How Big Government Drives Inequality

It is commonly known that in America, median incomes have been dropping while high end incomes have been increasing during the recession. Although many are not aware of this fact, big government has concentrated income and wealth in fewer hands—many of these hands have actually been in the government, itself. It costs money to run big government agencies and their spin-off supporters.

During the Reagan administration, government regulations were minimized; and taxes were lowered. The economy grew faster than 7% in real terms for five quarters in a row starting in the second quarter of 1983. Gross domestic product grew on average 4.6% per year in real terms during the 1983-88 expansion while real median incomes grew 2.1%

Since the Reagan years, growth in the economy has faded while the government has increased its control over the economy and national income. Top federal income tax rates have risen to 44% today from 28% in 1988. The dollar has weakened and consumer prices have doubled in the past 25 years. Federal nondefense spending has nearly quadrupled to $2.8 trillion in 2013 from $750 billion in 1988. This has caused a huge increase in national debt, because the population is not paying its way in the economic world.

New businesses are not being created at the usual rate according to the Labor Department’s Employment Dynamics report. Real GDP growth has averaged a weak 2.3% over the past three years, while real median incomes have fallen 0.6% per year.

Government expansions have harmed individuals with modest incomes while exempting or benefiting people with higher incomes. These include federal takeover of the mortgage industry, siphoning the profit from Fannie Mae and Freddie Mac directly to the government, because the government has purchased housing-related bonds from those entities. Money to run the government has also come from money printed by the Federal Reserve, presently in the amount of $85 billion/month. These money windfalls are promptly used to further accumulate wealth and income for those people hired directly or indirectly by the government. The money certainly does not come to people hiring and running small businesses!

The Affordable Care Act is the latest huge government insult. Of course, the government knows how patently unfair the ACA is. This can be seen, because it carefully insulates Congress, government corporations, and unions from having to buy into that big program.

The recent budget deal cooked up by Congress and the Administration has divided up $1.1 trillion, much of which will benefit those with high incomes while the extra debt falls on the middle class.

Personally speaking, Nancy and I have some of our money invested in the equity market; and, as a result, the recession has not hurt us much. We have seen our net worth remain steady. But…the net worth of others in the economy who have less capital has not fared so well. We greatly fear that our children and grandchildren are going to suffer from this “progressive,” liberal, economy. It will take more than good luck for this economic situation to turn in their favor!

(Redacted from the Wall Street Journal opinion pages 1/17/14.)