The Truth about What Causes Income Inequality in America

In a 2017 article in the Atlantic titled "The Curse of Econ 101," author James Kwak defends increasing the minimum wage as a means to address income inequality.  Here is a sample of Mr. Kwak's reasoning skills:

Although the standard model predicts that employers will replace workers with machines if wages increase, additional labor-saving technologies are not available to every company at a reasonable cost. Small employers in particular have limited flexibility; at their scale, they may not be able to maintain their operations with fewer workers. Therefore, some companies can't lay off employees if the minimum wage is increased.

What will small businesses with "limited flexibility" do when wage hikes eliminate their profit margins?  Only someone with no clue on how to run a business would have written something so asinine.

Since income inequality is so important to progressives, maybe they should find out which states have done a better job of addressing this "grave injustice."

Zippia (a website for employers and job hunters) compiled data to calculate Gini scores for all states from 2012 to 2016.  The Gini Coefficient has been used since 1912 to quantify income inequality.  Values range from 0 (perfect equality) to 100 (perfect inequality).  Based on data from the publication 24/7 Wall St. and Forbes, there is no evidence that government policies for spreading the wealth or restricting business freedom have narrowed the wealth gap (Tables 1 and 2):

Table 1: Income redistribution and income inequality.

States doing the most in 2011

Gini coefficient (2012-2016)

States doing the least in 2011

Gini coefficient (2012-2016)

Alaska

42.60

Alabama

47.69

California

48.80

Arizona

46.82

Connecticut

49.47

Arkansas

47.08

Hawaii

43.69

Florida

48.52

Massachusetts

48.26

Idaho

44.57

Minnesota

44.90

Indiana

44.94

New Jersey

47.82

Oklahoma

46.52

New York

51.02

S. Carolina

46.90

Pennsylvania

46.80

Tennessee

47.86

Rhode Island

47.38

Texas

48.03

average

47.07

average

46.89

Table 2: Business regulatory environment and income inequality.

Worst 10 for

Regulations (2017)

Gini coefficient (2012-2016)

Best 10 for

Regulations (2017)

Gini coefficient (2012-2016)

California

48.80

Florida

48.52

Connecticut

49.47

Georgia

48.16

Delaware

44.88

Indiana

44.94

Hawaii

43.69

Iowa

44.22

Maine

45.15

Nebraska

44.20

Maryland

45.13

North Carolina

47.48

New Jersey

47.82

South Carolina

46.90

Rhode Island

43.38

Tennessee

47.86

Vermont

44.35

Utah

42.61

West Virginia

46.21

Virginia

46.73

average

46.89

average

46.16

If government programs have not diminished inequality, maybe we should focus our efforts on some of the root causes.  Data on single parenting trends from the Kids Count data center provides a clue (Table 3).  This difference becomes more prominent when the sources are switched (Table 4):

Table 3: Family breakdown and income inequality.

Highest 10 for

Single Mothers

(2015)

Gini coefficient (2012-2016)

Lowest 10 for

Single Mothers

(2015)

Gini coefficient (2012-2016)

Alabama

47.69

Colorado

45.90

Delaware

44.88

Idaho

44.57

Florida

48.52

Minnesota

44.90

Georgia

48.16

Montana

45.87

Louisiana

49.03

Nebraska

44.20

Mississippi

47.99

North Dakota

45.86

Nevada

45.22

Utah

42.61

New Mexico

47.54

Vermont

44.35

Rhode Island

47.38

Washington

45.60

South Carolina

46.90

Wyoming

42.79

average

47.33*

average

44.67*

Based on a one-tailed T-test, the means are significantly different at p = 0.0001.

Table 4: Income inequality and family breakdown.

10 highest Gini scores (2012-2016)

% Single Mothers

10 lowest Gini scores (2012-2016)

% Single Mothers

California

34

Alaska

34

Connecticut

32

Hawaii

31

Florida

40

Iowa

30

Georgia

39

Nebraska

29

Illinois

34

New Hampshire

30

Massachusetts

33

South Dakota

32

Mississippi

48

Utah

19

Lousiana

45

Vermont

27

New York

36

Wisconsin

32

Texas

36

Wyoming

29

average

37.7*

average

29.3*

Based on a one-tailed T-test, the means are significantly different at p = 0.0005

Based on these data, moral decline, not laissez-faire capitalism, is a major cause of income inequality in America.  Conservatives have been saying this for years, but when University of Pennsylvania professor Amy Wax defended "bourgeois values" in 2017, the National Lawyers Guild denounced her column as "a textbook example of how white supremacy and cultural elitism are used to denigrate the poor and sustain the gross wealth inequality that defines American capitalism."  This statement is a textbook example of virtue-signaling at the expense of cold, hard facts.

