There has been much hand-wringing on the left about inequality. We are told by the media that the American dream is dead, that the rich get richer while the poor get poorer. Is the American dream dead?
43% of Americans born into the bottom quintile of wealth stay there as adults. 40% of Americans born into the top quintile will stay in the top quintile as adults. This of course means that 57% of the bottom will rise out of the bottom, 4% of them reaching the top (and conversely, that 60% of the top will fall, 8% of them to the bottom.) Is this really the full picture of inequality?
Consider that quality of life in absolute terms has continued to go up. Being poor in 1950, 1960, or even 1990 is not the same experience as it is today. Most of the poor today have things considered luxuries in the recent past such as cellphones, computers, and air conditioning. The median family today has nearly twice the purchasing power than they would have had in 1960. Therefore, absolute income is only a part of the story. The same capitalistic system that rewards those with money with more money also leads to tremendous advancement in quality of life.
Even looking at income alone, 84% of individuals have family income greater than their parents, after adjusting for family size.
Much of this information comes from reports from the Heritage Foundation, a conservative think tank. I did some research to see what the other side is saying about these numbers. Think Progress took on Heritage’s assertion of relative prices by pointing out that education and healthcare costs have risen in relative cost. So let’s analyze this fact for a moment. College costs have in fact risen dramatically faster than inflation. Is this because of greedy capitalists? No, it is precisely the opposite: cheap government money has allowed higher education costs to rise. Healthcare is more complex; costs are rising because we have many more healthcare choices, and technological advancement allows us to live longer and better. Once again, government has also been deeply involved in driving up costs with regulations and controls. Obamacare was sold as a way to provide healthcare for all. The president promised it would lower costs; but so far, the opposite has occurred as choices go down and costs rise.
Meanwhile, the “greedy capitalists” that the left so often points the finger at have brought us cheaper and better goods and services. The poor can afford cellphones that make their lives easier. Most of them can access the internet, many even in their own homes. Information that was once costly to consume is now cheap and easy. Henry Ford grew rich by bringing the average American worker a car he could afford. Steve Jobs did so by revolutionizing products that connect us and entertain us. Products that were once luxuries are now available to almost all.
Healthcare and education need not be exempt from this progress. Technology in healthcare can also bring costs down and increase wellness if we let markets work. Homeschooling is thriving in America; parents today have the ability to bring world-class instruction into their homes through the internet. If we decouple government money from higher education, we will see choices go up and costs go down as institutions are forced to innovate and compete for students.
Much of the philosophical divide in this country comes down to a lack of understanding of economics and capitalism. Progressives fall for the zero-sum fallacy- that there is a set amount of wealth in the world and it can be managed by governments to create more equality. The left uses fairness and inequality arguments to further their socialistic philosophies and grow their power.
The reality is that wealth isn’t fixed; capitalists create wealth by serving their fellow man. The more wealth they create, the more potential relative prosperity for all.
All of us are born with different circumstances, some of us have advantages over others, and we will never have wealth equality in America. Free market capitalism remains the best system to foster income mobility and allow all of us to maximize our potential and live prosperous, productive lives.