Trying to close the income gap just doesn’t work

There’s been a lot of ink spilled in Canadian papers lately regarding the supposedly growing disparity of wealth amongst the citizenry.

There’s been a lot of ink spilled in Canadian papers lately regarding the supposedly growing disparity of wealth amongst the citizenry.

Apparently we’re to be concerned with the fact that some people become wealthy and some don’t. So much so that some form of government intervention into the wealth of some families might be required.

Invariably, those concerned with income inequality have been pointing to European riots and suggesting that, unless we take steps in Canada to narrow the gap between the wealthiest of us and the less fortunate, these very same fates will befall us.

The basis for concern over income inequality boils down to the fact that since 1990, virtually all growth in household wealth in Canada has occurred within the top 20 per cent of income earners.

For the past couple of weeks, the Conference Board of Canada, a slightly left of centre economic think tank, has been sounding the alarm over this economic news as though it had discovered aliens among us.

The problem with this alarmism is that it’s been largely devoid of context and analysis.

That’s where I come in.

First off, at what income level do you suppose you need to be to gain entry into the top 20 per cent club? Would it surprise you to know that $100,000 in annual family income gets you into that supposedly exclusive club? Well, it does.

A big demographic lump of baby boomers hit their peak wealth-acquisition years around 1990, and have since reaped the benefits of high returns on stock markets and in real estate values.

The fact that $100,000 in family income gets you into the top fifth of income earners isn’t as much a sign of some ill-defined social injustice as it is a sign of a healthy economy and ease of economic mobility.

Further, the bulk of those top 20 per cent earn between $100,000 and $200,000 annually. Very precious few of us ever break the $200,000 mark. In the meantime, we do get to pay the bulk of our nation’s taxes.

Somehow, that economic inequality doesn’t seem to be an injustice.

There is little mention from the Conference Board of the growing wealth gap between those of us who pay taxes and those of us who earn them, either. Since 1990 — and even earlier— the amount of wealth held by those who toil in the public sectors has increased at a rate that puts private sector wealth growth to shame.

This is partly the result of income growth at a higher rate than in the private sector, and mostly the result of shifts in pension wealth that greatly favour the public sector, at the direct expense of the private sector workers who bankroll those public pensions.

The biggest problem with the Conference Board’s alarmism, though, is the underlying call for more government intervention and re-distribution of wealth, as though that will somehow forestall greater social ills such as those that are plaguing Europe right now.

You see, in spite of being an economic think tank, the Conference Board of Canada apparently doesn’t do its homework.

If it had, it would have also reported that government attempts at wealth redistribution inevitably lead to even more income inequality. Hence, Great Britain’s welfare state has created entrenched, multi-generational welfare dependency, yet skilled immigrants from Eastern Europe have no trouble finding good paying construction jobs in England. California, with 12 per cent of the American population and the most generous welfare benefits in the United States, is home to 30 per cent of America’s welfare recipients.

In example after example, state intervention in the economy leads to greater income disparities, not less. The simple availability of unearned money leads some to eschew work. Those without work have no ability to move up the income ladder, and multiple studies have shown that the threshold at which availability of social welfare benefits lead to long term and endemic unemployment is surprisingly low.

Atlantic Canada, anyone?

Further to the point, government attempts at wealth redistribution, even if modestly successful, exacerbate unemployment, which leads to a fundamental question: Which is the greater evil: long-term, endemic unemployment or income disparities that naturally arise from a healthy private sector economy?

The riots which have plagued Greece, France, and England this summer are not the result of income disparities from capitalism. The Greeks and the French have rioted to protest the intrusion of economic realities from which their nanny states have isolated them, and the British rioted simply because so many of them have been coddled by the nanny state for so long, they have no concept of the value of work, or the property of others.

Bill Greenwood is a local freelance columnist.