Why Obama's obsession with 'inequality' is misguided

Robert Grady, writing in the Wall Street Journal, has some surprising push back against the president and the left who have latched on to the issue of "income inequality" in recent years.

In his widely noted speech, President Obama said that "a dangerous and growing inequality and lack of upward mobility" is "the defining challenge of our time." This belief makes Mr. Obama unique: Unlike the other presidents since World War II, he places inequality above economic growth as the organizing principle of U.S. economic policy. The president's Dec. 4 speech, at an event hosted by the Center for American Progress, also stressed that increasing inequality is a "decades-long trend"-which carries with it the strong implication that the country needs to reverse the direction it has taken for the last three decades. But like so many of his other pronouncements, the assumptions behind his defining challenge are misleading.

Virtually all of the data cited by the left to decry the supposed explosion of income inequality, as Lee Ohanian and Kip Hagopian point out in their seminal paper, "The Mismeasure of Inequality" (Policy Review, 2011), use a Census Bureau definition of "money income" that excludes taxes, transfer payments like Medicaid, Medicare, nutrition assistance, the Earned Income Tax Credit, and even costly employee benefits such as health insurance.

Thus the data that is conventionally used to calculate the so-called Gini coefficient-the most commonly used measure of income inequality-ignore America's highly progressive income tax system and the panoply of benefits and transfer payments. According to Messrs. Ohanian and Hagopian, once the effect of taxes and transfer payments is taken into account, "inequality actually declined 1.8% during the 16-year period between 1993 and 2009, when the Gini coefficient dropped from .395 to .388."

In his speech, Mr. Obama cited a recent study from economists at Columbia University that found that already enacted benefits and tax programs have reduced America's effective poverty rate by 40% since 1967-to 16% from 26%. But he ignores all this when he claims that inequality is increasing.

The Columbia study shows that Messrs. Ohanian and Hagopian's research is hardly an outlier. The Congressional Budget Office released a study that came to a similar conclusion in October 2011. The CBO study picked an artificial starting point of 1979, amid a crushing period of stagflation. Yet it still showed that family income, including benefits, on average experienced a 62% gain above inflation from 1979 to 2007. It also showed that all five quintiles of the income distribution spectrum experienced real gains in family income.

The United States was born divided along the lines of those who believed equality should be the goal of society and those who thought opportunity should dominate. This has been the push-pull of American civil society since we became a nation.

Obama has seized an issue that is a metaphor for this tension, and in the process, has dishonestly sought to use it as an excuse to promote his redistributionist policies.

The botton line is that Obama and his leftist allies simply believe that some Americans have too much money. They couch their animus toward the rich in class warfare terms, but the reality is simpler; they're jealous of other people's success.They feel themselves more deserving than those whose ideas, or intelligence, or simple dumb luck brought them success.

The massive growth of government has meant that transfer payments to the poor and the Middle Class have increased while taxes have decreased for the bottom 50%. The rich have gotten richer, but so have the poor and the Middle Class.

If everyone is improving their economic station in life, what's the beef?