I’ve repeatedly argued that faster growth is the only effective way of helping the less fortunate. Class warfare and redistribution, by contrast, are not effective. Such policies are based on the fallacy that the economy is a fixed pie, and proponents of this view fixate on inequality because they mistakenly believe additional income for the rich means less for the poor.
The Census Bureau recently released its annual report on Income and Poverty in the United States. That publication includes data showing annual inflation-adjusted earnings by income quintile between 1967-2017.
To see if my left-leaning friends are right about the rich getting richer at the expense of the poor, I calculated the annual percent change for each quintile. Lo and behold, the data actually show a very clear pattern of how all income quintiles tend to rise and fall together.
The lesson is clear. If you want policies that help the poor, those also will be policies that help the middle class and rich. And if you hate the rich, you need to realize that policies hurting them will almost certainly hurt the less fortunate as well.
One other lesson is that all income quintiles did particularly well during the 1980s and 1990s when free-market policies prevailed.
P.S. Many people (including on the left) have pointed out that the Census Bureau’s numbers under-count compensation because fringe benefits such as healthcare are excluded. This is a legitimate complaint, but it does not change the fact that all income quintiles tend to rise and fall together. For what it’s worth, adding other forms of compensation would boost lower quintiles compared to higher quintiles.
Daniel J. Mitchell, chairman of the Center for Freedom and Prosperity, is on the Editorial Board of the Cayman Financial Review.