12/6/2011
By Charles Payne

"There is nothing inevitable about high and growing inequalities, our report clearly indicates that up-skilling of the workforce is by far the most powerful instrument to counter rising income inequality. The investment in people must begin in early childhood and be followed through into formal education and work."

-Mr. Angel Gurrķa.

 Yesterday, the Organization for Economic Co-Development released an update in global income inequality. I found the report compelling, but comments from the organization were disingenuous to say the least. While admitting early childhood development and formal education are vital to closing the gap, there was a call for higher taxes on the rich to make sure they are paying their fair share of the tax burden. In America, almost half our citizens are paying nothing toward the federal budget, suggesting those that are paying must surely be paying more than their fair share. It's a typical left-leaning European attitude that has played a decisive role in the mess that threatens to swallow the entire continent.

Moreover, the language is designed to stoke anger and add credence to moves to take by force what others have earned legitimately.

"The social compact is starting to unravel in many countries. Young people who see no future for themselves feel increasingly disenfranchised. They have now been joined but protestors who believe that they are bearing the brunt of a crisis for which they have no responsibility, while people on high incomes appear to have been spared."

What compact is this, and when did I sign onto working as hard as I can and being punished for reaching a certain level of success? I feel we should honor and reward young people that fight in wars, but those screaming outside my window for me to take home less money because they see no future or feel disenfranchised is lunacy. Of course I wish people felt better, but the Greatest Generation climbed out of two World Wars and a Great Depression. Are the apologists for real? I want everyone to do well if they work hard and make sacrifices. I hate that we encourage people to work less and garner more sympathy but zero respect along the way.

This woe-is-me mentality is being sold as an economic cure-all. Poor people are being told they will do better if rich people pay higher taxes. Poor people are being told the tests are too hard and should be watered down. Poor people are being told they're entitled to a certain living standard even if it's the same as someone with more skin in the game and higher intellectual ability. In a nutshell, poor people are being told they hold no culpability for their circumstance. I guess for some reason President Obama can't keep that promise of 40 acres and a mule so the next best thing is to take it from someone that legally already paid.

"This study dispels the assumption that the benefits of economic growth will automatically trickle down to the disadvantaged and that greater inequality fosters greater social mobility."

Upward mobility is a function of the pie getting larger, not getting sliced in more pieces. Upward mobility is a function of staying in high school and going to college. Upward mobility is a function of internal desire which can often be placated and anesthetized by government money ostensibly geared toward closing the income gap but likely to stunt urgency needed to make the leap up the economic ladder. I did find it interesting that nations where the gap between the top and bottom closed are also the nations in deep trouble. Spain, Ireland, Greece, and France have the distinction of closing the income inequality gap.

Save for France, which isn't in peak condition, the others nations where things got fairer are on life support. Would be saviors United States and Germany are among those nations where the gap increased. If I engaged in the simplistic rhetoric as those that would use this data to spark deeper resentment and feelings of disenfranchisement, I could say that greater income inequality leaves more cash in the hands of people that know how to save, invest, and build, and when push comes to shove funds can be there to bail out those nations that actively practice wealth redistribution.

I will say the idea that higher taxes cures the ills of those in lower income brackets is just plain incorrect. It might make people feel better, but in the end hurts their own prospects for true chances to change their lot in life. The fact is all this talk about taxing the rich is really a giant smoke screen for sneaking in higher taxes on everyone as the deal to "save" Italy demonstrated yesterday. I don't know what they'll get from taxing yachts and financial transactions, but Italy is going to clean the clocks and wallets of all its citizens with that increase in VAT to 23% - especially poorer citizens.

Charles Payne
Wall Street Strategies