Income Equality: The Fast Lane to Poverty

I remember sightseeing on a particularly impoverished island a few years back. The dust from our bus’s wake bloomed across turquoise shutters that opened on a hollow beauty shop next door to a hand-scrawled sign that announced, “Se vende cerveza.” A woman, probably the shop owner, stared absently at our rolling vehicle. Not much else to do.

“Who lives there?” I asked our guide pointing to a row of mansions near the local hilltop. “Those belong to the politicians and movie stars,” she said. “No one else can afford to live there.”

Later I returned to my poor, middle class and even a few wealthy American friends. That harsh visual of the little nation’s inequality between poverty and wealth, never left me. Imagine my shock when I discovered that little nation, with people so poor they scrubbed their clothing in a washtub, had more income equality than the United States.

It is popular in America to treat the disparity of household wealth, as the root of lowered living standards for the poor and middle class. The meme goes something like, “the top 1/10th of 1% of Americans have more wealth than the bottom 90% combined. If we shuffled that money around we would all be better off and the rich would never miss it.”

Actually, global research proves the opposite. According to Pew Research, at the end of 2014 upper income families earned almost 7 times as much as middle-income earners and nearly 70 times as much as lower income families.

Stats like this send Mother Jones on another “Odyssey of revolt.” Her website even explains how much income the average household has surrendered so the top 1% can be, well, the top 1%. (Hint. It cost nearly $597,000 each year for your family to support folks like Donald Trump.)

It is true, US income inequality is worse than that of Guyana, Nicaragua and Venezuela. Nor have things improved under President Obamas’ “spread the wealth” campaign. According to Georgia Keohane a fellow at the Roosevelt Institute, median family income is declining in the US and “the growing chasm between the rich and the rest – is at levels unseen since 1929.”

Here is the part Ms. Jones and Ms. Keohane missed. A newly released report shows the income of middle class Americans is over 3 times higher than their Venezuelan counterparts, and 10 times higher than those families in Nicaragua and Guyana. Researcher Scott Winship of the Manhattan Institute, discovered that “Americans in the bottom fifth have incomes 4.5 to 34 times larger than their counterparts” in countries with higher levels of income equality.

As Winship’s report shows, areas of very high wealth concentration, do accompany lower incomes at the bottom. But, there was no indication the wealth caused the decline. Rather, culture, historical and geographical differences appear to be larger factors in predicting the level of living standards than income equality.

The message is clear. While some may grumble that the rich have more money than they do, when the rich earn more, in most cases, so do all other income levels. Spreading other people’s wealth around does not help anyone. Winship goes on, “Across the developed world, countries with more inequality tend to have, if anything, higher living standards.”

The next time you see folks clamoring for income equality, remind them. Equal income is often the fast lane to poverty, and that may be too big a price for anyone to pay.

 

About Author

Connect with Me: