A Widening Income Gap? Hardly
Twin Cities Business Monthly, May 1996
By Mitchell B. Pearlstein

I may work with my hands, but only in the sense that I write for a living. As such, I'm not terribly worried that a machine may eventually replace me or that my job someday may be shipped (or "sucked," as Ross Perot elegantly puts it) over yonder somewhere else.

I've also been blessed with very good teachers, both in and out of schools and universities. And after spending most of my career working for big public and private institutions, I've been privileged to run my own shop for the last half-dozen years, meaning that my continued employment rests more in my own two hands than in anyone else's. I'm exceptionally grateful, in other words, for the comparatively large quotient of security that has come to mark my professional life as I approach 50 (yikes!).

But what about millions of others who aren't nearly as secure, either because they're just starting out, or because they're poorly trained, or because they're in jobs that may well be excised before the end of the year or the millennium? Other than providing them false prophets and protectionists such as Pat Buchanan to rally 'round in early primaries, what ought to be done?

To start, and without slighting the unease and fear that many Americans do live with, the answer is not to fall into the trap of believing that their problems are wider or more systemic than they really are. More specifically, the first test is mainly an intellectual one: To challenge critics -- on the technical merits -- who argue that the national economy is growing skewed in unprecedented ways, with the rich getting richer at the direct expense of both the poor and middle class, who are supposedly growing poorer in the process.

Or, taking matters an essential step further, the aim must be to empirically demonstrate that the United States is not growing economically bifurcated, lest politicians be seduced to policies -- including higher taxes, most obviously -- which would make it harder for anyone to create wealth in the first place. Such a result would serve no one, be they filthy rich, desperately poor or, as is mostly the case in this fundamentally middle-class nation, grappling someplace between.

Perhaps the most concise and convincing demonstration that the United States is not, in fact, being economically drawn and quartered is a recent essay by two local lawyer/scholars, John H. Hinderaker and Scott W. Johnson. In their seminal "The Truth About Income Inequality" (published, I should note, by Center of the American Experiment), the two substantiate points such as these:

  • To a significant degree, differences in family income reflect nothing more mysterious than how many members of a family actually work, and how many hours a week they actually work.
    (which is to say, the lowest 20 percent), had no income earners in them at all. On the other hand, 83 percent of families in the top quintile contained two or more income earners.
  • Contrary to routine assertions by both the left and the media, income is as widely distributed today, just about, as at most any other time in American history.
  • In 1947, the top 5 percent of income earners in the United States earned 17.5 of all income generated. Through most of the 1960s and '70s, such folks earned about 15.5 percent of all income received In the '80s, the proportion of income earned by the top 5 percent increased, yes, but only modestly, to around 17.5 percent -- exactly where it was four decades earlier.
  • Reports of locked-in castes to the contrary, Americans profit from perhaps unmatched opportunities for improving their economic lot in life.

In 1992, the Treasury Department analyzed tax returns filed by 14,000 taxpayers for all years from 1979 to 1988. The study found that relatively few men and women who started out "poor" stayed that way over the decade, as a full 86 percent of those in the lowest quintile in 1979 had risen to a higher level by 1988.

Even more striking, there were more people (albeit just a comparative few) who moved from the very lowest quintile in 1979 to the absolute highest in 1988 than those who both started and ended the span at the bottom.

Is there real pain alive in the land as all kinds of workers contend with a world economy under very serious review? Needless to say. But in the same way that it would be a mistake to dismiss frequent fears, it would be a mistake to misread what's really going on and to, thereby, pursue policies which would only make matters worse.

This is another way of saying that it would be a very bad mistake to ignore the strong and positive correlation which does, in fact, exist between the success of upper-income Americans and that of lower-income Americans. For as Hinderaker and Johnson show, lower-income citizens generally do better, not worse, when tax and and other policies enable some particularly talented and fortunate citizens to make total buckets of money -- as witness the Reagan boom years, egalitarian cliches to the contrary notwithstanding.

Or from another angle still, and to paraphrase George Gilder: Wealth, when you get right down to it, is not the cause of poverty.

-- Mitchell B. Pearlstein is president of the Center of the American Experiment, a conservative think tank in Minneapolis.

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