A Lack of Growth, Not Inequality, Is the Problem

Liberals have contorted an effect of America's slow economy into its cause. However misperceiving reality does not change it, but simply delays our ability to successfully confront it. Such is the case if we focus on income inequality instead of the slow overall growth that is exacerbating it.

There are ample reasons for America's economic concerns. For almost nine years, real GDP growth has not matched 2006's 2.7% increase. During this time annual growth has averaged 1.4%. Unemployment is currently 5%, but only because labor force participation is down too (62.4%). If participation equaled 2006's level (66.2%), today's unemployment rate would be twice as high.

Amidst the general concern over this stubbornly slow growth, liberals have a particular one: Income inequality. It is unsurprising that they seize on this as the economy's prevailing problem. The left sees free market competition as inherently inefficient and unfair. For them, it as a zero-sum system; that it is one with fewer - but bigger - winners, and more - but bigger - losers, simply validates their original verdict.

Liberals are unlikely to be persuaded by the obvious observation: income inequality is rather simply, if also miserably, cured. This is what the late and unlamented communist regimes succeeded so mightily in - an equality of poverty for all but their ruling political class.

Likewise, liberals are unlikely to be persuaded by evidence that a slowing economy produces the income inequality they bemoan.

A slow economy creates a first-out/last-in squeeze on its most marginal producers and workers. The process results in their ever greater marginalization, which manifests itself in diminished income and greater inequality.

A slowing economy decreases opportunity. As businesses downsize, they do so first among their least productive elements. The longer the slowness, the more hesitant they are to bring back less productive elements. Even when rebound is clear, the least productive are the last brought back.

Between exiting and returning, such workers miss the opportunity to gain new skills - while those remaining do so - and see existing skills atrophy and become outdated. The longer the duration, the greater the effect.

Of course such a process exacerbates income inequality - an inequality already existing due to the fewer skills that made these workers more marginal in the first place.

Liberals will try to counter that training can eliminate this gap. However, such an assertion merely reflects the left's bias for the public sector over the private. Contrastingly, productivity's bias is just the reverse.

Liberals want to believe that the private sector's superiority is illusory. That it can be replicated, if not superseded, by the public sector in the form of government grants and training programs. Common sense states otherwise.

Training primarily equips a person to get their first job in a field. But it is that first job that leads to the specific experience and training in an organization. It is this specificity that creates real value for an employer.

Simply, training outside the workforce is less dynamic than working inside it. Inevitably, training is done by case study, which makes it years removed from today's actual state of development. Working is immersion in current innovation as it develops and unfolds.

The divide between the two is more profound than that between theory and practice. It is a gulf between past and present - between recitation and innovation. Training at best develops generic skills; working provides the specific, individualized and more highly remunerated ones.

Slow overall growth stalls the entry of the less productive into - and accelerates their exit from - the workforce. No greater cause of a wage gap can exist than the difference between those left out or marginalized in the workforce and those continuing and advancing in it. No obstacle is to be more avoided than a barrier to entering the workforce, and no more remorseless such barrier exists than a slow economy.

Liberals have seized on income inequality as their version of the current economy's flaw because it both shifts the focus of blame from their policies, and seemingly justifies a greater pursuit of those policies - higher spending, higher taxes, and more regulation - in the cause of redistribution.

In doing so, they have not just reversed effect and cause, but cure and culprit. Far from ameliorating the effects of income inequality, the left's policies have created the slow growth that most exacerbates it. This is where we now stand, and have stood for almost a decade. We risk a nadir of stagnation worthy of Atlas Shrugged, in which we are all equally impoverished.