The gap is a trap.

• Author: Thomson, James
• Position: Income inequality - Economics

IN HIS State of the Union address, Pres. Barack Obama declared that "Those at the top have never done better, but average wages have barely budged. Inequality has deepened. Upward mobility has stalled. In December 2013, Obama made similar remarks in saying that "a dangerous and growing inequality and lack of upward mobility" represents "the defining challenge of our time." Liberals rejoiced at these remarks, which implied future redistribution-of-wealth policies, while irked conservatives muttered "class warfare."

For the left, income inequality has become the central focus of the political agenda since the financial crisis of 2008. Obama's timing was interesting; only a few weeks earlier, Pope Francis had chided capitalism for its failure to eliminate poverty and inequality. The Pope did not cite Argentina, his native land, but it had to be in his thoughts because that nation has been plagued by political turmoil and poor economic performance for more than a half-century. Argentina's recent past can be viewed as a cautionary tale for what could happen when a government assumes absolute control of a society.

Many liberals, like Pres. Obama, believe that sweeping intervention measures are needed to ensure a more equitable distribution of wealth, while conservatives are quick to insist that economic growth will resolve inequality by citing the popular phrase that "a rising tide lifts all boats."

Inequality--at least the economic version--is real. In the three years since the 2008 financial meltdown, 95% of all economic gains have gone to the top one percent of U.S. families, who enjoy a net worth that is 288 times greater than the average American family. Additionally, the top five percent of all families control most of the nation's wealth. On average, citizens are worse off than before the crisis. For the bottom 90% of Americans, the losses include shrinking real incomes and a declining share of the country's riches. Paul Krugman, the Nobel Prizewinning economist and New York Times columnist, believes that income inequality has risen so fast since 2008 that it has become the most important factor in determining lagging middle-class incomes. Since 2009, some economic progress has occurred, but job creation has lagged far behind overall economic growth amidst the financial gains enjoyed by most corporations. Certain labor economists, such as David Autor of the Massachusetts Institute of Technology, believe that the feeble labor market combined with the near disappearance of well-paid jobs for workers with average...