Should I care about income inequality?

A question for you, dear readers. Seems like I’m hearing all the time now about how we need to rectify the problem of income inequality in this country – in fact, many people (the “Occupy” movement especially) seem positively obsessed by it. But nobody ever tells me why. It’s just assumed that we will all agree it’s a problem. Why is it a problem?

Don’t misunderstand me – I’m all for ending poverty. I mean, I just wrote a post about microfinance. (Though I would also point out that the poverty most poor Americans experience would look like luxury to most of our ancestors.) But supposing we did insure that everyone had a decent standard of living, whatever we decide that is – if so, should we be bothered by the existence of the rich and super-rich?

I can give you three reasons why we shouldn’t be worried about income inequality, the first mathematical, the second moral, the third practical. The mathematical reason is – income inequality almost inevitably increases as a country gets wealthier. This is just because incomes are bounded on the lower end ($0), but unbounded on the upper end. Dirt poor countries tend to have very little income inequality – because everybody has nothing. Not a desirable situation.

The moral reason is that government attempts to promote income equality have the side-effect of diminishing productivity and creativity. If you’re going to get the same income as your industrious neighbor even if you just sit at home all day, why not just sit at home all day? This is one unmistakable lesson of the Communist experiments of the 20th century. I remember being shocked when I read that when Communist China effectively privatized some farmland – allowed people to grow some food for themselves and not for everyone – the productivity of that land went up by something like a factor of 40. (I can’t remember the precise number now, but I remember it was something insane like that – if you can point me to an internet source I can link to, I’d appreciate it.) Very few people want to remedy the problem of income inequality by going full-Communist (at least, very few will admit to it!), but smaller remedies will just have smaller negative side effects.

And finally – it’s good to have some super-rich people around, because they fund crazy ventures that eventually benefit everyone. I was reading an article about private space exploration today, about people spending $200,000 for a brief ride into space. That’s crazy. But it gets us going into space, and with time and practice, time and practice funded by the super-rich, those prices will surely come down. (How far I do not know, but they will come down!)

So those are three reasons big we shouldn’t worry about income inequality. To be fair, I’ll also give you one reason I’ve heard that we should worry – because money is power. Financial inequality also produces political inequality because Mr. Rich Man can fund television commercials that come into every home and change your vote. There is obviously some truth in this concern. But I would say that, thanks to the internet, money probably buys you less power than it ever did before. A poor college student with a laptop computer can make a Youtube video that gets seen by millions of people. That’s great. Furthermore, a lot of this money ends up canceling itself out, as it were, because the very rich are politically divided just like the rest of us – they spend against each other. So while this may be a reason to be a little concerned with income inequality, I think it a pretty small reason.

Any thoughts? Am I missing something or mis-emphasizing something?

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3 thoughts on “Should I care about income inequality?

  1. Interesting post! I think I mostly agree, so long as you’ve got the caveat in there that you’re for ending poverty. When there are poor people, I believe some income redistribution is a legitimate function of government. Not just because it’s good to help people, but because poor people are dangerous to have around. They’re more likely to steal stuff, hurt other people in desperate attempts to get what they need, etc. The idea that poor people are better off than our ancestors isn’t so convincing to me because 1) the poor people don’t know that and compare themselves to the wealthier people they see around them, not someone who lived a long time ago and 2) if someone goes hungry one day a week, the fact that people used to suffer hunger three days a week (or whatever the numbers are) doesn’t make that one day any more bearable. Also, poor people are more likely to raise kids who aren’t well prepared to work at good jobs, because poor people aren’t able to invest in their kids the same way wealthier people can.

    Another case where inequality matters is when there are barriers to entry to the high-paying professions. If doctors have twice as much money as everyone else because they’re twice as productive, I’m fine with that. If they have twice as much money because they were the only ones who could get loans for medical school, or regulations only allowed a certain number of people to be doctors, then that’s bad. So if there’s sharp inequality, I might be worried about harmful licensing requirements, regulations, and credit constraints.

    But aside from that, I agree the existence of wealthy people is a good thing. I really like your point about wealthy people being early adopters of products that gradually become affordable to the masses. I’m guessing there wouldn’t be many smartphones and laptops on the market if really wealthy people hadn’t been able to buy electronics before the rest of us. I think government should be involved in bringing up the standard of living for people at the very bottom, but not in trying to flatten out the top incomes and keep the rich from getting too far ahead of anyone else.

  2. I think the issue of power inequality is more important than you acknowledge. Yes, the super-rich are divided on some issues, but on other issues, there is a consensus. Because they super-rich have more power, they are able to arrange the political and economic system such that it benefits them. Thus, not all are equally rewarded for equal work – the rich are rewarded more because they’ve been given the ability to determine who gets what rewards. This can lead to a situation such as that in Micah 2, where the rich are able to reappropriate the wealth of the poor. Amos 4 and 6 furthermore suggests that if the primary use of wealth is to gratify one’s self, then wealth is immoral. Sure, that’s not a reason there’s shouldn’t be rich people (and I’m not saying there shouldn’t be), but it’s a caution against wealth.

    One other practical reason to limit income inequality is that greater income inequality leads to lower social stability. If those at the bottom (or even middle) of the pyramid don’t feel like they’re being fairly rewarded for their efforts (because they’re getting so much less than those at the top), then there’s less of an incentive for them to buy into a system they see as corrupt. They’re more willing to work to overthrow the system or at least less motivated to defend it from threats.

    1. Yeah, your latter point is similar to Sarah’s, and is not something I’d thought of. Sure, today’s American poor might be rich by historical standards, but they don’t compare themselves to their ancestors, they compare themselves with their even richer neighbors. And that can lead to social strife. (Human nature being what it is, I think it could lead to strife even if the poor were being “fairly” rewarded, but doubly so if they aren’t!)

      I think we would agree that the Bible does not say that wealth is an inherently bad thing, but that living for wealth, or finding your security in wealth, or obtaining wealth by unjust means – these are all strongly condemned.

      A thought I just had – as to the power of the super-rich to arrange the political system to their benefit, I’m not sure I agree. They may have the money, but they sure don’t have the votes, they’re vastly outnumbered. Given our progressive tax code, the large amount of social spending done by our government (most if it not targeted at the rich)… does our system look like a system designed by the rich? Maybe, but I’m not sure.

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