Exposing the Myth of Big Government as an Ally of the Average Person

by Prof. Patrick Garry:

The argument used by liberals since the New Deal is that a bigger federal government is a necessary aid to the poor and average American.  It is as if government and the private economy represent two, mutually opposed constituencies.  The economy serves the rich and powerful, and government represents the average person. UnitedStates (2)And a bigger and more active government is needed to help the average person, and particularly the poor, hold their place in society. Therefore, anyone who opposes a growing and more powerful federal government opposes the interests of the poor and average American.  This, anyway, has been the liberal argument for the past 80 years.  But when actual government programs are examined, the facts contradict the argument.

The expanse of government has not always translated into an improvement in the lives of average Americans.  This is not to say that all government is bad or ineffectual, or that government needs to be broken down to some nineteenth century model, which would be both impossible and unwise.  Rather, this essay questions the liberal claim that government constitutes the only or the best remedy for many concerns facing the average American.

Big Government Responds to Big Power

The tax code presents a useful example of how big government inevitably favors the more powerful.  Higher tax rates, needed to finance bigger government, are almost always accompanied by loopholes that the wealthy and their lobbyists are most able to exploit.

Consider, for instance, the tax increases implemented under former Illinois Governor Pat Quinn.   A $2 billion tax increase, the largest in Illinois history, was the Democratic legislature’s remedy for a severe budget deficit.  But as soon as the tax increase went into effect for all Illinois businesses, the largest and most influential corporations started cashing in their special tax breaks.  The small and medium-sized business that couldn’t afford lobbyists, however, were stuck paying the higher tax rates.  So the one percent of politically connected businesses prospered at the expense of the 99 percent.

In its political dialogue, the Left denounces big business, so as to curry favor with the average person.  But in practice, the Left often rewards and strengthens big business.  The Dodd-Frank bill is a classic example.  By conferring special benefits on the “too big to fail” institutions, and by imposing huge regulatory costs that small companies are unable to afford – thus giving big corporations a competitive edge – the bill puts big government in partnership with big business.

Liberals do not just regulate business, they subsidize it – or at least, the favored businesses.  Obamacare’s individual mandate forcing people to buy a product from a private industry, for instance, is a big boon to insurers, just as Dodd-Frank’s “too big to fail” is a boon to the big banks receiving the government’s seal of approval that enables them to get favorable treatment from creditors because they will be seen as protected by the government.  It also puts the U.S. taxpayer in the role of bailing out the biggest financial institutions, no matter how risky their behavior.  Large institutions can pursue abnormally high returns with less concern for the risks that accompany such investments, since they know the government might ultimately assume that risk.   Similarly, the Affordable Care Act promises open-ended subsidization of insurer losses from policies sold on the law’s federal and state exchanges.  Thus, insurers can take more risk and cut their premiums to gain market share, because they know the federal government will subsidize any large losses they incur.  Consequently, the Affordable Care Act (“ACA”) forces taxpayers to subsidize large insurance companies.

Excessive regulation is often the most effective form of crony capitalism.  After passage of Dodd-Frank, JP Morgan Chairman Jamie Dimon said that regulation was good for his bank because it builds a “bigger moat” against competition.   Although the regulation would burden JP Morgan, it would be a much greater burden for smaller banks with less capacity to bear those increased regulatory costs.

Maneuvering through costly government rules may be feasible for large companies, but the high compliance costs make it difficult for smaller business to keep operating or to even get started.  And just as high compliance costs are more easily shouldered by large firms, the biggest corporations are the ones best positioned to exploit loopholes and wield the most influence in an ever-growing regulatory state.

The Cato Institute estimates that the government hands out $1.25 billion per year in corporate welfare, with some of the biggest beneficiaries being companies like Boeing, Xerox, IBM, Dow Chemical and General Electric.  The Overseas Private Investment Corporation is a federal agency that subsidizes U.S. companies with taxpayer-backed financing when they set up business overseas.  But this financing often goes to politically favored activities and firms.  Likewise, the Export-Import Bank distributes more than 90 percent of its $14.5 billion in loan guarantees to a dozen large corporations.  And while Obamacare was advertised as being a help to the ordinary citizen, it caters to the big interests that promoted it.  According to the House Oversight and Governmental Reform Committee, White House aide Valerie Jarrett assured health insurers that they would get nearly 100 percent of what they sought under Obamacare.  Indeed, it was the big insurance companies and big hospital chains that lobbied heavily for the ACA.

The Economic Distortions of Big Government

Not only does increased government spending not produce the kind of economic benefits boasted about, but it can often have a negative effect.  As the economist authors of An Inquiry into the Nature and Causes of the Wealth of States demonstrate, the states with the fastest economic growth are the ones that tax and regulate the least.  Government involvement often depresses the kind of economic growth needed far more by the poor and working class than by the rich, who already have their wealth.

