How Should We Respond to Growing Income Inequality?

John ArmstrongEconomy/Economics

A national report, issued on Thursday (January 26), shows that the gap between the nation’s top wage earners and lower- and middle-income families is growing over the past two plus decades. This gap began to grow in the 1980s (slowed from 1996-2002) and continues to increase off and on since. Liberals and conservatives view the gap very differently. These difference allow us to think about social and economic policy seriously.

Consider, for point of reference, that the study shows that the richest 20 percent of families had average incomes 6.8 times as large as the poorest 20 percent in the early 2000s, up from 5.4 times in the early 1980s. And the highest incomes in the early 2000s were 2.5 times as large as the middle 20 percent, up from 2 times twenty years ago. Average incomes for the richest people were up 51% overall and only 21.5% for middle income families. Average incomes for the poor rose by 20.5% during the same period!

So, what are we to make of this data? Ah, there’s the problem. Liberal economists see a growing tragedy. Conservatives see it otherwise. The Chicago Tribune understood it starkly and thus the headlines read: “Rich, Poor Income Gap Widens.” Conservative policy analyst Rea Hederman Jr, at the Heritage Foundation, noted that, “Even people at the bottom quintile are better off than they were at the start of the period.” So, is the glass half-empty or half-full?

Well, the answer depends on a host of other questions and on how these all relate to economics and social welfare. Liberal thinkers believe the widening gap between the rich and the poor is bad. Consistent with the class conscious emphasis that such inequities create liberals see this very simply, it is a justice issue. It is, very simply, “Not right." Whatever it takes to adjust things so that “fairness” is brought into the equation again thus becomes the goal for liberal policy makers. Conservatives, on the other hand, favor the free market and the effects such a market creates for all, both rich and poor. They insist that these cycles happen and thus no truly free market system, in other words one that is uncontrolled by the government tinkering with it too much, can or should be adjusted to shrink income gaps. In fact, conservatives argue, the more business succeeds, and the market prospers the wealthiest among us, the better it will be for everyone who wants to benefit from the general prosperity created. The evidence of the recent survey can be read so as to support this very conclusion.

As a Christian I do not believe the resolution to this question is clear cut, at least in every instance. I also do not believe that we have a mandate to narrow the income gap based upon Old Testament prophetic texts, a common mistake made by the Christian left. The church clearly has a mandate to care for its own and to do good for neighbors. But these commandments do not dictate public and economic policy. They do not, in other words, support soft socialism. This is where the confusion comes when we apply biblical texts to modern governments and their economic decisions.

What contributes to income inequality does interest me great deal. Liberals argue that the primary culprit is obvious. The rich benefit from the free market and the poor suffer. But is this simplistic nostrum really true? This recent study suggests a number of contributing factors that ought to be considered in this debate. For example, the biggest contributor to income inequality is the erosion of wages for workers without college degrees, the report stated. But even college educated workers have recently lost ground, partly because of job erosion due to globalization. Other forces driving inequality are periods of relatively high unemployment, the general shift from manufacturing jobs (witness the problems at GM and Ford this week) to service related jobs, the loss of real impact by labor unions and the decline in the importance of the minimum wage. Liberal analysts suggest answers that you would expect—increase the minimum wage, strengthen social support for working families and make unemployment insurance more widely available. The Heritage Foundation, a conservative think tank, suggests that investments in education are the best first step; i.e., get better skills and better education.

Even more important, at least to my mind, is the impact of demographic trends on this income gap, trends that liberals rarely discuss. These trends include the rise of single-parent families and the part this contributes to both poverty and the decrease in disposable income. The issues here, as I noted above, are not simplistic. The solutions are not either. I resist large scale tinkering with the economy precisely because I am convinced it takes away real, and personal, freedom. This creates a far deeper problem for the whole society in the long run as I noted in my positive references to Ronald Reagan last week. I also believe that we fail the poorest among us if we do not have a real national conversation about how to solve the myriad of problems created by the destruction of the family. Family breakdown, both morally and spiritually, will be the undoing of our social fabric. I still believe revival, true Christ-centered revival, is the first step toward such real change. Liberal social theorists see this as “pie in the sky” religiosity but history abounds with evidence that such revival has time and again created huge social and economic change within a society.

The goal is not to shrink the income gap by new governmental interferences in the economy. This tends to be driven by an “economy lite” version of socialism. The goal is to raise every boat by a growing a healthy economy that works for the benefit of all. And we must encourage real charity in every way possible. At the same time we must provide the kind of social network that truly cares for the poor and offers positive help to them that is not demeaning. This is why I prefer the Christian approaches, influenced by both Catholic and Reformed (Kuyperian) social theory, that are offered by serious thinking people like those who teach and write for the Acton Institute.

If you are a Christian economist, or thoughtful businessman, you can start by helping ordinary members of our churches understand how this works and what they can really do about the issue of poverty in America. Fresh calls for governmental solutions are not the only alternative. I do not think they are even the best alternative.