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Economics Opinion Philosophy Politics

Income Inequality? Yes Please

Though the gap between the rich and the poor is widening, such income inequality is actually beneficial for nearly all economic actors.

By Manuel Martin | United States

Income inequality is broader today than it has ever been. Moreover, corporate CEO pay exceeds average employee pay by a wider margin than ever before. Owning a home was once the American dream. But, with home prices reaching 2006 record highs, it now appears to be a luxury of the wealthy few.

Income inequality may seem more prevalent than ever, and many believe it needs coercive governmental solving. However, there will always some who make more than most. This is simply because someone is always the best at what they do, which is good for everybody.

Income inequality benefits everyone, especially the poor. Inequality allows those, rich or poor, to work hard, push past the average, and earn huge financial rewards for their risk and hard work.

Advancement and Innovation

People applying their skills and resources to push past the status quo is how society advances. When the public wanted a faster horse, Karl Benz created the first car. When this still was not enough, the path to commercial airplane travel began. In both situations, someone got a lot of money for being the best at something and helping society.

These advances in travel lead to substantial financial rewards for the entrepreneur, and a better quality of life for all. Today, people travel much faster and more comfortably than they did in times of horses. Without the incentive of money, entrepreneurs would not have a reason to invent. The promise of unequal income strives the forward motion of society.

Income Inequality and the Poor

Many may argue that income inequality hurts the poor, but in reality, the opposite is true. In a free market, income inequality greatly benefits the poor.

A place where individuals are free from political rules and regulations, a free market allows low-income workers to find creative forms of earning money. Free markets create opportunities for even the most unskilled to find work and build marketable skills. Sadly, that free market does not exist today. In today’s world of regulation, many of these avenues are illegal, despite being entirely harmless. Trying to prop up society’s lower class by raising the minimum wage makes it harder for low-skilled workers to find employment, build their work history and advance their earnings potential.

Minimum wage laws create artificial barriers for employers who want employees to do simple tasks. These laws make previously cheap labor expensive. Thus, it incentives entrepreneurs to invest in machines to do the work instead. Though automation occurs regardless, minimum wage speeds this process up. As a result, the low-skilled workers have less time to find a new job before a machine takes it.

A Building Block of Society

Income inequality is the foundation of everyone’s career. Almost everyone starts their career by earning much less than when they finish their career. Ultimately, this is a good thing too, as it gives an incentive to continue working and improve work quality.

Should your primary care physician earn as much as a heart surgeon? Should a pre-school janitor earn as much as a civil engineer? I think we can all agree that income inequality, in these situations, is both fair and just.

Humans pick careers for many reasons, one of the most important reasons being monetary compensation. When the state takes from those who earn more, fewer people will choose such careers. Why should they, if their harder work and more expensive schooling doesn’t lead to higher income? These people, such as doctors and professors, provide great services to society and deserve compensation for such. Society doesn’t need more hamburger flippers, and should not encourage this profession with equal pay for it. However, we can always use another doctor; greater monetary reward will send more people down that path.

Unequal Value

Heart surgeons earn more than primary care physicians because they provide more value. Removing the financial rewards for them will lead to fewer people becoming heart surgeons. As a result, the overall quality of life will drop. If heart surgeons get no reward for saving lives, who will save lives?

These principles apply to all people and all careers. In general, those who earn more provide more value to others; removing their incentive to earn more removes their incentive to provide more value. Of course, this is not universally true, but more often than not is. In a free market, resources tend to go to those who efficiently provide valuable goods and services that consumers want and need.

Wealth Redistribution Hurts the Economy

If almond farmer Jack can afford to bid $3,000 for a plot of land, and almond farmer Bob can only bid $2,000 for the same plot, Jack will win the property. Jack can afford to outbid Bob: he likely produces more almonds per acre for almond consumers. Therefore we can assume he earns more profit per acre than Bob and can afford to outbid him. As a result, Jack will continue to provide a more efficient product for society’s betterment.

What would happen if the State used the law to redistribute money or land from Jack to Bob? Well, Bob, the less efficient farmer, would produce fewer almonds with the new land. Jack, for his efficiency, receives a punishment of not being allowed to fairly buy land. The consumers? Well, they don’t have as many almonds on the market, because Bob did not produce as many as Jack would have. When quantity decreases, price increases. So, because of this policy, the consumer ends up paying more for almonds. Though Bob gets his land, everyone else, Jack included, suffers for Jack’s success. This wealth redistributionist policy is how you regress society.

Free markets lead to the efficient allocation of resources, which advances society and drives up our standard of living. Wealth redistribution simply cannot vouch for this.

Double Inequality of Value

The above average standard of living that Americans have come to rely on is produced by entrepreneurs creating goods and services that people like you value and are willing to pay for. This exchange of value leads to both parties advancing their wellbeing. The company values the money more than keeping the good or service, so it sells. Likewise, the customer values the good or service more than keeping the money, so he or she buys. This double inequality of value is true for every instance of free trade. For any free trade to occur, both parties must benefit.

To advocate for policies that will punish success is punishing people for improving lives. Few policies can as regressive as taking away the incentive for people to create value for customers. Ironically, many modern-day “progressives” actually support such ideas. In effect, they only regress the quality of life. Clearly, wealth redistribution is really what hurts the hard-working many in support of the few.

Wealth inequality is essential to society. Only it can reward the creator of the next lifesaving drug or 200 MPG car for improving lives.

As Unequal as Possible

Inequality drives innovation. Henry Ford didn’t revolutionize the auto industry to make his company equal to the competition; he wanted to be as unequal as possible. By creating more value for his customers, he earned an unequal amount of profit. Should the government have restrained this inequality to protect the horse and buggy industry? Of course not.

Here is the secret when it comes to inequality: it’s your fault. No, this does not single out anyone in particular. Rather, it merely shows the desires of all consumers.

The fact is, you decide to go to your favorite restaurant because you think it’s the best. The other restaurants simply do not deserve an equal amount of money from you. They may have worked hard, but your favorite gets the reward for best satisfying your desires. You watch a movie because you think it’s the best. By buying one over another, you create income inequality. Do you buy a car at random? No, you buy the best one you can afford, denying other car manufactures of income. Making an informed purchase creates income inequality, but is not bad for anyone. No car dealership is entitled to your money. Individual preferences and income equality cannot exist on the same plane.

Freedom of Interaction

Libertarians are often accused of being naïve and ignorant for believing people should be free to interact without the State. However, advocating for equality policies without fully grasping what drives inequality is the real naïve idea.

You drive inequality by your desire to consume the best music, food, houses, cars, and phones. Every single time you choose one product over another, you reward the company. As a reward for giving you what you see as the best, they receive your money. You cannot get rid of income inequality without also getting rid of the system of financial incentive that drives progress.

On the other hand, using the State’s force will only create a form of inequality that is actually harmful. When the State has a right to take from one to give to another, they have a lot more power than the people. Thus, such a solution only creates new, worse tiers of inequality than what existed before.


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1 comment on “Income Inequality? Yes Please

  1. Pingback: ¿Desigualdad de ingresos? Sí por favor

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