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The Rich aren't the Problem

In the January 29, 2012 Outlook section of the Washington Post, James Q. Wilson, the Ronald Reagan professor of public policy at Pepperdine University, has an essay well-worth reading in its entirety. In the essay, he argues that people shouldn’t blame the rich if they’re angry at income inequality, or somehow claim to be a part of the 99%.

Admittedly, he says, “(t)here is no doubt that incomes are unequal in the United States.” However, Wison adds:

“But the mere existence of income inequality tells us little about what, if anything, should be done about it. First, we must answer some key questions. Who constitutes the prosperous and the poor? Why has inequality increased? Does an unequal income distribution deny poor people the chance to buy what they want? And perhaps most important: How do Americans feel about inequality?”

In arguing his case, Wilson points to studies at two of the Federal Reserve Bank:

“The “rich” in America are not a monolithic, unchanging class. A study by Thomas A. Garrett, economist at the Federal Reserve Bank of St. Louis, found that less than half of people in the top 1 percent in 1996 were still there in 2005. Such mobility is hardly surprising: A business school student, for instance, may have little money and high debts, but nine years later he or she could be earning a big Wall Street salary and bonus.

“Mobility is not limited to the top-earning households. A study by economists at the Federal Reserve Bank of Minneapolis found that nearly half of the families in the lowest fifth of income earners in 2001 had moved up within six years. Over the same period, more than a third of those in the highest fifth of income-earners had moved down. Certainly, there are people such as Warren Buffett and Bill Gates who are ensconced in the top tier, but far more common are people who are rich for short periods."

Wilson also points to the poverty rate as a problem, citing the book, “The Poverty of the Poverty Rate” by Nicholas Eberstadt." He writes:

“Poverty in America is certainly a serious problem, but the plight of the poor has been moderated by advances in the economy. Between 1970 and 2010, the net worth of American households more than doubled, as did the number of television sets and air-conditioning units per home. In his book “The Poverty of the Poverty Rate,” Nicholas Eberstadt shows that over the past 30 or so years, the percentage of low-income children in the United States who are underweight has gone down, the share of low-income households lacking complete plumbing facilities has declined, and the area of their homes adequately heated has gone up. The fraction of poor households with a telephone, a television set and a clothes dryer has risen sharply”

In addition, there are four letters in last week's Post that responded to Wilson's essay, including one from the authors of one book referenced by Wilson.

As we growled on September 6, 2009, “The topic of income inequality is important since liberals base much of their belief in the need for income redistribution on it, or in the words of then-candidate Barack Obama who told “Joe the Plumber” last year, he wanted to “spread the wealth around.” We see once again that a free market does the job of spreading the wealth around” quite well without the political class choosing winners and losers. Forget a progressive income tax. What we need is a flat tax.”

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