Growing income gap doesn't tell the whole story

A report released today by the Economic Cooperation and Development shows that among 30 of the world's nations, the United States has the highest rate of "income inequality." This is, of course, touted as a huge injustice from which the world must be saved. How dare there be a gap between the classes! It's just not fair!

As you've probably guessed, I don't put much stock in reports like this. Why? Well first of all, they are telling us the obvious: the rich have more money than the poor. And second, they are completely misleading because they tell us nothing about who is in each class and why their income is what it is.

There are plenty of statistics on income gaps, but none of them addresses the reasons why there are the gaps. They don't talk about the education or work efforts of the poor, whether their growing families contribute to their inability to get ahead financially, or any of a myriad of other controllable reasons why they stay poor. I'm not saying that all who are in the category of "poor" want to be there or have sealed their own fate by their actions. But I am saying that sometimes there are controllable choices which contribute to one's economic status.

On the flip side, the statistics don't speak to what the "wealthy" have done in a positive fashion to expand their earnings and savings. There is simply this cloud of negativity because they would dare to be successful while others are poor, and most of the studies don't examine what choices have made this so. I realize that when you're well-off, it's easier to save and become more well-off. But that's not something that people should be chastised for. They should be applauded for doing the things it takes to earn more and save more.

An official from the group that commissioned the study said income inequality "polarizes societies" and "carves up the world between rich and poor." And while is clearly a divide between the socio-economic classes, I don't think forcibly taking money away from the rich (taxing) and giving it to the poor (welfare) really solves the problem. If anything, it creates a situation in which the poor have fewer incentives to work to improve their lifestyles and the rich are resentful of having their money stolen by the government and given away.

What we need are some programs that serve as a temporary safety net for those who have financial problems, coupled with educational and work opportunities made available to anyone interested in improving their lives. In the United States, we already have tons of programs available for those seeking more education and better jobs. The question is whether people are using them constructively to change their financial situation, or if they're content to remain in a lower economic bracket.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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