Economic inequality, mobility, and the roots of innovation

James Pethokoukis examines for National Review Online readers the harmful impact of efforts to vilify “the rich.”

While reasonable minds can differ on the morality of large income gaps, the evidence shows no correlation between extreme inequality and mobility. Mobility has changed little in the past 40 years, according to new research from the Equality of Opportunity Project. The 60 percent of the people in the Pew/USA Today survey who still believe that most people “who want to get ahead can make it if they’re willing to work hard” are correct. You wouldn’t know that from the president’s speeches, though. Nor would you know that the wealth gap between the 1 percent and the 99 percent has actually narrowed a bit over the past generation.

So it would be helpful to the quality of public debate if Obama presented a fuller and more accurate picture of income inequality. When we depict high-end income inequality as a critical problem, argues Brooking scholar Ron Haskins, “discussion quickly turns to criticizing the rich.”

And to what end? Even higher income taxes? As Haskins points out in a recent report, the top 1 percent of earners pay nearly 40 percent of income taxes, while the bottom 40 percent receive in refundable income-tax credits the equivalent of 5 percent of their salary. America already has an extraordinarily progressive federal tax code by international standards.

Moreover, Obama consistently fails to find any moral or economic distinction between getting rich by creating a new products or services versus taking advantage, for instance, of the federal government’s continued “too big to fail” banking backstop. Nuance matters. So do words.

If Republicans praise the Heroic Entrepreneur and Innovator a tad too much, the Obamacrats seem overly dismissive. As economist Deirdre McCloskey has argued, it was the West’s transformation into a business-admiring civilization that ignited the Industrial Revolution and innovation capitalism.

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