To listen to the voices on the Left, income inequality is a big problem, and the government needs to fix it promptly. But do government programs to aid poor and low-income people actually increase or decrease income inequality as measured by government statistics? The answer is, they increase it. Does that seem counter-intuitive? Maybe, but it's clearly true. Of course, this is excellent news for the politicians and bureaucrats who make a living using government statistics to advocate for more money for the government and for their programs.
One can find multiple examples on any given day, but I'll give a couple of current examples of voices calling for government action to fix the crisis of income inequality. Our new Democratic candidate for Mayor, Bill de Blasio, made exactly that the central theme of his just-concluded victorious campaign for the nomination. His core campaign document is titled "One New York, Rising Together." Its introductory paragraphs identify the "crisis of income inequality" as the problem that must be "at the center of our vision":
Nearly 400,000 millionaires call New York home, while nearly half of our neighbors live at or near the poverty line. Our middle class isn’t just shrinking; it’s in danger of vanishing altogether. Addressing the crisis of income inequality isn’t a small task. But if we are to thrive as a city, it must be at the
very center of our vision for the next four years.
Or, to take just one of many, many examples from the New York Times, here is what Frank Bruni had to say in his op-ed column in yesterday's election day edition:
It is indeed the case that income inequality in New York city has worsened during the Bloomberg years, to an extent that's morally unacceptable and perhaps socially untenable.
Well, if income inequality is indeed a "crisis" and "morally unacceptable," why do these people propose so-called solutions that will clearly make the problem worse, at least as measured by the same statistics they themselves are using to define the problem in the first place?
When you go through de Blasio's document, you find out that he covers three main areas of income redistribution programs: "food security" programs, "affordable housing" programs, and medical care programs. He thinks all of these programs should be grown and strengthened. But something is immediately obvious: all of the programs are in-kind distributions. Therefore, none of the spending on these programs counts as income to the recipients, and none of the spending serves to reduce "income inequality" as measured by the government statistics to even the slightest degree.
But it's worse than that. The existence of the programs creates strong incentives that have the effect of greatly increasing measured income inequality. Measured income inequality is to a large degree a function of family definition, and these programs cause families to redefine themselves to qualify for the programs.
Consider a family of four, father, mother, and two children. Father makes $50,000 a year. This is a middle class family. It does not qualify for food stamps or low income public housing, and probably not for Medicaid. (I'm not so sure after the upcoming Obamacare expansion of Medicaid.) Suppose these people realize that they can enhance their well-being by continuing with the income but also collecting on the in-kind programs. Husband moves out. Now we have one person with a middle-class income, and three in abject poverty, with no measured income. If the father gives substantial funds to the family, it will almost certainly be done in a way not captured by the statistics, so no change. Now the mother and two kids qualify for food stamps, housing and Medicaid, and they go out and collect it. None of it counts in the measures of income inequality, so we still have one middle class guy and three people in abject poverty. And that will continue to be true no matter how much spending may be increased on public housing, food security, and Medicaid.
So the result of the programs in the real world of physical well being is that we previously had a middle class family with a $50,000 income, and now we have four people with the same combined $50,000 middle class income and also food stamps, public housing and Medicaid. But in the world of government income statistics, we previously had a family of four with $50,000 income, therefore all solidly middle class, and now we have one guy with a $50,000 income and three people with zero income, therefore in deep "poverty."
That's for that one family. To the extent that spending on the in-kind programs is substantially increased, it is highly likely that more families that have so far resisted getting into the separate-and-collect mentality will cross the line and take the handouts. And thus will measured income inequality increase., even as the income redistribution programs expand.
You can be sure that de Blasio and the city bureaucracy will use the coming increase in measured income inequality to advocate for yet more increased funding for the in-kind redistribution programs. Are we really so stupid to keep getting taken in by this?