The Truth about What Causes Income Inequality in America

The Truth about What Causes Income Inequality in America

By Antonio R. Chaves

In a 2017 article in the Atlantic titled "The Curse of Econ 101," author James Kwak defends increasing the minimum wage as a means to address income inequality.  Here is a sample of Mr. Kwak's reasoning skills:

Although the standard model predicts that employers will replace workers with machines if wages increase, additional labor-saving technologies are not available to every company at a reasonable cost. Small employers in particular have limited flexibility; at their scale, they may not be able to maintain their operations with fewer workers. Therefore, some companies can't lay off employees if the minimum wage is increased.

What will small businesses with "limited flexibility" do when wage hikes eliminate their profit margins?  Only someone with no clue on how to run a business would have written something so asinine.
Since income inequality is so important to progressives, maybe they should find out which states have done a better job of addressing this "grave injustice."
Zippia (a website for employers and job hunters) compiled data to calculate Gini scores for all states from 2012 to 2016.  The Gini Coefficient has been used since 1912 to quantify income inequality.  Values range from 0 (perfect inequality) to 1 (perfect equality).  Based on data from the publication 24/7 Wall St. and Forbes, there is no evidence that government policies for spreading the wealth or restricting business freedom have narrowed the wealth gap (Tables 1 and 2):
Table 1: Income redistribution and income inequality.

States doing the most in 2011	Gini coefficient (2012-2016)	States doing the least in 2011	Gini coefficient (2012-2016)
Alaska	42.60	Alabama	47.69
California	48.80	Arizona	46.82
Connecticut	49.47	Arkansas	47.08
Hawaii	43.69	Florida	48.52
Massachusetts	48.26	Idaho	44.57
Minnesota	44.90	Indiana	44.94
New Jersey	47.82	Oklahoma	46.52
New York	51.02	S. Carolina	46.90
Pennsylvania	46.80	Tennessee	47.86
Rhode Island	47.38	Texas	48.03
average	47.07	average	46.89

Table 2: Business regulatory environment and income inequality.

Worst 10 for Regulations (2017)	Gini coefficient (2012-2016)	Best 10 for Regulations (2017)	Gini coefficient (2012-2016)
California	48.80	Florida	48.52
Connecticut	49.47	Georgia	48.16
Delaware	44.88	Indiana	44.94
Hawaii	43.69	Iowa	44.22
Maine	45.15	Nebraska	44.20
Maryland	45.13	North Carolina	47.48
New Jersey	47.82	South Carolina	46.90
Rhode Island	43.38	Tennessee	47.86
Vermont	44.35	Utah	42.61
West Virginia	46.21	Virginia	46.73
average	46.89	average	46.16

If government programs have not diminished inequality, maybe we should focus our efforts on some of the root causes.  Data on single parenting trends from the Kids Count data center provides a clue (Table 3).  This difference becomes more prominent when the sources are switched (Table 4):
Table 3: Family breakdown and income inequality.

Highest 10 for Single Mothers (2015)	Gini coefficient (2012-2016)	Lowest 10 for Single Mothers (2015)	Gini coefficient (2012-2016)
Alabama	47.69	Colorado	45.90
Delaware	44.88	Idaho	44.57
Florida	48.52	Minnesota	44.90
Georgia	48.16	Montana	45.87
Louisiana	49.03	Nebraska	44.20
Mississippi	47.99	North Dakota	45.86
Nevada	45.22	Utah	42.61
New Mexico	47.54	Vermont	44.35
Rhode Island	47.38	Washington	45.60
South Carolina	46.90	Wyoming	42.79
average	47.33*	average	44.67*

^★Based on a one-tailed T-test, the means are significantly different at p = 0.0001.
Table 4: Income inequality and family breakdown.

10 highest Gini scores (2012-2016)	% Single Mothers	10 lowest Gini scores (2012-2016)	% Single Mothers
California	34	Alaska	34
Connecticut	32	Hawaii	31
Florida	40	Iowa	30
Georgia	39	Nebraska	29
Illinois	34	New Hampshire	30
Massachusetts	33	South Dakota	32
Mississippi	48	Utah	19
Lousiana	45	Vermont	27
New York	36	Wisconsin	32
Texas	36	Wyoming	29
average	37.7*	average	29.3*

^★Based on a one-tailed T-test, the means are significantly different at p = 0.0005
Based on these data, moral decline, not laissez-faire capitalism, is a major cause of income inequality in America.  Conservatives have been saying this for years, but when University of Pennsylvania professor Amy Wax defended "bourgeois values" in 2017, the National Lawyers Guild denounced her column as "a textbook example of how white supremacy and cultural elitism are used to denigrate the poor and sustain the gross wealth inequality that defines American capitalism."  This statement is a textbook example of virtue-signaling at the expense of cold, hard facts.
To discredit opponents of "living wages," James Kwak conjures up straw men that "abstract away the (harsh) reality of low wage work."  Nevertheless, with no hint of self-awareness, Kwak cavalierly "balances" the hardship of "some people" losing their jobs against the "benefit of greater earnings for other low-income workers."
The law of supply and demand is like the law of natural selection.  It does not care how much you are suffering or how much you "deserve."  This is why almost everyone agrees that some kind of safety net is necessary.  But the alleviation of poverty does not justify increasing taxes on the wealthy in order to "narrow" the wealth gap.
John Adams warned against the moral hazard of wealth redistribution:

If "Thou shalt not covet" and "Thou shalt not steal" were not commandments of Heaven, they must be made inviolable precepts in every society before it can be civilized or made free.

When Pope Francis wrote in his 2013 apostolic exhortation that "inequality is the root of social ills" and that "inequality spawns violence," he inverted the commandments against coveting and stealing by shifting the moral burden to the property-owner.  To narrow the wealth gap, the pope recommended "a vigorous change of approach on the part of political leaders."  If government is the solution to inequality, why are less affluent Americans fleeing in droves from nearly all the states on the left columns of Tables 1 and 2?
Coveting and stealing are natural impulses.  Respect for property is a learned value that requires moral restraint.  If voters from these states revisit the Ten Commandments and reject false teachings about the "evils" of inequality, the hardships that compelled so many residents to leave will be minimized.  Unfortunately, natural impulses are hard to resist, especially when religious authorities join forces with the media to enable them.

Read more: https://www.americanthinker.com/articles/2019/05/the_truth_about_what_causes_income_inequality_in_america.html#ixzz5oxpdHbxo
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