The president said in a recent speech that income inequality “is the defining challenge of our time.” To remedy it, he proposed “actions ranging from an increase in the minimum wage to better education to following through on his health care plan.”
Without causing other problems, Obama cannot “improve” income inequality by simply collecting a few statistics and then getting laws passed that he think will “improve” them. Political laws cannot contravene economic laws without negative consequences that may outweigh the supposed benefits. Obama’s speeches make no reference to the negatives of his proposed remedies.
Even a very brief analysis helps understand this issue.
In a free market economy, income inequality is not a challenge of the economy or the politics of a country, much less a defining challenge, because wealth is gained by those who efficiently produce goods and services that people want. In a free market, there is no privilege built into the system politically, so there is no source of income inequality on that score. People are free to move up and down the income ladder, and they do.
Yes, income inequality does arise as a consequence of free market exchanges, but there is no way to remove it governmentally without destroying the free market. Without the incentive to raise one’s wealth by supplying the wants and needs of other people, the production process is greatly reduced. That undermines the income production process.
Pure coerced wealth redistribution that aims to alter income inequality undermines the free market economy and undermines the incentive to produce wealth, but there is another general source of governmentally-caused income inequality that also needs to be recognized as a separate cause: specific privileges enforced by law.
Privileges that are enforced by laws (government) undermine free markets: to farmers, businessmen, drug companies, military suppliers, unions, banks, transportation companies and communications companies, energy companies, retailers, etc. Licensing is included. These privileges are a big cause that turns a non-problem (inequality associated with free markets) into a problem (inequality caused by government laws). Removing governmentally-caused privileges lessens any problematic income inequality. This is exactly what Obama did not propose and won’t propose because he is a pro-government and anti-market man in his thinking, and he does not stand for going against these entrenched interests.
The economy is rife with privileges that government has engineered that, if removed, would end income inequality arising from that particular source. However, income inequality that arises from free markets operating can’t be removed without severely wounding the income production process.
If we had free markets, income inequality still would arise and become a problem because of factors like bad luck, illness, mental incapacity, death of breadwinners, and bad judgment. There are many charitable and social ways to alleviate income inequality arising from those sources. Income inequality of this kind is not a defining challenge.
Raising the minimum wage is a blow to people in low-wage occupations who are laid off. It is a benefit to unionized labor. It doesn’t end a single government-created privilege; it enhances the position of unionized laborers. If the government raises funds for education, as Obama wants, this privileges people working in the educational establishment and teachers’ unions. The benefits to students are negligible. Obama’s tired and well-worn recommendations will not accomplish what he says he wants to accomplish.
Where Obama should look is to freeing up the burdens on small businesses and ending the privileges accorded to big businesses. Obamacare doesn’t do that. It does the opposite. Obama speaks up for the little guy and then turns right around and acts on behalf of the big guys, the elite, the establishment, and big business. He surrounds himself with their people. He gets their advice. He has no firm understanding of his own to parry them. The big money that is the political lifeblood of his party flows from these same interests. Obama has engineered no way of dealing from strength against these privileged interests.8:13 am on December 5, 2013 Email Michael S. Rozeff