To discredit opponents of "living wages," James Kwak conjures up straw men that "abstract away the (harsh) reality of low wage work."  Nevertheless, with no hint of self-awareness, Kwak cavalierly "balances" the hardship of "some people" losing their jobs against the "benefit of greater earnings for other low-income workers."

The law of supply and demand is like the law of natural selection.  It does not care how much you are suffering or how much you "deserve."  This is why almost everyone agrees that some kind of safety net is necessary.  But the alleviation of poverty does not justify increasing taxes on the wealthy in order to "narrow" the wealth gap.

John Adams warned against the moral hazard of wealth redistribution:

If "Thou shalt not covet" and "Thou shalt not steal" were not commandments of Heaven, they must be made inviolable precepts in every society before it can be civilized or made free.

When Pope Francis wrote in his 2013 apostolic exhortation that "inequality is the root of social ills" and that "inequality spawns violence," he inverted the commandments against coveting and stealing by shifting the moral burden to the property-owner.  To narrow the wealth gap, the pope recommended "a vigorous change of approach on the part of political leaders."  If government is the solution to inequality, why are less affluent Americans fleeing in droves from nearly all the states on the left columns of Tables 1 and 2?

Coveting and stealing are natural impulses.  Respect for property is a learned value that requires moral restraint.  If voters from these states revisit the Ten Commandments and reject false teachings about the "evils" of inequality, the hardships that compelled so many residents to leave will be minimized.  Unfortunately, natural impulses are hard to resist, especially when religious authorities join forces with the media to enable them.

Antonio Chaves teaches biology at a local community college.  His interest in economic and social issues stems from his experience teaching environmental science.

In a 2017 article in the Atlantic titled "The Curse of Econ 101," author James Kwak defends increasing the minimum wage as a means to address income inequality.  Here is a sample of Mr. Kwak's reasoning skills:

Although the standard model predicts that employers will replace workers with machines if wages increase, additional labor-saving technologies are not available to every company at a reasonable cost. Small employers in particular have limited flexibility; at their scale, they may not be able to maintain their operations with fewer workers. Therefore, some companies can't lay off employees if the minimum wage is increased.

What will small businesses with "limited flexibility" do when wage hikes eliminate their profit margins?  Only someone with no clue on how to run a business would have written something so asinine.

Since income inequality is so important to progressives, maybe they should find out which states have done a better job of addressing this "grave injustice."

Zippia (a website for employers and job hunters) compiled data to calculate Gini scores for all states from 2012 to 2016.  The Gini Coefficient has been used since 1912 to quantify income inequality.  Values range from 0 (perfect equality) to 100 (perfect inequality).  Based on data from the publication 24/7 Wall St. and Forbes, there is no evidence that government policies for spreading the wealth or restricting business freedom have narrowed the wealth gap (Tables 1 and 2):

Table 1: Income redistribution and income inequality.

States doing the most in 2011

Gini coefficient (2012-2016)

States doing the least in 2011

Gini coefficient (2012-2016)

Alaska

42.60

Alabama

47.69

California

48.80

Arizona

46.82

Connecticut

49.47

Arkansas

47.08

Hawaii

43.69

Florida

48.52

Massachusetts

48.26

Idaho

44.57

Minnesota

44.90

Indiana

44.94

New Jersey

47.82

Oklahoma

46.52

New York

51.02

S. Carolina

46.90

Pennsylvania

46.80

Tennessee

47.86

Rhode Island

47.38

Texas

48.03

average

47.07

average

46.89

Table 2: Business regulatory environment and income inequality.

