Income inequality: Bernie’s dead horse

By Robert Maynard

In a recent article from Vermont WatchDog, which was posted on TNR, Bernie Sanders had this to say about his plans to run for President:

As recently as March 6, Sanders said during an interview with The Nation, “I am prepared to run for president of the United States. I don’t believe that I am the only person out there who can fight this fight, but I am certainly prepared to look seriously at that race.”

A big part of the “fight”he is referring to is his positioning himself as a major voice on the subject of “income inequality”.  He is right about not being the only one fighting this fight.  Income inequality has been used for all kinds of forced wealth redistribution schemes from revolutionary socialists like the Nazis and Communists, to evolutionary socialists like the Fabians and Progressives.  These schemes have failed everywhere they have been tried and only create new classes and a large disparity of wealth between the politically connected and those not politically connected.  Here in the U.S. we have been experimenting with such wealth redistribution schemes for most of the 20th Century.  Here is what Robert Woodson, an American community development leader, and founder and president of the National Center for Neighborhood Enterprise, had to say about the effect that the welfare sate had on America’s poor:

Prior to the 1960s, the black community, even though we had no political rights, didn’t have voting rights, were not represented in local government and some of us being lynched everyday. Even in the presence of all those economic and social injustices, the black marriage rate in 1930 to 1940 was higher than in the white community. That 82 percent of all black families had a man and a woman raising children. The out-of-wedlock birth was something like 12 or 15 percent and that was considered a scandal. So, but what happened in 1960 when government intervened with the poverty programs a major paradigm shift occurred. And that is: government began to intervene and 80 percent of the money that it invested went not to institutions and communities but to a service industry. And so 82 percent or 80 percent of the money that government spent on helping poor people does not go to poor people but to professional service providers. They ask not which problems are solvable, but which problems are fundable this year, and as a consequence of this we had the poverty programs. We provided perverse incentives for maintaining people in poverty. So that if you are running an agency to serve poor people, you get paid for the number of people you purportedly serve not how many problems you solve. Also welfare policy made a major shift and contributed to the decimation of the family, as well, because welfare policy said if you drop out of school, don’t work, have babies the government will pay you. And the more children you have the more we’ll pay you. Even the public housing policies mitigated against healthy families. For instance, if you and I had an increase in salary our rent or mortgage payment doesn’t go up, but if you are a resident in public housing your income is, your rent is indexed to your income so that’s a disincentive for families to form. So there, it was a perfect storm of government policies, as well as welfare policies. Where now 30 percent of black families have a man and a woman raising children and it is true not only for the black community but for other groups as well. So obviously government has injured with the helping hand.

Despite this failure, supporters of the wealth redistribution model continue to promote it as a cure to income inequality.  The problem with their approach is that they look at income inequality as a static snapshot at one particular time.  A more effective way to examine income inequality is in a dynamic fashion over time.  The more mobility of capital a society has, the greater income equality it will have over time as some drop out of higher income brackets and others rise up out of lower income brackets.  A 1995 study by the Federal Reserve Bank of Dallas gives a picture of the relative income equality that is achieved over time when there is greater income mobility:

Tracking individuals’ incomes over time gives a startlingly different view of the forces shaping America’s income distribution. Let’s begin with the people who were in the bottom fifth of income earners in 1975. The conventional view leads us to think they were worse off in the 1990s. Nothing could be further from the truth. In the University of Michigan sample, only 5 percent of those in the bottom quintile in 1975 were still there in 1991.

Even more important, a majority of these people had made it to the top 60 percent of the income distribution-middle class or better-over that 16-year span. Almost 29 percent of them rose to the top quintile. This is a far cry from the popular vision of a society in which the poor are getting poorer. In fact, the evidence suggests that low income is largely a transitory experience for those willing to work, a place where people may visit but rarely choose to live.

There’s further evidence that being in the low-income bracket isn’t, for a large majority of people, permanent. Less than 0.5 percent of the sample showed up in the bottom quintile every year from 1975 to 1991. Nearly a quarter of those in the bottom tier in 1975 moved up the next year and never again returned. More than three-quarters of the lowest 20 percent in 1975 made it into the top 40 percent of income earners for at least one year by 1991. In fact, the poor made the most dramatic gains in the income distribution. Those who started in the bottom quintile in 1975 had a $25,322 average gain in real income by 1991. In the top quintile, the increase was $3,974. In other words, the rich have gotten a little richer, but the poor have gotten much richer.

The patterns are similar in other quintiles. Among the second poorest quintile in 1975, more than 70 percent had moved to a higher bracket by 1991-with 26 percent going all the way to the top tier. From the middle grouping, almost half of the income earners managed to make themselves better off. A third of the people in the second highest quintile made it to the highest fifth during these 17 years. All through the University of Michigan data, there’s a consistent, powerful thrust toward the top of the income distribution.

In short, the key to a relatively more equal distribution of income is to have a greater mobility of income through greater economic opportunity. Removing the stifling hand of government and letting the free market work best achieves this. Having politicians and political bureaucrats confiscate and redistribute wealth only created new classes based on political connection.

2 thoughts on “Income inequality: Bernie’s dead horse

  1. Bernie feels that the way to income equality is by having it handed to you. He does not believe in hard work or free market. The reason is he has not had to work for the millions he has made from the Government. He wants us all to be good little Government employees who can sit back and get free health care, housing and food. Don’t try and better yourself comrades just make everyone equal. Just some of them will be more equal than others.

  2. One of your best essays.
    The results of welfare pimping are obvious to both those paying the freight, but also to recipients who have been taught to ‘work the system’ to the max to get their full entitlements”
    Welfare is one of the top industries in our country, one of the biggest monopolies, and absolutely the most UNregulated.
    Bernie is a millionaire, how much does he contribute to effective private charity? Bet it’s Zip!

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