Objections to income inequality are commonplace. We hear these today from across the ideological spectrum, including, for example, from the far-left data-gatherer Thomas Piketty, the far-right provocateur Tucker Carlson, and Pope Leo XIV.
Nothing is easier – and, apparently, few things are as emotionally gratifying – as railing against “the rich.” The principal qualification for issuing, and exulting in, denouncements of income inequality is first-grade arithmetic: One billion dollars is a larger sum of money than is ten thousand dollars, and so subtracting some dollars from the former sum and adding these funds to the latter sum will make incomes more equal. And because income is what people spend to achieve their standard of living, such ‘redistribution’ would also result in people being made more equal. What could be more obvious?
Countless careful researchers have convincingly shown that popular accounts of the magnitude of differences in monetary incomes are vastly overstated. But let’s here grant, for the sake of argument, that differences in monetary incomes within the United States are indeed vast. And then let’s pose some probing questions to proponents of using the state to tax and ‘redistribute’ high incomes.
• Do you teach your children to envy what other children have? Do you encourage your children to form gangs with their playmates to ‘redistribute’ toys away from richer kids on the schoolyard toward kids less rich? If not, why do you suppose that envy and ‘redistribution’ become acceptable when carried out on a large scale by the government?
• Suppose that Jones chooses a career as a poet. Jones treasures the time he spends walking in the woods and strolling city streets in leisurely reflection. His reflections lead him to compose poems critical of capitalist materialism. Working as a poet, Jones earns $40,000 annually. Smith chooses a career as an emergency-room physician. She works an average of 60 hours weekly and seldom takes a vacation. Her annual salary is $400,000. Is this “distribution” of income unfair? Is Smith responsible for Jones’s relatively low salary? Does Smith owe Jones money? If so, how much? And what formula would you use to determine Smith’s debt to Jones? What, in short, is the “fair” amount by which Smith’s income should be lowered in order to raise Jones’s income?
• While Dr. Smith earns more money than poet Jones, poet Jones earns more leisure than Dr. Smith. Do you believe that leisure has value to those who possess it? If so, are you disturbed by the inequality of leisure that separates leisure-rich Jones from leisure-poor Smith? Do you advocate policies to ‘redistribute’ leisure from Jones to Smith – say, by forcing Jones to wash Smith’s dinner dishes or to chauffeur Smith to and from work? If not, why not?
• Nobel-laureate economist William Nordhaus found that entrepreneurial innovators in the US from 1948 through 2001 captured, on average, only 2.2 percent of the total social value of their technological innovations. As Nordhaus put it, nearly 98 percent “of the benefits of technological change are passed on to consumers rather than captured by producers.” Does the fact that market competition obliges entrepreneurs to share the vast bulk of their wealth creation with consumers give you pause in your demands for ‘redistributing’ the wealth that these entrepreneurs manage to retain for themselves?
• Surveys show that Americans in general are not as bothered by income inequality as are academics and media pundits. Are the many Americans who don’t suffer searing envy of others’ monetary incomes stupid, naïve, or uninformed? Do the professors and pundits who agonize incessantly over income inequality know something that most Americans don’t? If so, what?
• You allege that great differences in incomes are psychologically harmful to relatively poor people even if these poor people are, by historical standards, quite wealthy. How, then, do you explain the great demand of very poor immigrants to come to America, where these immigrants are relatively much poorer than they are in their native lands?
• Do you believe that someone to whom government gives, say, $100,000 annually, year in and year out, simply because that person is a citizen of the country, feels as much psychological satisfaction as that person would feel if he learned a trade or a profession at which he earns an annual salary of, say, $80,000?
• Would you prefer to live in a society in which everyone’s annual income is $50,000 or in a society with an average annual income of $75,000 but in which annual incomes range from $30,000 to $3 million, and in which no occupation is obstructed by government-erected barriers to entry? And regardless of the choice you would make, do you believe that others who choose differently from you are in error?
• You often speak of income inequality as being a market failure. Can you identify an economic theory that predicts that every well-functioning market economy generates incomes that are equal or close to equal? I’m an economist and have never encountered such a theory, so I’d be delighted if you expand my intellectual horizons.
• You also warn that large differences in incomes make society unstable – or, as Paul Krugman insists, jeopardizes “the whole nature of our society.” Can you point to historical evidence in support of this claim? But remember: To be valid, the evidence must be from market economies in which the great majority of people – rich and not rich – earn their incomes through voluntary market activities and where the size of the economic pie isn’t fixed.
Evidence of social unrest in pre-industrial and nonmarket societies doesn’t count. Economic arrangements in such societies are fundamentally different than in our own. And unlike in our market economy, the amount of wealth in nonmarket economies is largely fixed. Therefore, in nonmarket economies, more wealth for some people does indeed mean less wealth for other people. Our economy differs categorically: Because the amount of wealth in market economies isn’t fixed, people get rich by creating more wealth rather than by seizing the wealth of others. In market economies, more wealth for rich people means, not less, but more wealth for other people.
• When you describe growing income inequality in the United States, you typically look only at the incomes of the rich before they pay taxes and at the incomes of the poor before they receive noncash transfers from the government such as food stamps, Medicare and Medicaid. You also ignore noncash transfers that the poor receive from private charities. Why? If you’re trying to determine whether or not more income ‘redistribution’ is warranted, doesn’t it make more sense to look at income differences after the rich have paid their taxes and after the poor have received all of their benefits from government and private sources?
• Have you considered that greater income inequality might result from demographic changes that reflect neither weakness nor injustice in the economy, nor any increasing differences in economic well-being? For example, do you account for the fact that retirees rely heavily on consuming their capital – for instance, by selling their expensive large homes, moving into less-expensive smaller homes, and using the differences in sales proceeds to fund some of their living expenses? People’s annual incomes are typically lower when they are retired than when they were working, but their wealth – their ability to maintain their standard of living – isn’t necessarily lower.
• Do you not worry that creating government power today to take from Smith and give to Jones – simply because Smith has more material wealth than Jones – might eventually be abused so that tomorrow the government takes from Jones and gives to Smith simply because Smith has more political influence than Jones?
• Do you disagree with Thomas Sowell when he writes that “when politicians say ‘spread the wealth,’ translate that as ‘concentrate the power,’ because that is the only way they can spread the wealth. And once they get the power concentrated, they can do anything else they want to, as people have discovered – often to their horror – in countries around the world.” Asked differently, if you worry that abuses of power are encouraged by concentrations of income, shouldn’t you worry even more that abuses of power are encouraged by concentrations of power?
