When ‘Poverty’ Founders, Float ‘Income Inequality’

By Harold Brown

Harold Brown, Senior Fellow, Georgia Public Policy Foundation

Harold Brown, Senior Fellow, Georgia Public Policy Foundation

You know poverty is losing ground when the rhetoric changes to “income inequality.” Over the past 10 years, The New York Times used this phrase as much as in its previous history.

Income inequality is universal and eternal. It goes along with initiative inequality and all other sorts: educational, mental, psychological and physical. If equality were real in any social measure, the first goal would be exceptions – new classes. Humans are a classifying species; classifying people, houses, clothes, hairstyles, even physiques, and surely incomes.

Classification both codifies inequality and encourages it. And governments are the primary instigators. Government needs to know how many people are in this category or that so it can “fix” inequalities.

It is hard to know, however, whether classification of people is effective. Does it help society or harm it? We are all equal in a class made large enough. When critics of the “1 percent” identify themselves with the “99 percent,” they embrace the poor as equals. But they don’t mean it.

It is natural but not easy to classify people as “poor.” “Poverty” gets harder to define in a changing world. President Lyndon Johnson declared war on poverty in 1964, saying, “for the first time in our history, it is possible to conquer poverty…”

But we didn’t “conquer” it. The federal government redefines it anew for every generation. The war against “income inequality” is as futile as the perpetual war on poverty, partly because the enemy and the victory are hidden in definitions and classification.

The Department of Health and Human Services  defines a family of four as poor (in 2014) if their income is less than $23,850.

Inequality of income is often expressed as the “GINI Coefficient”, a calculated value that that ranges from 0 (all incomes are equal) to 1 (one person receives all the income). For large groups, both extremes are impossible; most GINIs for income after taxes range from about 0.25 to 0.50. The U.S. national value ranges from 0.40 to 0.44, depending on source of the data, the year, etc.

The inequality of income is often used to lobby for public support to “adjust” it. Speaking to the Center for American Progress (CAP) in December 2013, President Obama said, “our levels of income inequality rank near countries like Jamaica and Argentina.”

These countries were selected to show how unequal American incomes are. But income inequality is so complicated that experts disagree about causes and cures – and comparisons – among populations.

Comparisons among cultures are too spurious to make a useful point about how unequal we are. The President could also have said that incomes in Bulgaria and Ukraine (GINI = 0.28 & 0.26) are more equally distributed than in the United States, and that incomes in New York State (GINI = 0.51) and Washington, D.C. (GINI = 0.53) are a lot more unequal than in Jamaica and Argentina (GINI = 0.46 & 0.44).

There are many contributing factors to “income inequality.” Some are obvious, such as differences in education, disabilities, abilities, desires and discipline. Income is affected by changing demographics such as increases in one-parent families and women in the workplace.

The GINI coefficient for the United States rose from 1960 (0.33) to 2005 (0.43), indicating increased inequality. The National Bureau of Economic Research cited “assortative mating” (in this case, based on education and income potential). An increasing tendency for males and females to marry into their own educational level during this period could have accounted for all of the change.

This increase in income inequality also required higher participation in the labor force by married females, which occurred since 1960. So the tendency for more highly educated men and women to marry each other and raise their income by both working causes a skewing toward higher incomes.

Taxation is one way countries attempt income equalization. A chart accompanying a 2013 New Yorker article noted, “The U.S. government does less than many other rich countries to reduce market-generated income inequality.” The chart showed greater inequality in after-tax income in the United States than in Northern European countries. When calculated on before-tax income, however, inequality in Northern Europe was as high as in the United States.

According to the New Yorker, then, some countries do better at redistributing income, by taxation and transfers, or “government-generated income equality.”

The implication is that wise governments with enough authority over the economy should redistribute money “from each according to his ability, to each according to his need,” as one propagandist put it. American taxpayers will welcome such pork-barrel politics when pigs fly.

 University of Georgia professor emeritus Harold Brown is a senior fellow with the Georgia Public Policy Foundation and author of “The Greening of Georgia: The Improvement of the Environment in the Twentieth Century.”