Worst 10 for

Regulations (2017)

Gini coefficient (2012-2016)

Best 10 for

Regulations (2017)

Gini coefficient (2012-2016)

California

48.80

Florida

48.52

Connecticut

49.47

Georgia

48.16

Delaware

44.88

Indiana

44.94

Hawaii

43.69

Iowa

44.22

Maine

45.15

Nebraska

44.20

Maryland

45.13

North Carolina

47.48

New Jersey

47.82

South Carolina

46.90

Rhode Island

43.38

Tennessee

47.86

Vermont

44.35

Utah

42.61

West Virginia

46.21

Virginia

46.73

average

46.89

average

46.16

If government programs have not diminished inequality, maybe we should focus our efforts on some of the root causes.  Data on single parenting trends from the Kids Count data center provides a clue (Table 3).  This difference becomes more prominent when the sources are switched (Table 4):

Table 3: Family breakdown and income inequality.

Highest 10 for

Single Mothers

(2015)

Gini coefficient (2012-2016)

Lowest 10 for

Single Mothers

(2015)

Gini coefficient (2012-2016)

Alabama

47.69

Colorado

45.90

Delaware

44.88

Idaho

44.57

Florida

48.52

Minnesota

44.90

Georgia

48.16

Montana

45.87

Louisiana

49.03

Nebraska

44.20

Mississippi

47.99

North Dakota

45.86

Nevada

45.22

Utah

42.61

New Mexico

47.54

Vermont

44.35

Rhode Island

47.38

Washington

45.60

South Carolina

46.90

Wyoming

42.79

average

47.33*

average

44.67*

Based on a one-tailed T-test, the means are significantly different at p = 0.0001.

Table 4: Income inequality and family breakdown.

10 highest Gini scores (2012-2016)

% Single Mothers

10 lowest Gini scores (2012-2016)

% Single Mothers

California

34

Alaska

34

Connecticut

32

Hawaii

31

Florida

40

Iowa

30

Georgia

39

Nebraska

29

Illinois

34

New Hampshire

30

Massachusetts

33

South Dakota

32

Mississippi

48

Utah

19

Lousiana

45

Vermont

27

New York

36

Wisconsin

32

Texas

36

Wyoming

29

average

37.7*

average

29.3*

Based on a one-tailed T-test, the means are significantly different at p = 0.0005

Based on these data, moral decline, not laissez-faire capitalism, is a major cause of income inequality in America.  Conservatives have been saying this for years, but when University of Pennsylvania professor Amy Wax defended "bourgeois values" in 2017, the National Lawyers Guild denounced her column as "a textbook example of how white supremacy and cultural elitism are used to denigrate the poor and sustain the gross wealth inequality that defines American capitalism."  This statement is a textbook example of virtue-signaling at the expense of cold, hard facts.

To discredit opponents of "living wages," James Kwak conjures up straw men that "abstract away the (harsh) reality of low wage work."  Nevertheless, with no hint of self-awareness, Kwak cavalierly "balances" the hardship of "some people" losing their jobs against the "benefit of greater earnings for other low-income workers."

The law of supply and demand is like the law of natural selection.  It does not care how much you are suffering or how much you "deserve."  This is why almost everyone agrees that some kind of safety net is necessary.  But the alleviation of poverty does not justify increasing taxes on the wealthy in order to "narrow" the wealth gap.

John Adams warned against the moral hazard of wealth redistribution:

If "Thou shalt not covet" and "Thou shalt not steal" were not commandments of Heaven, they must be made inviolable precepts in every society before it can be civilized or made free.

When Pope Francis wrote in his 2013 apostolic exhortation that "inequality is the root of social ills" and that "inequality spawns violence," he inverted the commandments against coveting and stealing by shifting the moral burden to the property-owner.  To narrow the wealth gap, the pope recommended "a vigorous change of approach on the part of political leaders."  If government is the solution to inequality, why are less affluent Americans fleeing in droves from nearly all the states on the left columns of Tables 1 and 2?

Coveting and stealing are natural impulses.  Respect for property is a learned value that requires moral restraint.  If voters from these states revisit the Ten Commandments and reject false teachings about the "evils" of inequality, the hardships that compelled so many residents to leave will be minimized.  Unfortunately, natural impulses are hard to resist, especially when religious authorities join forces with the media to enable them.

Antonio Chaves teaches biology at a local community college.  His interest in economic and social issues stems from his experience teaching environmental science.