The Problem Is Government, Not Income Inequality

For the past 30 years American progressives have complained about income inequality. Nevertheless, the chief source of income inequality has been the policies that progressives advocate: Keyensian economics and government expansion. The expansion of government leads to government borrowing, which facilitates monetary expansion, lower real wages due to inflation, and higher stock-and-bond prices; the results are lower inflation-adjusted wages and higher wealth for wealthy stockholders.

In advocating their low-real-wage, high-stock-price policies, progressives have relied on deceptive argument. They say that more government spending is needed to reduce income inequality in order to bring us back to a 1950s level.  In 1950, it is true, income inequality was lower, but government spending was one third of what it is now.  Tripling government spending has led to higher income inequality.   They also claim that income inequality has been the result of Reagan's policies, which Clinton and Obama have been unable to overturn despite the Democrats' intent to do so.  Reagan's policies were more or less the same as Clinton's and Obama's.  The real hourly wage stopped growing around 1970, ten years before Reagan.  Reagan did not reduce government spending, nor did he overturn the inflationary policies of Johnson and Nixon. In fact, he reinstated them.  The tripling of government spending during the 1960s and 1970s did not lead to lower income inequality now.  It led to declining real hourly wages and higher income inequality.

The New York Times wrote an article that stated that most Americans have less than $10,000 in retirement savings and that a 65 year old who has saved one million dollars, which puts him at the top 10 percent of the wealth distribution, does not have enough money to retire.  Assuming this sorry depiction of the outcome of a century of Progressivism is true, the American economy in its current form has failed.

The expansion of government has prevented expanding life expectancy from being supported by expanding real hourly wages and incomes. The wealth has been transferred to the stock-and-real estate-holding wealthy, to government employees, and to beneficiaries of the welfare state at the expense of wage earners, small manufacturers, innovators, and pensioners.