heritage scholars David Azerrad and Rea Hederman write that a growing economy delivers greater benefits to everyone:

If it were the case that the rich had grown richer at the expense of the poor, thereby making them poorer, then we would have reason to be concerned. Something would have to be done not to equalize outcomes, but to address the unjust means that the rich had used to defraud the poor. Contrary to what Marxist economists argue, however, that is not the way our economy works. A free-market economy creates wealth. For one person to make a dollar does not mean that another needs to lose one. There is not just one dwindling pie to be divided up among the population, but rather a proven recipe to grow the pie to serve everyone. All the talk about the rich “grabbing” too large a share of the national income therefore rests on a flawed understanding of this basic truth of free-market economics.

Thus, the key is that good government protects equality of opportunity by applying the same laws to everyone and thus ensuring a level playing field.

Here’s what we should worry about: Excessive government intervention, often undertaken in the name of promoting “fairness,” ends up favoring some groups over others. That ends up undermining the free market and along with it people’s incentives to succeed.

To paraphrase FDR: The folks in Davos should chill out. The only thing we have to fear is fear of income inequality.