But Now You Know

The search for truth in human action

The Truth about Income Inequality


There has been a lot of hoopla, lately, about the gap between rich and poor, how it’s growing, and how we need to give government more power to get rid of that income disparity. It’s actually been shrinking for the past four years, but it’s still larger in the US than most countries.

Some people say that it’s proof capitalism doesn’t work and needs to be banned, or at least that we need more income redistribution. Otherwise, the masses may revolt, like they’re doing in Greece and eventually take everything, therefore the ruling class have to choose between being violently overthrown, or surrendering their wealth.

But this all begs the question of why we’re talking about income inequality in the first place. The real question is whether we should be talking about differences between people, or overall quality of life for everyone.

Should We Care about the Wealth Gap?

Bolivia, Haiti, and Congo have very low income gaps, but equally low standards of living.

Which would be better:

  1. A society where the wealthiest earn a certain amount per year, and others earn about 50% that much.
  2. A society where the wealthiest earn a certain amount per year, and others earn only 5% of that much.

If you answered either way, you’ve blown a test of basic logic; You have no way of knowing which is better, unless you know how well the poor are doing in real-world terms.

For example, let’s say you answered that (1) is better, where the wealthy earn only twice as much as the poor, instead of twenty times as much.

But it turns out that, in the two examples:

  1. The wealthiest earn $20,000 per year, and the others $10,000
  2. The wealthiest earn $1,000,000 per year, and others earn $50,000

Would you REALLY prefer that the poor only get $10,000 per year, instead of $50,000 (in dollars with the same buying power), just because the income gap is smaller?

Not if you have any real-world experience. I’m sure a few kids who’ve never had to live on their own, or guilt-ridden trust fund brats convinced that everyone being poor is better than some being really rich, but the rest of us know better.

And when people talk about The Gap Between the Rich and Poor in the US, claiming income disparity is a horrible thing that needs to be fixed, this is exactly the kind of foolish, self-destructive position they’re taking.

Socialism vs Capitalism

Who, but guilt-ridden trust fund brats, seriously would prefer for the poor to live with less, just so the rich would have FAR less?

In fact, as the above examples show, what matters can’t be the “gap”, but the actual quality of life of people in the society.

Take Communist China, for example:

  1. When China was much more socialist, redistributing wealth and regulating the economy with  “social justice” the way the “income inequality” people want things to be, most people in the country were miserably poor…but equally so. They struggled just to subsist, living on dirt floors, literally millions dying from lack of resources that should have been readily available…but there was almost no wealth gap, at all.
  2. When the government realized that socialism doesn’t work, and began deregulating the economy, the gap between rich and poor exploded. It’s now hundreds, maybe thousands of times “worse” than it was…but almost everyone in China the less-regulated parts of China is better off than they were, although some are now MUCH poorer than the wealthiest.

The decline of socialism has led to a better life for many of the poor, and an increasing wealth gap, purely because some of the poor, themselves, are becoming much wealthier.

It is not income disparity that matters, but actual standards of living.

Far fewer people in China are now dying of hunger. Many of those who lived in huts with dirt floors and delivered their babies standing up in the kitchen now have modern homes and medical care…because of the very mechanisms that are making income disparity greater.

What we really need to be concerned with is quality of life, not exploiting jealousy and greed by focusing on “inequality”.

Rising Living Standards

When people claim that something forceful needs to be done about people they describe as poor, they make it sound like those people are victims of capitalism, now reduced to poverty.

The more we have, the more we want…we shouldn’t let that translate into jealousy and greed against those who have more

For example, think of people who complain that, thanks to the Roaring Twenties, one third of all Americans at the time had no electricity, indoor plumbing, access to automobiles, et cetera…but, of course, a decade earlier even fewer people had electricity, indoor plumbing, or automobiles.

In fact,  just a few years earlier dirt floors were normal in the US, just like China. The very idea of what isill-clothed, ill-housed, and ill-fed” had shot up in standard purely a as result of the “unfettered capitalism” of the 1920s.

If not for that period of economic freedom, dirt floors and cheap, crappy clothing, and malnutrition would have still been considered normal and adequate.

Likewise, you can find people talking about protests over living standards in China, now, where they focus about the slums around the big cities, how people don’t have gas heat, live in cramped conditions, et cetera.

But, of course, just a few years ago, most of those people were peasants living in dirt-floored huts, eking out miserable lives wading in rice paddies, barely growing enough to feed themselves after the government confiscated most of their product of labor, and living on barter.

They moved to those slums because, as in Industrial Age America’s “sweat shops” it’s an improvement over what they had before. If China continues to deregulate, their living standards will continue to get better, even as their idea of how they should live increases faster, making them complain more.

One of the greatest political scientists in history, Joseph Schumpeter (with a name like Schumpeter, he had to be good) actually thought that the doom of Capitalism might simply be that it caused things to get so good that people’s idea of what they deserved would outpace how much better things were actually getting, so that they would always turn to massive government intervention to “fix” it, causing the economy to fail.

This is what happened with Herbert Hoover’s massive spending increases and regulation causing the Great Depression, and is happening now.

Some Wealthy Did NOT Earn their Money, and Need to Lose It!

But it’s true that things are unfair, today. There are many people who do not deserve the wealth they have. They did not earn it themselves, but used bailouts, “stimulus”, corporate welfare, and other coercion to steal money confiscated from others. Their corruption and inefficiency has been preserved, like a limb with gangrene, and is killing the body of the economy…like a limb with gangrene. And that needs to end, yet both dominant political parties are actually defending and increasing this economic injustice.

Instead of obsessing with the jealousy and greed of class hate, comparing who has what and trying to take away from those who produce more, we need to increase the very conditions that cause “income inequality”, to allow the poor to increase their own well-being, even if the rich increase theirs even faster…but stop actively rewarding the wealthy through government fiat, when they haven’t earned it.

We should let bad companies and people fail, therefore increasing social justice, if not income equality.

BONUS FEATURE:

Here is the original article from the Site of the Sentient, written in 1996: Income Disparity: The Gap Between the Rich and the Poor

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February 28, 2012 - Posted by | Economy, International, Politics | , , , , , , ,

1 Comment »

  1. This is what I have been saying about the Occupy protests all along. The ONLY way to guarantee that everyone has the same amount of wealth is to guarantee that everyone has nothing.

    Comment by Ian | June 13, 2012 | Reply


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