November 16th, 2020
THE TRUTH ABOUT “WEALTH INEQUALITY”
A recently-released study by the Washington-based Cato Institute sheds light on the subject of “Wealth Inequality,” which is thrown about by left-wing politicians as an indictment of our country and its basically-capitalist economic system.
“The study examines whether wealth inequality is the crisis that some people believe,” said Jim Tobin, president of Taxpayers Education Foundation (TEF).
Despite fears about runaway wealth concentration, expressed excitedly by the Washington Post and the New York Times, the study found that “wealth statistics such as the top 1 percent share have little relevance to the standards of living of U.S. households. While many politicians and pundits seem obsessed with wealth inequality… such measurements do not reveal anything about the levels of poverty or prosperity of Americans.”
Another major point made by the study was that poverty matters, not inequality. “Measures of wealth inequality do not tell us anything about the well-being of the poor, which is a more important focus for public policy than inequality.” Poverty and inequality are different things, the study states, “but they are often conflated in political discussions.” In fact, economist Martin Feldstein has stated that “inequality is not a problem in need of remedy.”
Feldstein argues that the real problem we should focus on is not inequality but poverty. U.S. wealth inequality has edged up in recent years, but the poverty rate has declined. Meanwhile, wages are up and unemployment is low. Federal Reserve Board data found that the top 1 percent wealth share increased slightly between 2013 and 2016, but the wealth of the median household jumped 16 percent over that period. In other words, recent gains by the top 1 percent have not come at the expense of other Americans. Unfortunately, many progressives still view the economy as a zero-sum game.
Another major finding by the Cato study is that most top wealth is self-made. “Most of America’s wealthiest people have self-made fortunes…The related fears about capital ownership becoming dominated by inherited wealth are also misguided. Inherited wealth represents a declining share of high-end fortunes.”
According to Cato, ownership of the largest fortunes in the United States is continually changing. Inherited wealth is being replaced by new wealth created by entrepreneurs introducing new products and building fortunes while adding overall value to the economy.
The study also finds that cronyism increases wealth inequality, and that government undermines wealth-building. Federal and state governments run many social programs that support lower and middle-income households. One cost of these programs is that they undermine the incentives and the means for people to accumulate personal savings. Effectively, they displace or “crowd out” wealth-building by households, particularly those with moderate incomes.
Finally, it found that inequality does not erode democracy. “A popular idea on the political left is that wealth inequality undermines democracy…The political views of the wealthy are not homogeneous, and on many issues, they track the views of the rest of the population. When the preferences of the wealthy are different, they are often not followed by policymakers, who ultimately need votes, not money. Finally, the empirical evidence is complex, but it appears that money does not buy elections, and wealthy self-funded candidates often do poorly.”
“This study demolishes some major assertions of left-wing journalists and economists,” said Tobin, “and it deserves wide distribution. The hysterical arguments they make deserve to be brought down by facts such as those presented in this study.”