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Policy: Economy

Big government exacerbates inequality, economist argues

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Beltway Confidential,Timothy P. Carney,Big Government,Economy,Budgets and Deficits,Income Inequality,Cronyism

When liberals start talking about inequality, it's nearly always in pursuit of more government. They take for granted that a free market makes inequality worse and Big Government programs are needed to mitigate it.

This argument appears flawed in many ways. For one thing, inequality in and of itself — as separated from the problems of poverty and immobility — might be harmful only when that inequality is created by cronyism.

Also, the Left's economic policies can exacerbate inequality as often as they can shrink it. Republican economist David Malpass makes that argument today in the Wall Street Journal:

Big government expansions in recent years have harmed individuals with modest incomes while exempting or benefiting people with higher incomes. These include the federal takeover of the mortgage industry, and the Federal Reserve's decisions to keep interest rates near zero and buy some $3 trillion in bonds. Both of these expansions channel credit to the government and the well-connected at the expense of savers and new businesses. ...

The financial industry is making billions in profits fueled by the government's provision of zero-rate loans for those with connections and collateral. Wall Street's upper crust is the epicenter for financing the contractors, lobbyists and lawyers that help the government spend money. Meanwhile, government grabs a huge share of the profits generated by small businesses. It piles on opaque regulations, complex tax rules and countless independent agencies, producing a system that works against small businesses and the middle class. The Affordable Care Act takes pains to exempt Congress, government, corporations and unions, but leaves the rest severely exposed, adding to inequality.

This week's congressional budget deal saw a narrow group of Washington's elite legislators and lobbyists working over the weekend to divvy up nearly $1.1 trillion in discretionary spending for 2014. Much of the spending and all of the lobbying and debt underwriting costs will benefit those with high incomes while the extra debt falls heavily on the middle class.

Whether or not Malpass is correct in every point of his analysis, he points both Republicans and Democrats towards the right question: How do we remove government programs that enrich the wealthy and deprive the middle class?

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