Rule Five Income Inequality Friday

Thanks as always to our pals over at The Daley Gator for the linkback!

Here’s another take on “income inequality,” and on why it’s not as big a problem as the daffy old Bolshevik from Vermont, Princess Spreading Bull, Occasional Cortex and others would have us believe.  Read the excerpts below and, indeed, the whole article, and then I’ll give my opinion, which is that “income inequality” isn’t a problem at all.

Income cannot be measured precisely. There are definitional issues such as how to define “household” and how to treat unrealized capital gains, non-market transactions such as childcare provided by a stay-home parent and negative taxes like the Earned Income Tax Credit. And there are measurement issues like how to track income from the underground economy and to get accurate information from people who may be evading taxes or protecting privacy.

Finally, the goal is not clear. We want everyone to have enough for comfort and dignity, but do we want wealth equality between someone who works hard to become a world-class surgeon and her brother who only surfs and loafs? Should government clerks with secure jobs, good benefits and 9 to 5 hours earn the same as people who found and run successful businesses? Should people with expensive tastes be allowed to work hard to buy champagne and Teslas, while others can afford only beer and Chevys but can sleep later and spend more time with their kids?

And:

However you feel about any of those proposals, or others, it’s clear that the social problems caused by the economy in the United States should not be viewed through a lens of simple generalized inequality, with crude redistribution the only solution. Low-income and high-income people each, on average, consume adequate amounts for dignified comfort; as do earners and non-earners. There are plenty of social and economic problems to tackle—people missed by government benefits either accidentally or on purpose, economic insecurity even among people with enough to spend today, government programs that make things worse, racism, sexism, crime and discriminatory criminal justice, child abuse and neglect, to name a few—but lumping them all together as inequality and promising to soak the rich until they go away is misguided.

Here’s the problem:  Too many politicians – people who set policy and make laws – think that inequality is a problem, that the problems of the poor and somehow caused by the existence of the rich.  There are a few deep, fundamental flaws with this thinking:

  1. The economy isn’t a zero-sum game.  If it were, then, as this article points out, one person could only amass wealth at the expense of others.  But that’s not how this works.  Wealth is created and earned, not distributed.  We don’t have to divide the pie into smaller or more equal pieces; we can make a bigger pie.
  2. Wealth and income aren’t the same thing.  Wealth can be the result of income, but it’s not synonymous with income.  A person can be “wealthy” while having a relatively low income; a person who owns a large farm, for example, may be “wealthy” in the sense that they own assets worth a great deal, but they may still have a modest income.  That’s a key difference that many, most notably Lieawatha Warren, don’t seem to understand.
  3. “Redistribution” won’t solve the perceived issue, because most causes of income/wealth inequality are either age-related or behavioral.  Most people move through income levels as they grow, as they go through life.  Myself, for example.  At 20, I had a young wife, a baby daughter, and not a pot to piss in.  Now, I’m pushing sixty, in my peak earning years, Mrs. Animal and I are empty-nesters with a good nest egg and a substantial net worth.  Why?  Because we have worked hard, saved and made good choices; which brings us to the behavioral aspect.  A major cause of “inequality” is that rich people will always do things that make them rich, while poor people will continue to do things that make them poor.

That last bit, item #3, is key.  That’s why redistribution schemes will never solve anything; moving money by force in an economy is like shoveling flies across a barn.  Wealth is generally gained by people who make good decisions and lost by people who make bad decisions; but the only time wealth or income is gained by some at the expense of others is when government confiscates it by force and gives it to those who did not earn it.

Income or wealth redistribution by force means that one portion of the population is compelled, by threat of force, to labor involuntarily on the behalf of others.  The only proper response to such redistribution schemes is “fuck off, slavers!”