Money $marts: The inequality gap

The Congressional Budget Office (CBO) recently released a report on U.S. household income distribution from 1979 to 2007, finding that the share of income received by the top 1 percent of earners grew from about 8 percent to more than 17 percent during the study period.

The statistic set off an avalanche of indignant commentary about democracy, fairness, government spending, tax policies and provided fuel for President Barack Obama's "share the wealth" crusade and grist for the "stick it to the millionaires and billionaires" crowd. The question is: in the name of "fairness" do we really want human beings in government trying to alter the outcomes of human beings interacting in the real economy?

First, however, we have to clear up the illusion in the CBO report. Data confined to a specific time period is static and conclusions drawn from it can be falsely interpreted as ongoing unchanging truth, which is the case here. If the CBO had continued its study through 2009, it would have found a huge decline in the top 1 percent's income from 2007 (to 11 percent by one estimate) owing to the recession, which always hits the rich harder than anyone else.

Second, if the issue is "fairness," we have to ask "by what standard"? Yes, the top 1 percent earned 11 percent of income. But they also paid about 33 percent of total income taxes. Is that fair? If the standard is who has the most, pays the most, it's already true. But if the standard is everybody in our society should be treated equally, the top 1 percent is being treated unfairly.

We all buy into the "everyone is equal" concept when it comes to social issues. Civil rights and anti-discrimination laws attest to this. A functioning democratic society requires such equality in order for all citizens to have the same opportunities. But advocating governmental action to lessen inequality in outcomes is a contradiction of the "everyone's equal" concept. Its expedient method to create more equality of economic outcomes is to force the issue through coercion or legal expropriation of economic gains. Thus to reduce income inequality, government must treat some of its citizens unequally.

Income inequality will always exist. When human beings pursue economic goals the outcomes will always be different because human beings themselves are different. The qualities that make for economic success are not inherent in everyone. Billionaires by being billionaires are by definition different. Occupational choice and performance are other income inequality factors. Once the government gets involved in treating disparate outcomes, at what point does it stop? In Denmark some officials have opined that no one should make more than $90,000 a year.

More importantly, Government efforts to redistribute wealth under an arbitrary definition of fairness have the unintended and ironic consequence of creating more income inequality. Taking money from successful investors and entrepreneurs lessens their ability to produce, leading to more unemployment.

Yes, the income inequality gap in the U.S. is probably too wide. But it is not the role of government to change it. There are only negative consequences of its involvement.

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