What Is The Nature of Income Inequality?

income inequality

Is there anything we can or should do about income inequality?

This is not only a philosophical question, but an economic one as well. The philosophical question pertains to fairness and is subject to moral reasoning as well as people’s innate sense of fair. I believe people feel that, whatever label it’s given, there is something unfair happening within society now when it comes to income and earnings.
 
The economic question is whether inequality is good or bad for the national economy as a whole, and whether it improves people’s lives or is detrimental to them. I believe that economic theory and history suggests that inequality hurts our country’s economic future.
 
Philosophy matters. A lot of economic theory is simply mathematical rationalizations for unstated moral and philosophical axioms, and economic theories run a society. Adam Smith was, in effect, a philosopher. Ayn Rand certainly thought of herself as a philosopher.
 

Economic Equality

It’s impossible in a universe that has distributed talent, ambition, skill, IQ, physical attributes, self responsibility, ethics and morals distributed in such a random manner. Money is never equal, because people not only earn it differently, but they spend it differently. How do you stop that from happening? You can’t.
 
Does all economic inequality derive from illegal or immoral sources? Does the very existence of inequality imply cheating on the part of those with more? “You didn’t build that” is an essential supposition in the logic that requires the government to fix inequality as individuals who have “cheated” or are “cheating” will continue to do so. The glowing examples of this in America are slavery and Jim Crow.
 

“The Fundamental Producer of Income Inequality Is Freedom”

That’s only one part of the story. The electorate now sees the whole story which involves cronies buying both parties and convincing politicians that they deserve to pay only 13% effective income tax while their employees should pay higher. They don’t have incomes but dividends and carried-interest which is “different”.
 
These same cronies have also convinced the same politicians that the real problems are Social Security and Medicare. Tax cuts for me and benefits cuts for thee. Do that and thou shall get campaign donations, golf junkets and big lobby jobs in case the hoi polloi doesn’t reelected you.
 

Wealth

The truth is it’s more often been a product of what we’d today consider to be immoral methods. Historically, wealth has been derived from raw political power, as compared to today when power tends to be derived from wealth, with the wealth a product of providing goods or services others want.
 
Most wealth in Latin American countries, for instance, is a product of those in political power controlling the country. The same applies for the oligarchs of Russia. Around the world and historically, much, possibly most, wealth has been the result of some immorally stealing what others produced.
 
One simply can’t assume, without bothering to try to prove, that American wealth is largely not a product of similar immoral action. The challenge is to provide evidence that inequality here is indeed the result of legitimate processes, not just to assume it is.
 

The Free Market

People are reconciling the often irrational choices made in the marketplace, which reflects the choices made by its participants, that aren’t necessarily bound to reason. People are realizing that it’s not just about supply and demand decisions, but also emotion, psychology, bias, etc.
 
We might ask why Kim Kardashian is richer than Neil DeGrasse Tyson. Ayn Rand would say it’s because Americans have the freedom to choose what gives them pleasure no matter how stupid or shallow we consider them to be.
 
Kim Kardashian’s wealth didn’t come out of Neil DeGrasse Tyson’s pocket, nor did she ever do anything to hurt his career. Tyson, as an esteemed scholar and doctor of science, receives nonfinancial rewards such as respect from his peers. If he’s has never expressed any jealousy of Kim Kardashian, neither should anyone else.
 
Liberty and freedom include the ability to make shallow and stupid choices. It’s the price paid for the freedom to make wise and sometimes brilliant choices at other times.
 

Money Over Health?

Think about this. Hedge Fund Manager A is brilliant. He works 80 hours a week. He creates value for his investors whom are very rich people and companies, often overseas. They realize gains in the billions. He makes $45 million this year.
 
Thoracic Surgeon B is exactly as brilliant as Hedge Fund Manager A and also works 80 hours a week repairing hearts and sometimes lungs. His patients realize gains that are incalculable. He makes $800k a year.
 
If you ask a human what they value more: money or life, they’d answer life. You would think this would mean that the economy would reflect that in their incomes, yet here, they are reversed. The hedge fund manager earns more.
 
The reality is that the vast majority of us will never have any need for the services of a brain surgeon, whereas we all participate in the economy. In other words, brain surgery is not scalable.
 

What Is Enough?

Perhaps our understanding of “enough” is inadequate. “Enough” means to keep from starving or freezing not necessarily being a limitation on the ability to raise one’s resources or capacities beyond that. A society should be organized to allow, and even encourage, that. At the same time, enough should mean the person satisfied to teach six year old children to read should not be cold and hungry while the speculator controls the wealth of a continent.
 
There will always be inequality but that’s not the issue. Instead, we need to focus on the incredible degree of inequality and how that came about and how it is maintained in our nation. Thomas Jefferson was prescient in his concerns over how an “aristocracy of wealth” could destroy the republic.

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