We are routinely told that rising inequality is a profoundly pernicious problem – a clear and obvious sign that the rich and well-connected continue to benefit at the expense of the poor.
Whether argued by economists like Thomas Piketty and Joseph Stiglitz or politicians like Joe Biden and Bernie Sanders, the implication is clear: The government needs to play a more active and interventionist role in the distribution of wealth.
But what if the reality is a bit more complex, and inequality itself is not the problem? What might we be missing about the bigger story of opportunity and empowerment in the modern economy?
As economist Russ Roberts explains in his latest short film, our lopsided emphasis on fighting inequality often oversimplifies the economy. As a result, it tends to obscure bigger obstacles to prosperity, particularly those faced by the poor and disadvantaged.
“Focusing on inequality as something inherently bad can blind us to the problems of poverty,” Roberts explains. “Inequality and poverty aren’t the same thing. Even if some people are getting ahead faster than others, I’m much more concerned with those at the bottom who are getting left behind.”
While economic inequality has certainly spiked in recent years, this is not necessarily a sign of systemic injustice.
“There’s a lot of evidence that people in the middle and at the bottom have prospered along with the rich,” Roberts observes, referring to several studies. “And the rich aren’t a fixed group of people; over time, people move up and down. But the gap between the top and the bottom is bigger today than it once was, because even if most Americans are getting ahead, some get ahead faster than others, and that increases inequality even if prosperity is increasing for most Americans.”
In many cases, “the rich are getting richer” at an increasing scale and speed due to positive improvements in the overall economy, such as better access to technology and global markets, or the ability to tailor products to niche audiences through online commerce and social media. These improvements may be leading to unprecedented wealth, but they are not leading to greater entrenchment and insulation among elites. To the contrary, they continue to level the playing field and bring opportunity to the disadvantaged in surprising and spontaneous ways.
That’s not to say the picture is perfect. “Some inequality comes from crony capitalism, the rich using the power of government to make themselves richer,” Roberts reminds us. Whether through government subsidies in finance and agriculture or various protections and regulations across select industries, some inequality does stem from public and private institutions colluding to diminish opportunities for those with less power or influence. Take Amazon’s recent, public advocacy for a $15 federal minimum wage, which would undeniably stifle opportunity among its lower-rung competitors.
Unfortunately, we routinely fail to properly discern and prioritize these risks, opting instead for passive abdication or external tweaks to the economic equilibrium. Such ambivalence stems in part from our confusion about inequality, but it likely begins with our attitudes about the poor and the disadvantaged.
As Roberts rightly points out, these prejudices exist on the Right and the Left alike, manifesting in policies that range from woefully inadequate to painfully paternalistic:
Too many on the right look at the poor and wonder, “Why can’t they rise in an economy that seems full of opportunity, at least when there isn’t a pandemic?” But too many on the right struggle to imagine what it’s like to grow up poor, where some must overcome racism or other challenges. Too many forget that the poor are often poorly educated. They bring too few skills to the workplace. They lack the connections others have to help them get ahead. Too many on the right are blind to the barriers facing the poor.
Too many on the left make the opposite mistake. They see no hope for the least skilled among us to join the modern economy, even in the best of economic times. They see no scope for personal responsibility or drive or grit. They assume the least skilled and the poorly educated could only survive on a government handout of some kind. They see the barriers facing the poor as insurmountable.
President Biden’s recent executive order on “Advancing Racial Equity” offers a recent example of such confusion. In its goals and its mission, the order says all the right things. It praises “equal opportunity” as a “bedrock of American democracy” and decries the “entrenched disparities in our laws and public policies, and in our public and private institutions,” which “have often denied that equal opportunity to individuals and communities.”
Yet the order does not seek to remove these obstacles, nor does it propose dismantling entrenched institutions. Instead, it promises to promote “equitable delivery of government benefits and equitable opportunities,” with most of its remaining focus set on the allocation of material benefits and centrally planned “opportunities.” Such policies would be far more effective in addressing disparities if they focused less on “fixing” inequality and more on removing barriers to entry – inviting the poor, disadvantaged, and disconnected to participate in circles of exchange.
Roberts points to several key areas where government barriers disproportionately affect the poor, from education, to licensing, to zoning, to price controls:
We should worry less about inequality and work instead to improve the schools that poor children have to attend in their neighborhoods.
We should get rid of licensing that makes it hard for poor people to get a job or learn a skill. In the 1950s, about 5% of jobs required a license. That’s up to roughly 30% today. That’s cronyism masquerading as consumer protection.
We should change zoning laws and land use regulation that make housing artificially expensive. Those regulations push the poor out of cities, where there’s opportunity.
And the minimum wage makes the least skilled among us artificially more expensive to employers, encouraging automation or the substitution of higher-skilled workers.
None of these problems will be solved by more spending, more price controls, bigger budgets, higher taxes, new programs, or increased redistribution. They will be solved by less intervention, not more.
“Human beings need food and shelter and clothing, but we all need more than material well-being,” Roberts concludes. “All of us crave dignity, agency, and all the things that make life meaningful beyond material success. Both the Left and the Right need to remember that human flourishing is about more than money. Let’s spend less time and energy on inequality and more on creating opportunities for all Americans to flourish.”
Rather than fighting “inequality” at the surface, we would do better to tackle each particular injustice – focusing on more freedom and greater human connection, and fueling faith in the dignity and creative capacity of each and every worker across economic classes.