Income Inequality is Real, and That is a Good Thing

By Joshua D. Glawson | United States

Income inequality exists in the world as a necessary characteristic of money and economics itself. If money is a measurement of the value one brings to the market, naturally there will be differences in income. If that money was inherited or gifted, it still shows a measure of someone’s value preceding the new owner. As a matter of trade, some businesses or individuals will benefit greater than others based on many varying factors and combinations of these factors such as, but not limited to, location, production costs, selling prices, customer service, convenience, and so forth. Sometimes one’s success can equally be based on luck or happenstance in relation to others competing for the same business. No matter the case, markets are naturally unequal, and that is okay.

In a state of nature, resources and abilities are also unequal. Some people live in areas of plenty of clean water, have the right access to metals, good climates for year round agriculture, etc. Some people are also stronger, more attractive, smarter,and work harder.

These are all dependent on either decisions of choice or genetics that play a crucial role giving luck or disadvantage to individuals’ varying situations. How one deals with that given hand is what makes the biggest difference to their success and producing more bringing greater value to them as an individual. So, whether it is in the state of nature producing inequality from one’s genetics and location, or their success and hard work within a marketplace, inequalities will naturally and necessarily exist as a fact of the world and human nature.

In fact, mankind’s nature is that of being poor and destitute. We are not born with strength to survive on our own, we are not born with fur to protect us from the weather, and we are not born with the immediate cognitive ability to take care of ourselves in a world full of danger. We are born into whatever life our parents had prepared before us and are humbly submitted to their care and direction, or to that of whom takes care of us. Humans were not born with a world of comfort, we had to make it, and we continue to work towards making it more comfortable for ourselves individually.

Some people are able to do more than others at progressing out of their given situations. However, just because one person does better does not mean someone else is doing worse because of that success, it simply means the one doing better is, well, doing better. In an economy, this is reflecting the concept that the marketplace and economy, as a whole, is dynamic, not static.

Many of the advocates of combating the so-called “immorality” of income inequality do so based on the model of a static economy. This is likened to a pie, where there is only a limited amount of financial resources, and when one person takes a large slice of the pie, it leaves others with less. In short, the people who believe in a static economy model believe there is a limited amount of capital, labor, and resources.

There is, indeed, a natural limitation of resources such as land, materials, food, etc. Capital and labor, on the other hand, are both nearly innumerable in the right hands, especially when it comes to human capital – that is the human skill set and knowledge one has and is able to teach to others. It is for human capital that most people go to school: to learn, to make more of their reason, and to better their capacity to make do with the world around them.

Because of this ability to learn, retain and spread knowledge, and to do more with what is around, the economy is not static, but rather dynamic. Economies are constantly changing through human capital and trade. They are never static. It is better to see the economy as a constantly growing and shrinking, pulsating, pie where human capital and trade are adding and removing the slices while filling in the empty spaces. The economy expands and contracts, there are booms and busts, fat years and skinny years, all with “winners” and “losers” in trade.

When in competition with one another, there is growth in the marketplace, providing more for people to benefit from and consume. What individuals gain from competition in the marketplace is their ‘fair share’ if it was acquired without coercion. This is the essential part of human flourishing, i.e. capitalism. ‘Capitalism,’ better yet ‘free trade’ or more specifically ‘laissez faire capitalism,’ is the free and voluntary exchange of goods and services.

Capitalism, or whatever is nearing capitalism, has done more for the betterment of humanity than any other system; it is mankind’s greatest creation and strength. Not only does it provide the necessary goods and services most lacking or most desired, but it also enables the exchange of ideas through a ‘marketplace of ideas.’ This means good products, bad products, good ideas, and bad ideas, all competing against one another, so to speak.

Wherever there is competition, the differences in wins and losses are easily recognizable, and this is the actuality of ‘income inequality,’ as it pertains to economics. There are those that consume, those that produce, and those that act in a mix of the two. If one is unsuccessfully producing, producing very little, or producing nothing at all, for purchase in the marketplace, their financial prosperity will tend to dwindle.

Yet, when someone does well, it does not necessarily mean someone else will not also do well in the same marketplace or area. Nevertheless, this ‘competition’ is not for a limited amount of potential capital, or money, it is the competition for what is already there and what can be potentially made. If the market is filled with too much excess of currency, the currency is inflated and worth much less. Money must be earned and exchanged to produce wealth and enrich the marketplace; investments also count as earning income.

Generally speaking financial success requires a few key principles. Among these are capital, taking risks, investing, hard work, patience, diligence, and good business sense. Opportunities arise from ability and effort, along with economic freedom (Don Watkins, Yaron Brook, Equal is Unfair, New York, 2016, 114). In fact, to maintain wealth is rather difficult for individuals and generations of families.

Unlike what capitalism naysayers might believe, the wealthy tend to not stay wealthy, and their accumulated income does not stay within families very long. According to Spanish economist and professor of economics, Dr. Juan Ramon Rallo, “three decades are sufficient to lose almost everything,” and the world’s wealthiest people in the 1980s are no longer on the Forbes list, nor is anyone from their family (Juan Ramon Rallo, Anti-Piketty, 2017, 31-35). So, Rallo points out that the wealthy are not getting wealthier.

No matter the case of idealistic capitalism bringing wealth into fruition in the marketplace, some people do in fact establish and gain wealth through other means. The most significant and obtrusive way some are gaming the system of economics is through the coercive powers of government, e.g. cronyism, rent-seeking, labor unions, coercive monopolies, etc.

As the work of James M. Buchanan and his contribution to political choice theory demonstrates, the vast majority of individuals, in the worlds of public and private sectors, do what benefits themselves the most. This is to say that politicians in the public sector do what will enrich themselves just as much as those in the private sector. Simply taking someone from the business world and putting them into the political world does not remove their horns to produce hallows, nor vice versa. The biggest difference with the political and private sectors is that in the private sector losses are easily felt and remedied; whereas in the political sphere, everyone pays the cost of bad politicians and it usually goes unpunished and without remedy for a very long time.

The marketplace is still providing more for individuals and fighting abject poverty throughout the world by allocating the costs of labor to lower socioeconomic regions of the world. Lower costs for labor help to create the same goods with lower sells prices, while simultaneously helping to relieve the problems associated with extreme poverty.

According to research by Dr. Mark J. Perry at The American Enterprise Institute, a study of home appliances from 1981 to 2013 shows that appliances are “cheaper, better, and more energy efficient” at an increasing rate (Mark J. Perry, AEI, 2015). As for fighting against abject poverty, in 1990 nearly “47% of the world population lived on less than a dollar a day,” and by 2012 only 22% of the world population survived off less than an income of $1.25 per day, which was equivalent to $1 per day in 1990. That is nearly 700 million people pulled out of abject poverty and into better living conditions (Jean-Philippe Delsol, Anti-Piketty, 2017, 8).

This is not to say that people are not still struggling, or that these same people in their given situations can afford the home appliances, but it is a drastic and positive improvement in the quality of life that comes with having an increase in income through nearing free trade market practices.

With marketplace solutions through free trade, more people can be lifted out of poverty. More people see income increases, as has been historically and empirically demonstrated time and time again. Nevertheless, there are still some that are gaining a significant amount through immoral and coercive means with government assistance. It is this, specifically, that I am most concerned with. I am not concerned with vast amounts of wealth being accumulated through peaceful and voluntary means of exchange between consenting people. I am, however, concerned with utilizing governments, specifically within the United States, for coercion over the market, disabling true competition and free trade.

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