During the escalating government involvement of the Obama era, the Americans most in need of economic advancement have suffered the most.  Households headed by single women saw their incomes fall by roughly 7 percent.  Young people under the age of 25 experienced a decline of almost 10 percent.  Black heads of households had their income fall by almost 11 percent.  The incomes of workers with a high school diploma or less fell by approximately 8 percent.  This is a dramatic reversal of the progress these groups experienced during the expansions of the 1980s and 1990s.

To spur economic growth, despite the growth-suppressing policies of the Obama administration, the Federal Reserve conducted upon its Quantitative Easing program, involving an unprecedented purchase of government bonds on the open market so as to keep interest rates near zero.  Not only did this bond-buying program not produce vibrant economic growth, but it hurt many average Americans, particularly senior citizens.  Because interest rates went to near-zero, and because senior citizens depend on interest from savings to fund their retirement, households headed by seniors 75 and older lost on average $2700 in annual income over the past seven years.

However, the program was a bonanza for Wall Street, fueling a stock market rise that ballooned the wealth of rich investors.  The QE program also benefitted the big banks, which enjoyed lowered loan costs, huge gains on the values of their securities holdings, and fat commissions from brokering most of the Fed’s QE transactions.  Consequently, during the Obama era, Wall Street has had its most profitable years ever.  And the biggest banks have become a virtual cartel, with just .2 percent of them now controlling more than 70 percent of U.S. bank assets.

An Example of Well-Intentioned Policies With Damaging Consequences

Housing policies exemplify how big government actions, although advertised with the best intentions, can harm those who are most vulnerable.

Real estate development restrictions, for instance, work to the disadvantage of the poor.  By decreasing the supply of affordable housing, these restrictions allow slumlords to jack up rents even on their dilapidated properties.  Not surprisingly, housing shortages are most acute in liberal cities.  UCLA economist Matthew Kahn found that the higher a city’s liberal vote share, the fewer housing permits it issues.  There may be a host of reasons why a city enacts such development restrictions, but the unquestioned result is that they are detrimental to the poor.  In communities controlled by the elite, the adoption of these restrictions have made the construction of new housing all but impossible for anyone except the affluent.

Federal government housing policies were a significant cause of the 2008 financial crisis.  It is unquestioned that a bursting of the mortgage bubble, fueled by subprime mortgages, led to the financial crisis.  The question is: who was responsible for generating those unsustainable mortgages?

By 2008, more than three-quarters of all subprime mortgages in the U.S. were held by Fannie Mae, Freddie Mac and government agencies.  This was because Congress had pushed Fannie and Freddie to increase their lending to low-income borrowers with subpar credit ratings.  The goal was to expand home ownership among low-income groups, but the government did this by abandoning traditional underwriting requirements and pushing people into homes and mortgages they couldn’t afford.  It was government that led the charge into subprime lending and wound up holding the vast majority of the high-risk loans, which ultimately went into default, setting off the financial crisis that ended up hurting the poor in two ways.  First, it took away the homes they had been lured into but could not afford; and second, by leading to the Great Recession, it took away their jobs and income. As Democrat Barney Frank admitted in 2010: “It was a great mistake to push lower-income people into housing they couldn’t afford and couldn’t really handle once they had it.”


Ever since the New Deal era, and particularly since the Great Society era, a bigger and more active government has been billed as a necessary aid to the common person.  The underlying assumption is that only the public sector can offer real opportunity, as well as a real antidote to the oppressive centers of big power in society.  As this essay argues, however, such an automatic assumption is not only unfounded, but is often contradicted by the evidence.

The Right Deal: The Conservative Anti-Poverty Approach

by Prof. Patrick Garry:

Job creation at every level.  The ability of every parent to choose the school his or her child attends.  A greater mobility for those at the bottom rungs of the economic ladder.  A reformed and more affordable higher education system.  Targeted tax relief for low-income workers and parents.  Greater access to job skills education programs.

Right Way Just AheadConservatives advocate all these policies, and yet they continue to be charged with doing nothing to address the plight of the struggling members of society.  Liberals charge conservatives with caring only about the rich, even though Democrats represent the wealthiest districts in America.  Liberals charge conservatives with being allies of the rich against the poor, even though during the Obama presidency the rich have prospered like never before and the poor and middle class have either stagnated or declined.

Despite these accusations, it is not just the Left that is to blame for the perpetuation of this image of conservatism as unconcerned about the poor.  Conservatives must also shoulder some of the responsibility for not aggressively enough promoting their anti-poverty agenda and for conceding this policy issue to liberals for far too long.

To reverse this image, conservatives must not only assert their poverty proposals, they must make the goal of improving the lives of vulnerable people a central focus of their entire policy agenda.  But this central focus does not involve a change in conservative principles or policies, since economic mobility and advancement lies at the core of the conservative philosophy.  What it does mean is that conservatives must measure all policies by their effect on the vulnerable.  For instance, if certain income tax cuts won’t help the vulnerable, since nearly half of all Americans have no net federal income tax liability, then perhaps such cuts are not the issue that should define or occupy conservatives.

