There’s No Iniquity In Income Inequality
By Bill Flax, RealClearMarkets January 22, 2010
Demagogues in Washington are thrilled to ply their vote-buying wiles promising to punish greedy rich villains, but the wealthy are not the evil caricatures of popular imagination. Riches are not generated by depriving others. Some actions grow the proverbial pie. Others shrink it. Those prospering society through work, innovation or investing their capital deserve to be rewarded accordingly.
Greed has been prominently blamed for the current downturn and it certainly contributed, but not entirely in the manner depicted by the intelligentsia. In the Marxist conception of economics as a zero sum game, one’s profits must correspond to another’s losses. Businesses earning healthy returns are seen as immoral and limited government cited as the tool by which those on top exploit the masses. Society is comprised of victims and villains, with those helpless souls trapped at the bottom being pinned under those climbing their backs to the top. It is therefore government’s just role to redistribute power and wealth to the downtrodden.
Those who bought too much house weren’t greedy; that moniker only suits the banks which lost dearly on the unpaid mortgages. Companies losing money should be defibrillated back to health with transfers from those still creating the wealth sustaining us. The unemployed should be financed by those still getting up each morning. The villains are those creating the wealth that improves all of our lives and the victims are those who don’t work or honor their financial obligations.
But all this demagoguery is nonsense. It attracts votes, but a culture built on covetousness is unsustainable. When socialist-leaning reporters, teachers, social-workers, community activists, etc. bemoan how the rich attained their wealth only through robbing or exploiting others, (the classic class warfare agitprop) – the message is clear: hard work is futile.
Leftist do-gooders steer those they profess to be helping into an unnecessary bondage of poverty. Welfare is thought deserved and crime justified. The poor shouldn’t bother working or carry any qualms regarding theft or deceit themselves. If wealth were static, you could only gain by seizing a bigger slice from your neighbors. But wealth isn’t static. Capitalism grows the pie and benefits all.
The opportunity to work far surpasses handouts by offering both monetary reward and accomplishment. It allows the recipient a paycheck in exchange for contributing as opposed to the shame of only burdening society. Some are better compensated than others, but there is nothing immoral regarding different outcomes. This is natural.
It isn’t immoral that one is tall and another short. Nor is it unfair that one team wins and the other loses if the rules were applied evenly. It is absolutely immoral when government picks who wins. A cheating opponent is troubling enough, but the state should never violate its constitutionally-mandated role as an impartial referee. Unlike sports, where only one team wins, free markets allow both parties reward. Inequality doesn’t evidence winners and losers so much as reflecting one winning even more wonderfully than other victors.
The appropriate comparison is never whether someone else is better off, but what other options exist? It’s not unfair that my neighbor makes more than I. It is silly if I could earn more elsewhere yet complain rather than do so. If no other opportunities avail themselves, comparing your status with those more fortunate is a fool’s errand.
Poverty rarely results from a lack of opportunity. We earn when someone is willing to reward us because they also derive a benefit. If nobody values our output, we should redirect our efforts. The value of anything, our labor included, is a function of what someone is willing to pay. We make ourselves useful to society and get rewarded through market forces commensurately.
The media and academy compare real world capitalism, inevitably corrupted by imperfect man, with theoretical socialism. In practice, socialism of the fascist, communist or social democrat variety rarely works except on the blackboard. In theory, there would never be a traffic jam if everyone would just drive 65. In reality, socialism fails because it mistakes human nature. Incentives matter.
We are an inherently selfish species. Greed goes back to Adam, who had it all and still wanted more. Whether one considers Genesis a depiction of actual events or an allegory explaining human nature, the fact is undeniable: mankind from the dawn of history has been flawed. Greed didn’t just appear because George Bush was president. Greed defines us. It always has.
Capitalism may be the one aspect where this otherwise debilitating quality gets channeled into the benefit of all. In capitalist societies, wealth is generated by mutually beneficial trade. Wealth comes from adding value.
Through honest, free exchange, our wants are best satisfied by serving our neighbor’s wants. Without property rights and the freedom to transact for gain, we would fall into the mutually destructive perdition of jealously. We would consume as much as possible while producing as little as possible: communism in a nutshell.
America’s poverty line far exceeded the per capita income of every communist nation. Without free markets, no one excels. Markets don’t stunt the growth of low earners. They reward those who achieve more. People who denounce inequality are not concerned with the misfortune of some; they covet the bounty of others.
Socialism holds down everyone except the politically connected. Capitalism allows producers to rise on their merits and in so doing lifts the standing of all around them. Even the poor in modern America are generally extraordinarily rich by any material measure.
Those below the poverty line live better than nobles or tribal chieftains a few centuries back. Almost half own homes. About two thirds have more than two rooms per person while less than 10% have more than one person per room. Approximately three quarters of those below the poverty line have air-conditioning and own a car. Virtually everyone, the poor included, enjoys luxuries unavailable to the wealthy of recent past.
Even kings of yore didn’t have cell-phones, televisions, appliances, automobiles or the vast array of medical, culinary and entertainment options available to welfare recipients today. The lowest quintile of income consumes the most calories. The predominant dietary issue facing the poor isn’t starvation, but obesity. Our less fortunate aren’t suffering a lack of fortune.
The appropriate means to ensure wealth is earned fairly is not to inflict government into the market, but to extract it. No more bailouts, handouts or political patronage.