RALEIGH — Although it is misunderstood and wildly exaggerated by some, income inequality is a real issue about which state policymakers of all parties should be concerned.
America’s system of free enterprise used to be one of the world’s best providers of upward mobility. And real, inflation-adjusted incomes grew briskly in North Carolina and most of the country for most of the 20th century. Neither description fits our current economic situation.
Claims that most families haven’t seen their living conditions and prospects budge for decades are incorrect, based as they are on flawed measurements that leave out the fastest-growing segment of family incomes — such as non-wage benefits — and fail to account for the full value of household purchases — such as amazingly versatile high-tech devices and safer appliances. The true problems are that living standards aren’t rising as rapidly as they used to, and that chronic poverty continues to limit the opportunities of too many of our fellow North Carolinians.
You already know what I’m about to tell you: There are major differences of opinion regarding what to do about this. Fiscal liberals tend to believe that government should tax and spend more to fund programs of income redistribution and public investment, while pushing up wages through tougher regulations on employers. Fiscal conservatives tend to believe that taxes and regulations are inhibiting the ability of private enterprise to create new businesses, jobs, products, and income gains, and that public services such as education and transportation need fundamental reform more than they need large cash infusions.
Here’s what you may not know: Social scientists have spent decades exploring these major differences of opinion. While many questions remain unanswered, most of the peer-reviewed academic studies produced over the past quarter century offer empirical support for the conservative point of view on these matters, not the liberal one.
One paper, just published by the Journal of Economics and Economic Education Research, was written by a North Carolina-based scholar, John Bethune, who serves as the Dorothy and K.D. Kennedy Chair of Business at Barton College in Wilson. Bethune studied whether tax policy, welfare programs, minimum-wage hikes, and other policies truly reduced income inequality at the state level.
While finding some redistributive effects from tax codes, Bethune found no reduction in income inequality from most government spending, including both transfer programs and education expenditures. States that set their minimum wages higher than the federal standard did not have lower rates of income inequality, either, most likely because a large percentage of employees earning minimum wage are young, inexperienced workers from middle-income families rather than low-income breadwinners.
So what factor does seem to correlate with sustained reductions in income inequality? Overall growth. “Higher rates of economic growth are significantly associated with more equal distributions of income,” Bethune said “which might imply that, for an individual state, policies to promote economic growth are the key for achieving less income inequality relative to other states.”
In our state, that means continuing the process of reforming and reducing the tax and regulatory burdens we impose. It means setting better priorities and rewarding higher productivity in our education and transportation systems. And it means continuing to remove disincentives for North Carolinians to enter the labor force, such as the state’s current waiver of federal work requirements for food stamps. According to the Foundation for Government Accountability, there are tens of thousands of able-bodied, childless adults in North Carolina who receive federal nutrition assistance despite the fact that they are not working, retraining for work, or volunteering in community programs as a condition for receiving benefits. Federal law allows such requirements. North Carolina should enforce them.
Experts on poverty from across the spectrum describe the “success sequence” this way: Those who finish high school, obtain full-time employment, and delay parenthood until they get married have very low poverty rates, even during recessions. Getting more (typically young) people to follow the success sequence isn’t easy. State leaders can do their part by promoting robust economic growth and job creation. Fiscal conservatism is the right tool for the job.