Conservatives have a great starting place in their campaign against poverty.  A free market economy has lifted hundreds of millions of people out of poverty, both here and abroad.  Even those who are poor have a much better standard of living due to economic progress.  The typical person living below the poverty line not only has electricity and running water – something he didn’t have sixty years ago – but also has microwaves, personal computers, air conditioning and cable television.  Three quarters of the poor own a car, and roughly a third have two or more cars.

This improvement in the living conditions of the poor does not mean that the plight of the vulnerable should be dismissed or ignored; it just means that the answer to the problem of poverty may well reside in something that has worked – economic progress – rather than in certain government policies that haven’t worked.

But a criticism of liberal failures is no substitute for action.  In fact, conservatives’ hesitancy to articulate a positive anti-poverty agenda only feeds the liberal claim that they don’t care about the less fortunate.  This is how President Obama, whose administration has been terrible for the poor, has been able to assail his political opponents as being indifferent to the poor and struggling.

Although conservatives criticize liberal social welfare programs, they have no objection to a safety net.  Indeed, any humane and civilized society should have a safety net to catch the unfortunate and vulnerable people, preventing them from sliding into an abject poverty they cannot survive.  But conservatives do object when these safety net programs themselves turn into a trap – trapping people in a state of dependency and preventing them from reclaiming a self-sufficiency that in turn can lead to an independent and dignified life.  A conservative safety net serves as a springboard out of poverty, rather than a permanent state of government subsidization.  A safety net’s goal cannot be the perpetual subsistence of poor Americans in barely tolerable lives – and it cannot discourage work.

The Underlying Problems of Poverty

At a time when the stock market is at record levels and Wall Street is awash in money and the rich are richer than ever, almost 48 million Americans are receiving food stamp aid, up almost 50 percent since 2009.  One in six citizens in the wealthiest economy on earth now rely on food aid from the government.  The way to understand this problem is to begin with examining the root causes of poverty.

The first cause of poverty is a lack of work.  The key to ending poverty is putting people to work.  But too often the liberal social welfare programs not only have a dampening effect on job creation, but are structured in a way that fosters dependency rather than self-sufficiency.  Today, a lower percentage of working-age Americans are working or seeking work than at any time since the Carter presidency.  But the picture gets worse when it is broken down by income group.  The wealthiest American workers recovered to full employment relatively quickly after the 2008 recession’s official end.  But the working poor’s persistent double-digit unemployment rate rivals the Great Depression.  And while small-scale entrepreneurship has traditionally represented a last-ditch path out of poverty, it is not doing so now.  New business formation remains well below pre-recession levels, and the percentage of unemployed business-starters dropped from 11 percent in 2007 to 4 percent in 2010.

A second fundamental cause of poverty is behavioral.  After all the countless studies repeating the same message, it is unquestionable that poverty in America is often intertwined with social pathologies.  Drug or alcohol abuse, criminality, domestic violence, family breakdown – all these factors have a strong correlation with poverty.

Poverty isn’t just a form of deprivation, to be cured by money; it’s a form of isolation.  According to Robert Doar, former Commissioner of the New York City Human Resources Administration (the city’s principal social services agency), very few married, two-parent families ever need any form of welfare.    People who marry before having children, avoid substance abuse, graduate from high school, stay out of jail, and hold even minimum wage jobs for at least a year, almost never end up living in poverty.

A third fundamental factor in escaping poverty is the ability to take advantage of opportunities for advancement.  And in modern society, the most valuable tool in this respect is education.  Economic mobility and education go hand in hand.  But in the liberal scheme, this connection is often ignored.  Instead, education is treated like all the other social welfare programs — with continual increases in public spending that serves primarily to expand the government bureaucracy.  Per-pupil federal education spending is nearly four times its 1970 level.  This has brought a sizeable increase in public education employment, but no detectable increase in student test scores in reading, math or science.

To move beyond this vicious circle of ineffectiveness, conservative policies focus directly on improving the education received by students – policies like charter schooling, vouchers, and school choice.  These policies have worked whenever they have been implemented, especially in benefitting needy children.  In one 2007 study, scholars from Harvard and the Brookings Institution found that school vouchers in New York City significantly increased the proportion of African-American students who went on to college.  And research from Stanford shows that access to charter schools reduced NYC’s black-white achievement gap by 66 percent in reading and 86 percent in math.

Conservative Policies

A new conservative activism on poverty is emerging from leaders like Representative Paul Ryan, and Senators Marco Rubio and Mike Lee.  To encourage work and upward mobility, Ryan proposes increasing the gap between what work pays and what welfare provides by expanding the maximum Earned Income Tax Credit for workers in low-wage, low-skill jobs.  (The EITC has been shown to draw low-income Americans into the labor force.)

