Wages are rising. Jobs are plentiful. Poverty is falling. So what’s a Democrat presidential candidate running against President Trump to do? Come forward with an economic line of attack that focuses on wealth inequality.
Our friend Chris Edwards, an economist at the Cato Institute, acknowledges that wealth inequality has risen in recent years, but, he counters, by far less than Democrats imply.
- Senator Bernie Sanders claims that there has been a “massive transfer of wealth from the middle class to the top one percent.”
- Senator Elizabeth Warren lambastes America’s “extreme concentration of wealth.”
- Joe Biden laments, “This wealth gap that exists in the United States of America is so profound now.”
Flawed Data Fuels Faux Inequality Claims
The scarier claims about inequality usually stem from the flawed data created by French economist Thomas Piketty and his colleagues. More careful studies by other economists and the Federal Reserve Board reveal surprisingly modest changes in wealth inequality given the huge revolutions in globalization and technology that have occurred.
Increases in Wealth Inequality as Bad as Democrats Claim?
Not if you are providing free phone service for 1.5 billion users globally, Chris Edwards argues in NRO.
Much of the recent modest rise in wealth inequality stems from innovations in our economy that are pulling everyone up. Brian Acton and Jan Koum, for example, built huge multibillion-dollar fortunes by creating WhatsApp, which provides free phone service for 1.5 billion users globally.
Acton and Koum’s success may have increased the wealth owned by the top 1 percent, but their product has created massive consumer value as well. Most of the wealthiest Americans are entrepreneurs who have fueled economic growth, which is clear in examining the Forbes 400 list. Wealth created this way is not the zero-sum struggle that Democrats imagine it is.
The Bigger the Welfare State, the More Inequality
A study by Credit Suisse found: “Strong social security programs — good public pensions, free higher education or generous student loans, unemployment and health insurance — can greatly reduce the need for personal financial assets. . . . This is one explanation for the high level of wealth inequality we identify in Denmark, Norway and Sweden: the top groups continue to accumulate for business and investment purposes, while the middle and lower classes have a less pressing need for personal saving.”
That is why it is absurd for politicians such as Sanders and Warren to decry wealth inequality and then turn around and demand European-style expansions in our social programs.
Chris Offers a Solution: Transition to Savings-Based Social Program
Numerous countries have Social Security systems based on private savings accounts. Chile has unemployment-insurance savings accounts. Martin Feldstein proposed a savings-based approach to Medicare. The assets in such savings accounts would be inheritable, unlike the benefits from current U.S. social programs.
Sanders and Warren are right to criticize crony capitalism as a cause of wealth inequality. But their big government approaches to social policy would have the opposite effect on wealth inequality than what they may believe.
Read more here.