In 2017, the top 1% of Americans earned a record amount of money. That year, the average income of someone in the 99th percentile was a whopping $492,311. As a result, income inequality has come into the fray as a major point of discussion in recent years. Specifically, Bernie Sanders has focused on it heavily, arguing that the divide is too great. Many others disagree. One fact, however, complicates the income inequality debate: as the rich are getting richer, so are the poor.
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.
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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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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By K. Tymon Zhou | United States
The question of inequality is ancient. In our time, liberals argue that income inequality justifies greater government intervention. This is often colored in moral terms as a dire injustice. Aristotle’s Nicomachean Ethics and Politics takes a different view: inequality is not injustice and centralization has potentially terrible consequences.
Inequality is not injustice. To probe the question of defining justice, Aristotle ponders an individual giving needlessly extravagant gifts. Is this an example of injustice? No!
Again, one who gives what is his own,…is not unjustly treated; for though to give is in his power, to be unjustly treated is not, but there must be some one to treat him unjustly. It is plain, then, that being unjustly treated is not voluntary.
Injustice is not the consequences of one’s own choices. Experiencing crushing debt after a series of poor financial decisions is not injustice. It is the result of one’s own poor foresight and one must take responsibility for it.
Instead, injustice is characterized by involuntary suffering. Others harming another can bring this about. Thus, embezzlement creates injustice. In this case, an individual deliberately manipulates another for his or her own amoral self-interest. The victim’s righteous indignation is completely justified. Do we as a society have the same right?
No. As a society, we suffer the consequences of our collective choices. No one individual is responsible for trade deficits. No one individual produced a post-industrial economy. Instead, society produced and later embraced these trends. Industries rise and fall based on consumer preferences. Consequently, certain communities abound in wealth.
California’s Silicon Valley has become synonymous with affluence while Appalachia struggles. This is tragic, but not unjust. As a society, we’ve chosen to value certain skills such as software engineering more than others. Does economic injustice occur? Yes, but these are isolated occurrences.
There are prejudiced employers and dishonest bankers. There is not however, an organized cabal of capitalists conspiring to perpetuate inequality. Injustice implies deliberate victimization. This element is missing in income inequality
Inequalities are tragic. How then should governments respond to them? Aristotle, in his characteristic thoughtfulness, provides no simple solutions. However, Aristotle strongly rejects socialist collectivism. Consider this scathing criticism of collectivist legislation:
Such legislation may have a specious appearance of benevolence; men readily listen to it, and are easily induced to believe that in some wonderful manner everybody will become everybody’s friend, especially when some one is heard denouncing the evils now existing in states, suits about contracts, convictions for perjury, flatteries of rich men and the like, which are said to arise out of the possession of private property. These evils, however, are due to a very different cause—the wickedness of human nature.
Herein lies the difficulty of inequality. No administration can eradicate greed or compel diligence. It may be possible to mitigate the consequences of such vices, but it is not in the government’s power to revolutionize human nature. Additionally, bureaucrats and legislators themselves possess the very same vices they deplore in private citizens. It does not take a political genius to recognize the causes of pork-barrel spending. For the sake of their own ambition, legislators forsake their ideals. Such is the wickedness of human nature.
Aristotle’s counsel is timeless. Inequalities are not unjust; they are tragic. Wickedness does occur and government should respond. Yet, governments cannot remove it by taking a more proactive economic role. Governments should instead act cautiously and prudently, mindful of these principles.