Conservative policy should ensure that no one who works full time and heads a household lives in poverty.  But this can be done through a better targeted anti-poverty program than the minimum wage increase.  The Earned Income Tax Credit is an effective anti-poverty program because it targets household income, and it provides an incentive for people to work because it is only offered to working households.  The IRS estimates that in 2009 the EITC lifted nearly 7 million people out of poverty, but presently the EITC is not nearly generous enough for workers with no children.

But an emphasis on work alone is not enough.  A true anti-poverty agenda must promote strong families.  Married, two-income couples, even those earning only the minimum wage, are unlikely to fall into poverty; and children growing up in such families are just as unlikely to be poor.  Larger refundable child tax credits (applicable to both income and payroll taxes) and even savings incentives for couples of modest means would relieve some of the financial pressure than can tear apart marriages.  Currently, the size of the child care tax credit is low relative to the average costs of child care and has not been expanded since the 1980s.

As for family structure, there is little the government can do, other than removing the marriage penalties embedded in many of the transfer programs.  But the government should not discourage marriage.  And rather than focusing all its marriage efforts on same-sex marriage, it ought to put some focus on trying to salvage the increasingly threatened traditional family.  Maybe the government cannot promote a particular type of marriage, but it can at least not be discriminatory toward civic and religious groups doing so.


In the past, the Right has failed to formulate a positive, countervailing anti-poverty alternative to the failed agenda of the Left.  As a result, much of the Left’s agenda has gone into force.  So it is now incumbent on the Right to offer its own better vision for the alleviation of poverty.  A conservative antipoverty agenda is one that offers both temporary relief and longer-term institutional changes, all aimed at holding out the possibility of steady employment and stable families.

Conservatives are ideally situated to address poverty.  Given its belief in the biblical tradition of charity, the conservative approach incorporates a moral aspect never recognized by the Left, with its more materialistic focus on the relative distributions of wealth and on political objections to the private sector economy.  But this focus cannot answer why helping the disadvantaged is ultimately the right thing to do.

The Left uses its poverty agenda not primarily to advance the poor, but to advance the reach of government.  The poor becomes a reason for bigger, more active government.  And that best explains the workings and designs of many federal anti-poverty programs, as well as why the Left opposes many conservative proposals – because those proposals don’t permanently enlarge government.  The Left has becoming so wedded to a primary focus on government that it has taken a secondary focus on the real interests of the poor.

A new and aggressive conservative anti-poverty program, making a central purpose the lifting up of people who need it, will not only aid the poor, it will revive the conservative movement.  For too long, conservatives have identified themselves as fighting against the left’s mistaken policies.  But the real point of conservatism is not negativism; it is the positive pursuit of helping people achieve what they really need.  And the focus of conservatism is not an instinctual desire to build up government in the name of helping people.  Maybe government in some cases is the answer, but not the automatic and constant answer.

Patrick Garry is a professor of law at the University of South Dakota, and Director of the Hagemann Center for Legal & Public Policy Research.

Only Conservatism Can Defend the Middle-Class

by Prof. Patrick Garry:

A wide array of issues and controversies populate the political terrain, but none are as important as the health and future of the middle class.  A strong middle class has historically stood as a pillar of American society and constitutional democracy.  It gave America its unique democratic identity in the eighteenth century; it shaped the outlook of the constitutional framers; it sustained an economic growth that has been unmatched in human history; and it provided the basis for a social and political system that not only inspired centuries of freedom and innovation, but centuries of order and stability as well.

Levittown-New-YorkIf there is one single factor that has energized and guided America, it is the middle class.  But for the past decade, the vitality of the middle class has appeared threatened.  And this threat has stirred great public anxiety, fueling an increasingly partisan debate about income inequality.  The partisanship has stemmed from the liberal charge that conservatives care only for the rich, regardless of how the incomes and mobility of the middle class may have stagnated.

This liberal attack cuts to the heart of an American conservatism grounded on middle class values and vitality.  And because this attack questions their historic identity and purpose, conservatives must not only answer it, but must reaffirm their middle class commitment – a commitment that seemed to weaken during the Bush presidency, where a focus on foreign policy and income tax cuts that primarily benefited the wealthy often conveyed the impression that conservatism had lost sight of the middle class.

The Struggles of the Middle Class

The middle class is suffering an economic erosion.  As discussed in the previous article on income inequality, middle class incomes and opportunities for mobility have declined, despite a robust stock market that has greatly enriched the wealthy.  Not only has the middle class experienced wage stagnation, but the supply of mid-wage jobs has shrunk proportionally more than jobs at the top or bottom.  The wealthy and highly educated are doing well, and the number of low-wage, unskilled jobs are increasing, as are government benefits to low-income individuals.  But the middle class is struggling against the trend of decline.

The middle class cannot rely for help on the elite, who increasingly occupy an almost completely different economy than that in which the middle class is struggling.   And because the Democratic Party is dominated by these elites, who are largely isolated from the ebbs and flows of the private economy, it is less attuned to the middle class, which is dependent on private-sector economic growth.  Although Democrats claim that they are the party of the average person, but the evidence clearly rebuts this claim.  In 2012, seven of the ten richest counties in America voted for President Obama, and seven of the ten richest congressional districts are represented by Democrats.

