11.09.2011 0

Rising income inequality?

By Adam Bitely — Numerous reports have come out over the past many days (here, here, and here) disputing the new claim from progressives everywhere that a recent CBO report finally proves that the rich are getting richer while the poor are getting poorer.

Well, it seems that those who have closely studied the data believe that claims of an ever widening wealth gap seem to be, well, not exactly true.

As Sheldon Richman put it, “Today low-income people have things the middle class didn’t dream of 40 years ago — and even some things the rich couldn’t have had at any price because they hadn’t been invented yet. And this is not primarily due to consumer debt.”

Even further, as GMU economics professor Don Boudreaux explained several years back, people that bang the drum loudly that the wealth gap is beginning to widen out of control forget to consider that even though the wealthy get wealthier, the poor get wealthier too:

“Imagine what the average or median income would be in a room occupied only by Bill Gates, Warren Buffet, and Bono.  Now imagine that I enter the room and accept their offer to become their full-time shoe-shiner at an annual salary of $500,000.  Because this income is higher than I earned before entering the room, I’m richer.  And because my entering the room does not lower their annual incomes, none of them is poorer.  But my presence in the room (with my new income still far below that of each of these men) dramatically lowers the room’s average income, and pretty significantly lowers its median income, even if the income of each of these men rises during the current year.

“Everyone is richer, yet average and median incomes are lower.  As Mr. Samuelson points out, this possibility is not merely academic.”

A rising tide lifts all boats, as the old saying goes. And the same theory applied toward rising levels of wealth. As people acquire more wealth, they put it towards more stuff. Just as the rising tide lifts the boats, the money being spent finds its way into many more pockets.

Many on the left believe that wealth redistribution would fix the problems of the supposed out-of-control wealth gap. However, recent data suggests that the poor have been receiving massive transfers of wealth, contrary to what many claim.

The CBO study released recently discovered that while a percentage of all government transfers of wealth to the poor have declined, it is due to an increase in transfer of wealth in other places. The reason for this is that the government has had to transfer an increasing amount of funds through programs such as Social Security and Medicare.

As Shikha Dalmia reported recently about the CBO study, “poor people are getting relatively fewer handouts thanks to the Great Society programs that liberals themselves put in place for the elderly. This demonstrates the core problem with unfettered redistributionism: Eventually, you run out of other people’s money.”

The cries from people such as the Occupy Wall Street protestors over a wide gap existing between the rich and poor are greatly exaggerated. Politicians that make policy decisions based on appeasing folks that hold this opinion would do wrong by scientific data which clearly indicates otherwise. Instead of finding ways for the government to close the wealth gap, advocates of using government force to fix income inequality should focus on allowing people to have more of their hard earned money instead of losing it through burdensome taxes.

Adam Bitely is the Editor-in-Chief of NetRightDaily.com. You can follow him on Twitter at @AdamBitely.

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