Every week, I hear more and more about income inequality. What’s the opposite of income inequality, income equality? Do you know what that is? It’s called communism and it never works.
Income inequality is a pretty silly statistic that isn’t correlated to anything. Instead, we should be focusing on income mobility and economic opportunity. That means something.
Creative destruction is a huge force driving income inequality. Entrepreneurs should understand this immediately. No business is guaranteed to live forever. The only businesses that seemingly are guaranteed to live forever today are large corporations that have secured government regulatory moats and government subsidies.
“Do I have a chance?” That’s the question people really want an answer to.
Many government policies are limiting chance and choice. They are creating poor economic incentives even though they are empathetic and in many cases needed. I think that much of the electorate’s anger with government being reflected in the Republican poll numbers.
Here is an example of poor government policy impacting choice. I have a grandfathered in health care policy from Blue Cross Blue Shield. Since I have been self employed since 1986, I have had a high deductible ($10,000) policy. By the way, the premiums on it keep skyrocketing year over year. Because of bad government policy and Obamacare, if I left the state of Illinois my insurance doesn’t go with me. My health care costs would go up even more. That goes into the cost/opportunity cost moving calculus. Limiting people’s mobility within the US makes it tougher for the labor force to take advantage of opportunity. My own family history saw many people move from the South to the North after WW2 to get jobs. That doesn’t happen as much today unless you have a college education.
Educational opportunity limits economic mobility and opportunity. Again and again when we really delve into the root causes of lower income, we see that poor education is a significant factor. Yet, everything we continue to do to fix our public education program fails. Why aren’t we pursuing vouchers, and instilling competition in our public schools?
The other statistic that consistently comes up as a large factor in lower income is having children out of wedlock. If you are a child of a single parent home, you have a tougher time of it. President Obama changed the SNAP program during his term. You can be on it as long as you want. The only restriction is it’s hard to be on it if you are married. That creates a bad economic incentive.
Here is a book you can download for free that talks about these problems. It talks about this issue rationally, and unemotionally. Currently, the issue of income inequality is being politicized, mostly by the left. In the next Democratic debate it could be a bingo word. Here is an excerpt from one of the book’s chapters.
First sentence: the federal government has recently created or expanded a number of redistribution programs, and these programs have made the American economy smaller than it would have been. Second sentence: the effects of these programs are right in line with basic economics, right in line with basic price theory, but the opposite of what the program advocates have been telling us.
It’s well worth reading. It will help you frame the problem and cut through most of the bullcrap you hear on the news, and from candidates.