Cultural Liberalism and the Attack on the Middle Class

Through the influence of the cultural elite, the Democratic Party has become the political agent for undercutting many of the centuries-old middle class values of which the elite wish to be free.  It has also become the advocate of more centralized government, which, under the control of the political elite, becomes a tool for wresting power from a middle class that for so long has resisted control by the elite.

Cultural liberalism has been the elite’s means of seceding from middle class America.  In the way it has promoted full abortion rights, for instance, liberalism has eroded such historic social institutions as religion, which has always been under the province and direction of the middle class.  And the weakening of religion is essential to the rich, who often chafe against any outside constraints on their lifestyles.  Indeed, wealthy liberals have promoted a rights agenda which undermines the social authority of cultural institutions whose authority traditionally extended even to the wealthy.  But this rights agenda, which incidentally costs the wealthy nothing in terms of taxes, does not help the poor or the working classes; it is primarily a tool of the wealthy to break free of middle class constraints.

The cultural rebellion waged by the Left has had a devastating impact on the social order.  The breakdown of the rule of law has been prevalent, leading to such increases in crime that we no longer even try to prosecute many of them.  But this breakdown does not hurt the rich, who live in well-protected cocoons of safety.  It hurts the working and middle classes, who now must pay for the elite’s refusal to be subject to what are seen as middle class rules.

The Political Role of the Middle Class

The Left talks idealistically about the democratic role of the common person — about how, in a democracy, there is no greater authority than the common person.  But this is not how the Left really acts.

Ever since the Progressive and New Deal eras, the Left has advocated a government-by-experts.  The huge labyrinth of the administrative state is built upon the belief that only experts can adequately govern this country – a belief that makes liberals resist giving choices to the average person through school choice programs or health savings accounts.  In the liberal mindset, the average person serves not as a sovereign voice within American democracy but as a dependent client of government – something to justify the growing power of government agencies.  The individual is not to act, but to be acted upon.

Liberals claim that big government programs help the middle class, but cronyism and clientelism often corrupt those programs, channeling benefits to the well-connected and away from the middle class.  Take, for instance, the farm bill.  Most family farmers don’t want it, and there was a populist revolt against it in Kansas, but wealthy farmers and large agribusinesses used their lobbyists to push for it.  Then there is the Export-Import Bank, which has funneled billions of taxpayer dollars to big corporations with strong lobbying operations.  This is why conservatives need to limit the reach of government in ways that protect and advance the middle class.

Policies of Dependence

Work is the pathway to the middle class, and independence is the hallmark of the middle class.  But liberal policies often enhance dependency.  Liberals resist giving the middle class control over their Social Security accounts, despite the fact that the Social Security system run by the government is going broke.  They resist giving individuals control over the structure of their health care, even though nearly every assurance made by the government concerning Obamacare has proved false.  They resist giving families their choice of schools, even though the public schools assigned to their children are themselves failing.  Liberals even resist the work requirement in welfare, even though work leads to independence.  Conversely, eliminating the work requirement only expands dependency.

The Left does not seem to value the independence of the middle class, perhaps because the middle class has never bought into the utopian radicalism of the Left.  Consequently, liberal policies often exert a depressing effect on work.  Earlier this year, the Congressional Budget Office announced that Obamacare’s disincentives on work will wipe out more than 2 million full-time jobs.  Moreover, these disincentives are not geared toward the sick, the elderly or the disabled, but toward working-age able-bodied adults, who will be motivated to choose government dependence over self-reliance.  This is another example of how an ever-expanding government seeks to turn people from independent workers into dependent clients.  But this is hardly compatible with the kind of authentic citizenship envisioned by the framers, since dependency degrades the capacity of the citizenry to operate as a check on government.

Current immigration policies have been particularly skewed against work and the middle class.  The Obama administration has been reluctant to grant immigrant visas to people with job skills in high demand.  Instead, the focus is on the unskilled, illegal immigrants who are much more likely to become clients of the government social welfare system.  The Obama immigration policy, by focusing on the unskilled, has greatly expanded the ranks of the poor; whereas, for instance, Australia’s more selective immigration policy has tended to reduce them.

The goal of immigration policy should be to increase the ranks of middle class economic producers, not to expand the ranks of government consumers.  But eligibility requirements for a range of social welfare programs – cash welfare, food stamps, disability, Medicaid, etc. – discourage work.  (Most means-tested welfare programs do not even require the recipient to be a citizen.)  When people voluntarily come to the U.S., it is not unreasonable to expect them to survive without public assistance or return to their native countries.  But surprisingly, the poverty rates for immigrants are higher than for natives.  In 2011, 20 percent of U.S. immigrants lived in poverty, compared with 13.5 percent of natives.  This contradicts the 1996 welfare reform goal of encouraging immigrants to be self-sustaining and deterring immigrants who were not likely to survive without public assistance.

