July 29, 2011

Focus on Wage "Gap" Misses Bigger Picture

Steven Horwitz

Former Senior Affiliated Scholar

First, the goal should not be to worry about income or wealth "gaps," but about the actual condition of the poor. What matters is that poor Americans have a good (and hopefully increasing) probability of getting out of poverty, and that the absolute level of wealth associated with poverty continues to grow.

The key is to create a policy environment in which poor folks do not face an income ladder whose bottom rungs are cut off by policies like the minimum wage and occupational licensure laws. Bad economics makes for good politics. Politicians can claim they did the right thing and that can get them votes, even if the laws they pass hurt the people they claim to protect.

The best thing the federal government can do for poor Americans, especially poor Americans of color, is to get out of the way and allow entrepreneurs to create jobs and offer them to people on terms they find mutually agreeable. Stop using the law to prevent them from producing ever cheaper goods in a competitive marketplace, don’t tax away the profits such firms make, and put an end to intrusive policies that raise firms’ costs.