It is becoming the consensus of opinion leaders that income inequality is becoming a major political issue. Mayor DeBlasio,  who ran on this issue in the recent New York City mayoral race, won by a 43% landslide. There are various causes cited on both sides of the political aisles. Conservatives cite globalization and advancing technologies allowing corporations to either export jobs overseas or replace workers here with automation. Liberals favor a more progressive tax structure in order to redistribute wealth. Both sides cite numerous facts, figures and academic studies to support their view. And both are wrong. The real cause of income inequality is what economists call “moral hazard.” Simply explained, it means that human beings will take significant financial risks if they are assured they will not suffer the consequences. For example, a blackjack player may be unwilling to take a $10,000 loan to gamble; however, the same individual would be perfectly willing to gamble away a $10,000 loan given the assurance that the loan did not have to be paid back. Over the past generation, major financial interests have generously donated to both political parties so that they can … [Read more...]