A better policy approach for the middle class would not be to just add them as another dependent client of another federally-designed program that primarily benefits the bureaucrats administering the program, but to give them more power to direct their own lives.  This could be done through a bigger child tax credit for struggling families, a payroll tax cut to boost employment and employee income, an expanded earned-income tax credit to raise wages at the bottom, and health savings accounts that roll over unspent money.  Conservatives want to help the unemployed rise up to the middle class in a way that lets them become independent, rather than in a way that permanently expands government.

Patrick Garry is a professor of law at the University of South Dakota, and Director of the Hagemann Center for Legal & Public Policy Research.

A Conservative Response to Income Inequality

by Prof. Patrick Garry:

Inequality is just a symptom; the real problem is a constricted mobility for lower and middle income households.

Income Inequality

Throughout the Obama era, the issue of income inequality has been a central tool of political strategizing.  Liberals have used the issue as a sword against conservatives, accusing the latter not only of indifference toward the plight of working Americans but of actually welcoming the widening gulf between rich and poor, as if conservatives want nothing more than to see the wealthy become wealthier, even if it is at the expense of the poor.  At the same time, however, conservatives have often shied away from the issue, perhaps afraid of how the issue might feed the big-government agenda of liberalism.

The inequality problem is not the simplistic problem the Left makes it out to be.  But there is a serious underlying problem reflected by the growing income gap in America – a problem that strikes at the heart of the conservative vision of America.  And if they are to provide a workable governing vision, conservatives must show their concern for this problem and articulate their solutions to it.

The Widening Income Gap

Given the wage stagnation and weak employment gains of recent years, it is not surprising that many economists claim that the gap between rich and poor is at its widest since records began 45 years ago.  This gap widened even throughout the recovery.  From 2010 to 2013, only the households at the very top of the income ladder saw gains, while families in the bottom 40 percent saw their incomes decline over that period, according to the Federal Reserve.  Meanwhile, household incomes in the middle stagnated.

The growing income gap has been driven by the anemic economic growth during the Obama era.  But it has also been escalated by the Federal Reserve’s attempt to counter the drag of the anti-growth policies of the federal government and artificially stimulate the economy through its $4 trillion Quantitative Easing policy – a policy that drove short-term interest rates to nearly zero.  This policy led to a surging stock market that in turn substantially increased the wealth of the richest Americans who had significant stock investments.  At the same time, it vastly decreased the income received by the elderly who saw declining interest payments on their saving.

While Fed policy did boost profits in the financial markets, it did nothing to combat wage stagnation or the reduced share of wages in gross national income.  A debt-based monetary system has produced a debt-driven economy, which rewards those with the financial acumen and assets to invest in the market, while eroding the earnings of working Americans.  Increased financial sector profits accrue mainly to upper-income recipients, who are relatively few in number, while the decreased share of wages affects the relatively larger number of workers – thus leading to greater income inequality.

The Liberal View of Inequality

To Democrats over the past eight years, income inequality lies at the core of what is wrong with America.  Consequently, the crisis of income inequality demands and justifies a more active government agenda of redistribution, including higher taxes, higher spending on government entitlements, and higher regulation of business: in other words, expanding the public sector.  And the Left has used this call for bigger government to paint themselves as defenders of the working and middle classes, regardless of the fact that a bigger government has not only failed to alleviate the income gap but has widened it.

One way in which Democrats have attempted to reduce income inequality is by raising the minimum wage.  But this is hardly a remedy.  At least half of the minimum wage earners are not in the lowest household-income bracket, and even fewer are their household’s primary earner.  So raising the minimum wage is not a great way for lifting up the incomes of the poorest households in America.

The other liberal measure for addressing inequality is to raise taxes on the higher income households.  But again, this measure greatly exaggerates what can actually be done.  Currently, the top 20 percent of earners pay a net average of $46,500 in taxes.  The next 20 percent pay a net average of $700.  And the bottom 60 percent receive more in government transfer payments than they pay in taxes.  In other words, the U.S. already has a great deal of economic redistribution, and it is questionable as to how much more can be achieved through tax increases and how negative an effect those increases would have on economic growth.  Indeed, it is not even certain what revenues would be produced by such taxes, since higher income individuals will increasingly shift their money into various tax shelters.

A state-by-state analysis shows that the blue states following liberal policies have bigger income gaps than do red states that follow more conservative, growth-oriented policies.  So, at the minimum, redistributionist policies like raising tax rates or the minimum wage fail to achieve greater income equality.  And at worst, such policies actually worsen the inequality by dampening the economic opportunity and mobility needed by lower income individuals.

The Conservative Approach to Inequality

The conservative approach takes a bottom-up focus, rather than a top-down one.  It seeks to lift up the bottom, rather than to bring down the top.  It seeks to maximize the opportunities for the least well-off, through maximizing the income and economic opportunities of the whole society, rather than to simply target the most well-off for what may eventually become punitive taxation, irrespective of how this taxation would affect all the lower brackets.

