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?