Are increases in wealth inequality the awful thing that Democrats claim? It depends on what causes them. Much of the recent modest rise in wealth inequality stems from innovations in our economy that are pulling everyone up. Brian Acton and Jan Koum, for example, built huge multibillion dollar fortunes by creating WhatsApp, which provides free phone service for 1.5 billion users globally.
Acton and Koum’s success may have increased the wealth owned by the top 1 percent, but their product has created massive consumer value as well. Most of the wealthiest Americans are entrepreneurs who have fueled economic growth, which is clear in examining the Forbes 400 list. Wealth created this way is not the zero-sum struggle that Democrats imagine it is.
That is the good news. The bad news is that the government itself generates wealth inequality in at least two ways that make us worse off. First, governments give subsidies, regulatory preferences, and other crony-capitalist benefits to wealthy insiders. …
… The other way that the government fuels wealth inequality is a deeper scandal. The expansion of social programs over the decades has undermined incentives for lower- and middle-income families to save while reducing their ability to save because of higher taxes. Government programs have displaced or “crowded out” wealth-building by all American families but the richest.
Politicians complain loudly about wealth inequality, but their own policies are generating it. This issue receives too little policy attention, but it is profoundly important and reveals the hypocrisy of the political left.