A policy agenda serving this focus includes increasing upward mobility through education that empowers workers and regulatory and tax reform that sparks job creation and wage growth.  Conservatives must also fight crony capitalism, which benefits the politically connected, and orient tax policy to benefit families and the middle class, not just to penalize the rich.  (One of the most significant proven restraints on upward mobility, family breakdown, will be discussed in a future essay.)

Welfare programs that incentivize work have been far more successful in boosting incomes and mobility than simple cash assistance programs.  The U.S. Census Bureau estimates that the earned income tax credit lifted 5.4 million people out of poverty in 2010 alone.  Conservatives advocate expanding this EITC to childless adults, reducing the marriage penalty by adding a second-earner deduction, and reducing the disincentives to work in other welfare programs.  Conservatives also propose reforming the childcare tax credit to make it easier for single mothers to reenter the workforce, get off welfare, and take advantage of opportunities for upward mobility.

Unfortunately, the current welfare system largely serves the goal of providing a social safety net, rather than that of moving people out of poverty.  Although the first goal is necessary for survival, the second goal is vital for achieving upward mobility.  However, the overall design of the entitlement and social welfare system has greatly decreased the motivation of recipients to find work that would take them off those benefits.

Conservatives need to recognize that a core challenge facing America is not simply income inequality per se, but rather wage stagnation and a restriction of upward mobility.  The real issue is not income inequality, but the level of economic mobility.  A study published by the National Bureau of Economic Research found that the widening income gap has not translated into a lowered economic mobility – in fact, there is a .6 percent higher chance for a child born in 1986 to move from the bottom 20 percent of household income to the top 20 percent than for a child born in 1971.  Nonetheless, the study did conclude that the rate of upward mobility has essentially flattened in recent years, despite periods of economic growth and an expansion of welfare programs.  This stagnating rate of upward mobility is the primary conservative concern, not simply the abstract levels of income differences.

Getting Real About Inequality

Middle-class incomes have fallen during the Obama era not because the rich have gotten richer, which they have, but because of bad federal policies that have yielded the weakest recovery in the postwar history of America.  Yet even as this recovery fails to lift the working and middle classes, the Left continues to take a simplistic view of inequality, arguing that it is the cause of all other economic woes, specifically a diminishing upward mobility.  But in reality, it is just the other way around.  The widening income disparity is a result of diminishing upward mobility, which in turn is the result of various technological, globalization and governmental policy factors.

The public is right to worry about wage stagnation and economic mobility, as well as the rising costs of education, health care and raising a family.  But all these problems are not simply the result of income inequality.  If anything, inequality is a reflection of these problems.

Conservatives cannot just oppose the Left’s polarizing use of the inequality issue, for to do so would reinforce the image that conservatives are not concerned about the growing income gaps, and thus not concerned about the struggles of working and middle class America.  What conservatives must do is articulate a broad agenda that seeks to lift burdens from workers and middle class families, as well as to open up opportunities for economic advancement.  And this broader agenda must go beyond the traditional mainstays of conservative policy – e.g., across-the-board tax cuts and regulatory reform.  Such an agenda would do much in erasing the image of conservatism as caring only about the rich.  It would also do much to offer voters a true understanding of today’s real economic challenge and how it might be addressed.


Patrick Garry is a professor of law at the University of South Dakota, and Director of the Hagemann Center for Legal & Public Policy Research.

The Conservative Economic Message

Promising Upward Mobility for Every Step of the Economic Ladder

by Prof. Patrick Garry:

At the crux of the conservative view of America is the promise of economic mobility and opportunity for individuals at every step of society’s economic ladder.  Given recent economic developments during the Obama era, however, conservatives may need to broaden their focus so as to ensure that the goal of economic mobility and opportunity is available to all members of American society, particularly those occupying the lowest rung of the income ladder.

Social MobilityThere’s an old adage: what was good for General Motors was good for the country.  Given the distortional effects of globalization, automation and increasingly multinational corporations, the new conservative directive should be: what is good for the American worker is good for America.  And the conservative hierarchy of economic values should be: first, economic freedom, since only economic freedom can lead to true economic security; second, economic opportunity and mobility, because only true mobility can lead to a freely chosen state of economic security; and third, economic growth, since economic growth is the only way to ensure both security and economic mobility.

Liberalism stops short in its economic agenda, settling for a false promise of economic security – false, since true security can never be achieved without economic freedom, and can never be preserved without economic growth.  Liberalism dismisses growth, as if it is something only the rich want.  But in reality, growth is most needed by the lowest income classes.  Because without growth, the only way lower income classes can advance is through wide scale government-mandated redistribution, which has always proved disastrous for any society that has pursued it.

