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

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

8 Comments »

  1. Except it’s not a scenario where the poor are making 50k per year. As much as 10% of out population make about $15k per year working full time, others are making even less while working. The unadjusted average of the top 1% is $717,000 after taxes. Major companies like McDonalds earn 1.6 billion, assuming they their taxes, though often they pay less taxes than a 38k/year employee. GE has recieved funds making their effective tax rate lies than 0. When you cut out the top 10% of earners, the medium household drops under 25k/year. So yeah, you’re data and it’s interpretation is bad, done deliberately to support your view. There IS an issue of disparity, and stagnation.

    Comment by Cecil | February 16, 2016 | Reply

    • > Except it’s not a scenario where the poor are making 50k per year.

      THat is irrelevant. The logic is still exactly the same, and you’re not addressing it:

      The problem isn’t the “gap”, it is (if anything) the absolute income of the poorest. And socialism REDUCES that absolute income. Capitalism raises it, but raises the income of the highest even more, thereby creating the “gap”, which is good.

      > As much as 10% of out population make about $15k per
      > year working full time, others are making even less while working.

      No, because that assumes that minimum wage workers are trying to support families. Most of them are not. Their largest demographic is inexperienced people, like teenagers, who cannot earn more because they lack the skill. If you raise the minimum wage, they will simply become unemployable, increasing poverty as they grow up and have kids.

      > The unadjusted average of the top 1% is $717,000 after taxes.
      > Major companies like McDonalds earn 1.6 billion, assuming they
      > their taxes, though often they pay less taxes than a 38k/year employee.

      You know what would fix that right up? A flat tax. Then the wealthy would ALWAYS pay more, in precise, absolutely fair proportion.

      > GE has recieved funds making their effective tax rate lies than 0.

      Flat tax.

      > When you cut out the top 10% of earners,
      > the medium household drops under 25k/year.

      You mean median, right?

      Again, trying to “fix” that would just make the poor even poorer, as it did in the 1970s and 1930s.

      Comment by kazvorpal | February 16, 2016 | Reply

  2. Phone deleted comment. There are many rich in haiti/congo, stats will lie. Also just like E. Europe because these are more ‘vassal’ countries the wealth-holders/robbers are more likely to be in a dif. Nation.

    I agree with a free market, and enterprise. Do you agree with private/public armies stealing land and murdering to build steel mills and power plants.

    Remember Africa has the most lux. Vehicles per capita but low ‘income in-equality’. What does that tell you about those stats? How much of wealth is un-declared or in hidden accounts.

    They found that a country should have 1-5% of GDP in currency circ. India, for example had somewhere like 20%+ forget exact numbers. Most of it was estimaed to be ‘black’ money that gov. Members siphon to swiss accounts.

    The gov. Of the state mumbhai is in recenlt resigned after it was revealed he spent 144 bil. USD on agri. Projects which raised irrigation cap. By less than 1% over I think 5 or 10 years. Many of the contracts were to his brother’s ‘companies’ many of which didn’t exist. Google it; now, that money will now show in income inequality stats as that money is never declared.

    See where I’m going with this, you know the world and don’t need a book to tell you about it.Life expectancy for example; hunter gatherer groups have close to 50% of ppl living to 65. Infant mortality brings down life expectancy, people don’t actually mostly die at like 35 in somalia in zimbabwe. Atleast none of the ADULTS you’ll meet.

    If you survive till 1 your life ‘expectancy’ basically doubles.. It’s another stat used for political (read: monetary) means. It basically means jackshit. You know when a place is poorand and you know where those places are.

    Since we know the scale of poverty is the real issue, and the concentration we know India is the poorest countey, and Bihar the poorest place. The gov. There admits it takes somalia and the congo 20+ years of war to get the same dismal healthcare results these places have.

    ‘India The Land Of Riots And Famine’ If you’re old enough, you’ll know that before the sub-saharan craze it was ‘cool’ to worry about all the starving indian children.

    Comment by gunzrx | November 15, 2012 | Reply

  3. Now, this isn’t personal but about this viewpoint; it is entirely incorrect. It is basically saying Hi I have money, I don’t want to lose it, and I’ll use fancy words like freedom, and social justice to make it sound legitimate. I’ll also create outside enemies to keep people from thinking ciritcally, as well as keep them so distracted by gadgets or so poor they can’t afford to care.

    These countries have risen through robbing another, while also enslaving their own; but, by kicking down some of the money. If you deny that you deny the truth.

