Do Progressive Policies Cause Income Inequality?

Over at the City Journal, they published one of my articles on Saturday, titled "What Causes Income Inequality?  Progressive Policies Do."  The article was then linked by Real Clear Politics, and proceeded to attract a lot of readers and comments.

Reading the comments, I thought that many of the commenters had at least partially missed the point of the article.  In part that may be due to the title (which I didn't write).  What some commenters seemed to have concluded was that I was arguing that without "progressive policies" (like affordable housing, high minimum wage, and in-kind distributions such as Medicaid and food stamps) there would be no income inequality.  No, I would not say that.  But I would say that those policies, supposedly designed to address and ameliorate income inequality, actually make it worse, at least as measured by standard measures such as the Gini coefficient.

The point is important because progressive politicians, like our Mayor Bill de Blasio, use the government income inequality measures to prove the existence of inequality and to advocate for additional government action to address it -- more affordable housing, higher minimum wages, expanded Medicaid and food stamp eligibility.  Yet somehow the measures of inequality, particularly the Gini coefficient, do not move toward greater equality in the jurisdictions that adopt more of the progressive policies.

Actually, it's the opposite.  The jurisdictions in the U.S. with the most progressive state and local governments -- and the most public housing, the highest Medicaid and food stamp usage, and the premium minimum wages -- are the jurisdictions with the highest Gini coefficients, indicating the greatest income inequality.  As the article points out, Bloomberg Rankings did a study last year that ranked all Congressional Districts by Gini coefficient, and the results were eye-opening. Of the top (most unequal) 25 Congressional districts, 23 were represented by Democrats, and they included literally all the most progressive districts in the country:  all five Manhattan districts,  plus districts covering downtown Chicago, Cambridge, Berkeley, Santa Monica, and of course Nancy Pelosi's San Francisco district.  The very highest Gini coefficient of all is found in the New York 10 Congressional district, covering the Upper West Side of Manhattan, Greenwich Village, and the Financial District.  Bill de Blasio's office (City Hall) is in this district.

And it's not hard to understand why more government redistribution leads to higher and still higher income inequality.  It's because little to none of the redistributed goodies counts as income.  Nobody counts the value of a Medicaid benefit as income, and the government doesn't count it either.  In New York, the Medicaid benefit costs the taxpayers about $10,000 per beneficiary per year, $40,000 for a family of four.  Nobody counts the subsidy value of an "affordable" apartment either.  In New York the rent discount on many "affordable" apartments exceeds $50,000 per year; for some it exceeds $100,000 per year.  (We have low income projects lining miles of prime oceanfront, and more miles along the East River!)

So thousands of families get income redistributions exceeding $100,000 per year in cost to the taxpayers, only to find that they are still "poor."  And they really are poor.  They may live in an apartment that someone else would gladly pay $50,000 per year to rent; they may get first class medical care (Medicaid); and they may have plenty to eat (food stamps).  But they have little to no discretionary money to spend and they are at risk of having their benefits yanked at any time if they dare to go out and try to make some money of their own and become independent of their government masters.

So next up is the push for a $15 minimum wage.  In Puerto Rico they have a minimum wage at about 70% of median wage, and they have lost 20 points of labor force participation (42% versus 62% on the mainland).  How could following their lead do anything other than drive the Gini coefficIent through the roof?