In The Moral Consequences of Economic Growth, Benjamin Friedman demonstrates the importance of economic growth to a healthy democratic society.  Economic growth leads to a rising standard of living, which in turn fosters greater social tolerance, commitment to fairness, and dedication to democracy.  On the other hand, economic stagnation produces a zero-sum politics, which then decreases a society’s spirit of generosity and weakens cultural confidence.

Liberal Economic Policy and the Erosion of Work

The current crisis in America revolves around an economy of tepid growth.  Median household income in 2013 was 8 percent lower than in 2007, the last year before the recession began.  And as predicted by Friedman, this erosion of middle-class income has produced a very pessimistic public mood.  According to the Pew Research Center, 79 percent of the public rate current economic conditions as only fair or poor.  Just 22 percent think the economy will be better a year from now, and only 21 percent think the recession has ended.

During the Obama era, the integrity of work has been one of the most serious casualties.  According to The Wall Street Journal, nearly seven million Americans are stuck in part-time jobs.  They want full-time jobs, but those jobs are not available, largely because of such full-time job-depressing influences as the Affordable Care Act.  There are still two million fewer full-time workers than there were in 2007.  Only 47 percent of all adults are working full-time.  And the proportion of Americans in the labor force is at a 36-year low.

Other Indications of the Current Economic Malaise

The decline in job creation corresponds with a decline in new business start-ups, which in many industries is near a 35-year low.  Indeed, if the rate of start-up formation after the Great Recession had been equal to what it was during the Reagan recovery, 760,000 additional jobs would have been added in just one year.

The Obama administration has tried to spur economic growth and prosperity through government spending.  But, as demonstrated by the decline in median household incomes, government spending does not produce economic growth.

The Obama economic policy has essentially relied on three approaches: a huge boost in government spending, which was supposed to create new jobs; a tax on the wealthy, which was supposed to address the growing inequality; and a reliance on the Federal Reserve zero-interest rate policy, which hasn’t increased median family income, but which has fueled a record stock market and significantly added to the wealth of the already-wealthy.

A Contrast to the Liberal Approach

The Left does not have any growth ideas for the economy.  The minimum wage, for instance, is no growth measure.  Furthermore, the minimum wage may not be effective at helping poor families, since there is a strong possibility that low-wage workers may not necessarily belong to low-income families.

A better means of helping low-income families would be to expand the Earned Income Tax Credit, which directly targets low-income families rather than just low-wage workers.  Moreover, since the EITC operates through the tax code, it has the benefit of being financed disproportionately by those with the highest incomes; on the other hand, raising the minimum wage operates as a burden on those employers who hire low-wage labor.  And normally, such employers are not wealthy individuals.

The Left talks about making the tax code more progressive, as a way of remedying the growing inequality.  But this is not a true remedy; it just looks like one.  Income taxes cannot be cut for the nearly fifty percent of individuals who do not pay any taxes.  And since the top five percent of taxpayers already pay about 64 percent of income taxes, it becomes nearly impossible to wring anything more out of those taxpayers without them moving their income to some tax-protected haven.  This reality is demonstrated by the Obama tax hike, which although designed to soak the rich instead gave the middle-class a bath.

It is often argued that liberalism advocates a redistributionist economic program.  But that is not the most accurate description of the liberal aim, since all the government programs since the 1960s have not been too successful at actually achieving an income redistribution toward the poor and working class.  Instead, the best description of the liberal agenda is one of public sector enhancement.

Economic versus Government Growth

The growth of government, either in power or influence or scope of activity, lies at the core of the liberal agenda.  Entitlement reform is opposed because it might shift some responsibilities or activities toward the private sector.  Deregulation is not supported because it might result in reforms that would diminish the role or power of government.  Taxes are not cut because the reach of government might be scaled back.  Given the historic failure of liberal policies to produce either vibrant economic growth or a just and sustainable income distribution, the only rational description of the liberal agenda is a desire to expand the size and influence of the public sector and those who occupy it.

The conservative economic program focuses on the private sector, because, as history has demonstrated, only the private sector can provide the kind of growth needed by those on the lower income steps of the economic ladder.  This is not to say that the private sector can provide perfect economic results if the government just stays out of the picture; it is just to say that the private sector is the engine of economic growth.  Like any other engine, it may need tune-ups and repairs; but the tune-ups and repairs serve the needs of the engine, because only an engine can power the vehicle.


A basic difference between conservative and liberal economic policies is the difference between growth and status.  Conservatism seeks to encourage and maintain a growth culture within the economy, whereas liberalism seeks to provide government benefits based on a static individual status.  But this latter approach ensures a continuing level of strife and conflict built into society, which in turn will ensure the constant presence of government as the final and central arbiter.

The liberal approach seeks an unsustainable security through government mandates and penalties.  It envisions individuals as government beneficiaries, whereas conservatism sees individuals as individual actors able to take advantage of what upward opportunities the economy offers.  And it is the job of government to ensure that these opportunities remain open and accessible.

Patrick Garry is a professor of law at the University of South Dakota, and Director of the Hagemann Center for Legal & Public Policy Research.