Lara Hoffmans
Inconvenient Truths

Gap Schmap

By, 03/21/2007

"Income inequality" is the story that refuses to die, and is likely to persist throughout 2007. Poly-tics ("poly" meaning many, and "tics" meaning tiny blood-sucking insects) love it, because it implies only they can solve the problem, and the media loves it, because it paints an appropriately dour picture, helping further demonize their favorite villains while lionizing their pet poly-tics.

But is there really an income gap, and do you need to worry about it? Plenty of fairly reputable voices will chime "yes!" and show you their analysis. Meanwhile, while not receiving the same fawning treatment by the press, the income gap naysayers are out there, with their own equally comprehensive data and analysis soundly rejecting an income gap. Who to believe?

No need to decipher migraine-inducing statistical voodoo. The chance the "income gap" impacts our economic health is up there with the French ambassador declaring at the UN, "Zoot a loo! You know, this Chavez, he's a bad guy. Now bring me another Big Mac."

In other words, worry about something else for awhile. Here's something no one's worrying about yet—the looming ethanol craze spiking the price of feed corn as well as milk, beef, chicken, and pork. Aghast senators (who've conveniently forgotten whose ethanol mandate led to this debacle) will demand a congressional inquiry. "Big Corn" will be accused of price gouging and intentionally malnourishing children in pursuit of windfall profits. Someone will propose a $3 tax per hamburger bun to fund research and development of meat-tofu hybrids. That, my friends, is something to worry about.

Before we begin campaigning for the bun tax, let's examine the income gap myth more closely. It's a myth, and it isn't a myth, depending on how you prefer to data mine. It's very true that incomes for the lowest 5% of American workers tend to be stagnant, when adjusted for inflation. And sure, Bill Gates earned more than ever last year. The income gap between unemployed teenagers and Bill Gates is growing faster than ever! There are two Americas!

But is that bad? It might be economically problematic if galloping wages of the super wealthy caused runaway inflation, reducing everyone else's purchasing power. But no one is arguing that (and there's no evidence such a thing has happened). They just point to the income gap and complain it's unfair.

What kind of argument is "unfair?" Are the income gappers five years old? Or French?

Maybe you've heard that, in the last 60 seconds, Bill Gates just made another $86 bajillion. Meanwhile, over the same time period, you owe Visa another $3.50. It's unfair! But would you prefer Bill made $86 bajillion every minute or Microsoft's 71,000 or so employees were unemployed tomorrow, lost their benefits, and began competing for your job?

Look at the members of the Forbes 400. Very few of those guys inherited their wealth, moved to a deserted island, and buried their money in the sand to lead a monastic life fueled by mangos and rainwater. Most of those guys (and gals) employ people—lots of them. And they pay out hundreds of millions if not billions more in benefits—401(k) matching, health care, disability insurance, commuting vouchers, on and on and on. While the U.S. Senate debates how to get health insurance to every last soul (read: socialized medicine), a bunch of rich guys are providing it cheaply to their employees. What jerks!

Maybe the income gap isn't as bad as we think. But maybe, it's not really a thing after all. The good people at The Wall Street Journal and the Heritage foundation just published their annual Economic Freedom Index (http://www.heritage.org/index/), with accompanying analysis. According to them, the gap between the global haves and have-nots is actually shrinking, despite the growing wealth of rich jerks. (The best part of this year's index, besides evidence of the poor getting richer? The U.S. moved up to a respectable number four, while the Socialist Republic of France is a pathetic number 45, behind such luminaries as Botswana and Bahrain.)

The next time you hear someone complaining about the rich getting richer, raise a Big Mac and say, "Let's hope so."

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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