The Income Gap Obsession

The word “equality” is being rammed down our throats every day, with special focus on the so-called “income gap.” The presumption is that we should all denounce the gap, work to eliminate it and embrace perfect equality as an ideal.

It’s true that inequality is growing, but the focus on that alone is sheer folly. Equality applies to math equations. You could also use it to describe how the law should be impartial with respect to persons — the traditional use of the term “equality” in the classical liberal literature. But that’s it. Otherwise, an obsession with this topic is very dangerous for a free society.

That’s because the people who invoke equality have no intention of creating the conditions to make it easier for the poor and for middle-income earners to grow rich. Leveling upward is never the goal. Egalitarians want to flatten incomes at the top so that the rich no longer exist. This can’t help anyone but the envious, those who get a kick out of destroying, rather than creating.

As Shikha Dalmia writes, “Income inequality tells us zilch about the only thing that really matters: Are the lives of Americans, rich, poor and in between, getting better or worse?”

Try an experiment in your mind with a society of 10 people. Five people earn $50,000 and five earn $100,000. Let’s say we flatten out the top half so that everyone earns the same. Equality! But who benefits? Absolutely no one. Society as a whole is poorer, and that is to the detriment of everyone: less capital, less wealth available for wealth-forming projects, demoralization among the smartest and most inspired and a ceiling on those who might have previously desired to move from the lower half to the upper half.

In any case, the supposed egalitarian ideal can always be achieved by driving everyone into the dirt and universalizing poverty. There is a serious problem, with an ideal that can be achieved by wrecking the lives of absolutely everyone.

In a free society, we just have to get used to the idea that some people are going to be vastly richer than other people. And those rich people do act as benefactors to the rest of us. They give more to charity. They start the new businesses that employ us. They take the risks that make capitalism dynamic and progressive. They act as society’s economic leadership team. And the individual members of that sector of society are constantly changing, and this is a good thing.

What’s more, in a free society, the rich are completely dependent on the poor and the middle class, who, in a market setting, make it possible for the capitalists of society to accumulate wealth in the first place. It is the voluntary choices of the masses that direct the use of society’s resources. The “distribution” of wealth is a result of the choices we all make in our capacity as consumers.

Yes, I’ve watched lectures by people who claim that societies with more equality are happier places. What they end up pointing to are places like Finland, Sweden, Denmark, Japan, Norway. This is just a mistake: These countries are demographically homogeneous and cannot be compared in any way to places like the U.K. or the U.S.

Consider this… Where would you rather live? Ethiopia or the Netherlands? Ethiopia has more income equality, according to the statisticians who calculate the so-called Gini coeffiicient. Another example: Tajikistan or Switzerland? The former has more equality than the latter. Another: Bangladesh or New Zealand? According to the egalitarians, we should rather live in one of the poorest places on the planet than one of the richest.

Again, the degree of equality is not in any sense related to the quality of life.

So why the hysteria right now? The real problem is more fundamental in the United States. The poor are growing and entrenching. The unemployed are staying this way. The middle class is slipping, and more substantially after the the recession statistically ended than when the statistical recession was on (and polls show that hardly anyone believes we are out of recession).

Now, this is catastrophic, not because this increases the income gap, but because it is killing the American dream. What the political left is doing is attempting to change the subject away from what matters (we are all getting poor) to what doesn’t matter (the income gap between the top and bottom). And this rhetorical shift is scary: It prepares the way for higher taxes, more redistribution, more attacks on the financially successful and more of all the policies that are causing our worst problems right now.

So why the focus on the equality? As Mises says in his great work Socialism (1922): “The principle of equality is most acclaimed by those who expect to gain more than they lose from an equal distribution of goods. Here is a fertile field for the demagogue. Whoever stirs up the resentment of the poor against the rich can count on securing a big audience.”

Americans should know better. Even when our economy was the freest in the world, we had one of the most unequal distributions of that wealth on the planet. It was during these years that the lifespans of everyone increased, when the chances of moving from poor to rich were huge, when the per capita income was growing as never before in human history. Growing inequality is likely to coincide with growing wealth (see How the West Grew Rich, the masterpiece by Nathan Rosenber).

We need to learn to admire the justly rich and strive to emulate them and their outlook on life. This is what the advice manuals of the late 19th century said. The most popular magazines of the time chronicled their lives, and they were held up as national heroes. This is a sign of a healthy society. It is because of this ethos that the poor of today live vastly better than the richest of the rich 100 years ago.

Today, on the other hand, we are told to resent the rich, attack them, hate them, expropriate them. This is the sure path to disaster. Freedom is what enables the poor to become rich. The state is the means by which everyone in society is driven into poverty. We need less state and more freedom.


Jeffrey Tucker

The Daily Reckoning