Unless you’ve been living under a rock for the last 20 years, you’ve heard about the ongoing crisis in income inequality.
“So-and-so CEO is making a billion times the income of the janitor at his company!!”
Debates rage as to whether capital markets cause widespread inequality, or whether we may need the government to come make things a little more “equal.”
Rather than talk about this or that economic study, I’d like to address some of the common presumptions that inform our conversations around this supposed crisis.
As I hope we’ll see, identifying our common assumptions about income inequality is an important first step in a meaningful conversation about it.
Let’s start, as always, with the terms themselves.
Differences vs. Inequalities
The most basic question of all to ask is why we even refer to this issue as “income inequality?”
We do not speak of height inequalities, or strength inequalities, or health inequalities, or intellectual inequalities, and the reason is quite obvious — because to do so would be patently idiotic.
The word “inequality” carries with it an implication of wrongdoing or injustice. An inequality is something to be undone, punished, or rectified.
Before the conversation has ever begun, many people naturally assume that the disparities in income must be a result of some kind of nefarious evil.
But this is not necessarily so, and the more appropriate term is obvious as well — income differences.
Just as we speak of differences in height, intellect, athletic ability, and so on, we can (and should) speak of differences in income.
That’s the first trouble with talking about “income inequality.”
Economic Ability and The Social Justice Vision
That first assumption is built upon yet a further tacit assumption about the “equality” of economic aptitude.
Is everyone’s economic capability fundamentally equal? When asked directly, most of us would state the obvious — people clearly have different economic capabilities.
Without posing the question out loud, however, many people assume that unlike our intellectual, artistic, or athletic aptitudes, economic abilities are essentially equal between people.
That people differ in their abilities to see and take advantage of economic opportunities should be obvious, just as they differ in their abilities to play music or comprehend Dostoevsky — yet our conversations around income “inequality” are loaded with presumptions that incomes should be fundamentally equal.
Why else talk of “inequalities?”
P.T. Bauer explains in his book1 that this tacit assumption lies at the heart of our conversations on income differences —
“An unfounded belief in the basic equality of people’s economic faculties has coloured the language of the discussion. If people are assumed to be equally endowed and motivated, then wide economic differences suggest that some undefined but malevolent force has perverted the course of events.”
If economic ability is fundamentally equal, then of course differences in income are fundamentally inequalities, and so the social justice vision is born — to make all income substantially or mostly equal.
In a time gone-by, it would have been easy enough to convince anyone that this vision is puerile.
An ironic suggestion that we eliminate grades in school, or allow the tone-deaf to play in concert halls, would have been enough to get anyone to see the fallacy of the social justice vision.
A quick reductio ad absurdum and we’re off to other topics of discussion.
Unfortunately, those are all serious agenda items of the social justice movement now, so we’ll need to think a bit harder on this one.
Why should it be just to punish the most productive members of society, who contribute more to national economic output, to favor those who produce less?
Most “high-income” earners have already sacrificed a higher proportion of leisure and consumption than the average man.
Sacrifices of downtime and entertainment largely contribute to higher incomes, and a society that penalizes such sacrifices will not be prosperous for very long.
The vision of radical progressive “reform” of income differences assumes not only the obvious moral soundness of corrective policy, but that such “corrections” will not change the economic output of the high-income earners.
There is yet a further assumption that makes this reasoning possible.
Distributions and The Economic “Pie”
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