We’re All To Blame For Income Inequality

Matt K. Lewis Senior Contributor
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President Obama will call on tax hikes for top earners, coupled with other measures designed to help the middle class, during his upcoming State of the Union address. Regardless of the merits of these proposals (and I suspect there are pros and cons), this is a smart political fight to pick.

Which is to say, it’s utterly cynical. Congress won’t go along with these proposals, but this positions Obama as a populist — and reinforces the “income inequality” message Democrats hope to use to frame the 2016 elections. (It’s also another example of Obama shrewdly focusing on helping the middle class, even though reports that middle class income has remained stagnant for decades are a bit misleading.)

That’s not to say the middle class isn’t struggling, but using this opportunity to advance his “class warfare” message is simplistic and divisive. This isn’t a conspiracy; one of the main factors is that “American industry is becoming more productive and efficient — a good thing, except that it means we can create more stuff with fewer workers.”

And when it comes to the issue of income inequality, it’s fair to say that we the people are partly to blame. As the Atlantic’s Derek Thompson noted back in November, “In the last 30 years, the savings rate of  [the bottom 90 percent of Americans] has fallen from 6 percent to negative-4 percent. It now hovers a whisker away from zero. The rich are different. They save.”

But here’s the nut graph: “If the bottom 90 percent had continued to save 3 percent of its income over the 1986-2012 period, its share of US wealth would be a third higher than it is today.” (Bold mine.)

That’s right, we’re all to blame. Yet while populists on the left and right will solely demagogue big business and/or big government (populists are generally against bigness) I can essentially predict that zero politicians will be willing to tell us the truth: Some of this is our own fault.

Lack of savings is a real problem, and not only because of the missed opportunity to earn interest. Not having a nest egg greatly exacerbates the income inequality problem. Back in December, I read an excerpt of Linda Tirando’s Hand to Mouth: Living in Bootstrap America. In it, she recalls a time when her car got towed, but she couldn’t come up with the hundreds of dollars to get it back until her next paycheck. By the time she scraped together enough money, the price had gone up to thousands of dollars (they charged exorbitant storage fees). Without reliable transportation, she and her husband lost their jobs, and then, their apartment…

A person who had savings could have avoided this entire ordeal by throwing down a couple hundred bucks. Instead, it ended up costing her a truck, a job, and an apartment. 

It’s truly ironic that poor people end up paying more for things than rich people.

But it’s not just the poor (whom we can forgive for living hand to mouth), middle class people, to a lesser degree, suffer a similar fate. We might not lose our jobs, but we do end up paying more for less. The game is rigged, yes, but not in the way we think. It’s rigged, at least, in part because middle class people no longer save (in fact, we borrow), and thus, pay more for less. (When your car breaks down, you might not lose it. Instead, you will charge it on your credit card.)

So the next time you want to complain about income inequality, feel free to blame increased efficiency, robots, immigrants, and globalization. And you can also feel free to lament the fact that carried interest is taxed at a lower rate than ordinary income. But while you’re doing all that, maybe devote some time to the fact that our consumerist, materialist culture is largely to blame. And then, maybe sock a few bucks away for the next “emergency.”

Matt K. Lewis