    For example, britain’s industrialization was basically driven by the 1.5-1.8 BILLION ‘indians’ it helped kill. I wonder who’s deaths will help drive india’s industrialization today? Or should I correctly say industrialization for the small maybe 1-200 families receiving all the wealth.

    When you have things like the contras, or you have punjab state gov. Moving drugs themselves do you talk about justice? Many americans have moved into a mentality of we are powerful, bloodthirsy so bless america.

    Just the mentality of ‘we are right’ and our army proves it. Problem is truthfully, it is mostly recessive people whom the sun destroys. And they go down due to low fertility. The corrupt leaders of the 3rd world are killing more directly but we must destroy this all.

    Better a world burning free, than one cozy in enslavement.

    Cuz chains was never comfortable, these rappers just got paid enough to make them lie to themselves.

    Comment by gunzrx | November 15, 2012 | Reply

    • I don’t have to worry about losing money in order to help the poor, because the only effective way to help them IS to give them more freedom of choice. You are suffering under the delusions of the Fixed Slice Pie fallacy. You think that in order for one person to have more, others must have less. But that is only true in a socialist economy, where wealth creation is not rewarded. In a free market, each voluntary transaction creates extra wealth in the community. A person with too many tomatoes does not value them as much as a dollar, while a person with not enough tomatoes values them more than a dollar. By trading, both of them become slightly wealthier.

      It’s certainly true that the countries colonizing Africa and Asia rose by robbing them. This isn’t capitalism, but socialism. Capitalism must always be consensual, while socialism on an economic scale is always coercive.

      The ongoing economic weakness of India, having been freed of the Evil Empire that once ruled it, shows this. They got rid of a distant authoritarian government, but unfortunately they replaced it with a domestic one. End the socialist intervention of India’s government, and the billion poor there will quickly rise in economic success.

      Comment by kazvorpal | January 12, 2016 | Reply

  4. The problem isn’t income inequality what you call capitalism in the west is not ‘true’ capitalism or atleast there is a gov. Supposdly playing on the people’s side.

    As far as social justice, right wing paramilitaries in the tropics of the world have reg. Killed and massacered many. What you fail to mention in this article, is that china is rising due to having a large labor pool and a built up supply chain. It also has most of it’s population along rivers, and the east cost providing lower transportation costs. It is irrelevant to capitalism in the sense that looking at India for example the article I commented on, or central africa we see that capitalism simply means gov. Along with corporations stealing, murdering, and pillaging.

    Standards of living increased in the 1st world due to cheap resources, and labor from the 3rd essentially by stealing from, and enslaving it. It is easily seen that the regions colonized for the longest are the poorest today. It is well expected for east asia to rise sooner than the tropics due to lesser colonization.

    China is simply doing the same thing britain did, striking deals with the desparelt poor or the greedy in poor places and profiting. It’s not a blame game, but it is the reality.

    Remember also, that better free and poor than enslaved and wealthy. Many people are having their land stolen etc. Or they did, so that the ‘US’ could have better standards. It was also after these twenties that the currency was switched to being backed by nothing.

    Also, it is common to say that peasents move to cities for a ‘better’ life; in china due to gov. Robbery it is probably true in most places it is due to the violence visited upon them by 1st world funded usually right wing gov. That brings them there.

    People can make over 100 a month US harvesting leaves in a region in india let’s say (google india’s dirty war forbes) that amounts to 60k rupees a year something a manager is lucky to make. I’m saying a lot and it is on a phone but look deeper for the real reasons on the ground, look for what’s happening.

    People are being enslaved, and murdered. All for a ‘quality of life’ essentially a bribe.

    Comment by gunzrx | November 15, 2012 | Reply

    • China is growing economically not because of a labor pool and supply chain, but because of an increase in economic freedom. It had even larger labor pools when it was poorer, and they didn’t help. Because it had a socialist economy, they were actually a burden. It had populations along rivers, but that didn’t help because it had a socialist economy. It had huge natural resources, but they were useless under a socialist economy.

      And the built up supply chain is a result of the increased economic freedom. They didn’t have that under a socialist economy.

      As for corporations, remember that THEY are part of socialism, by definition. A corporation is a state-mandated form of organization, created under very limiting laws and given special, quasi-governmental powers and benefits prohibited from other businesses. OF COURSE they end up being evil. Government coercion always causes harm.

      Comment by kazvorpal | January 12, 2016 | Reply

  5. 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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