Income Inequality

I'm not sure who gets credit for this observation (Alex de Tocqueville, perhaps) but it's certainly true:

You can have freedom or equality, but not both.

If people are free to make meaningful choices and pursue their individual interests, they will end up in different places. Some will be happier than others, some healthier, some better educated, and some wealthier. Goals and the ability to reach goals will vary widely from person to person.

Differences in outcome are the inevitable consequence of freedom. Only by limiting freedom can outcomes be equalized.

Of course, some differences in outcome are the result of illegal or immoral activities. Any just society must establish and enforce a system of rules and boundaries. These rules and boundaries are themselves a limit on freedom, but I suspect that most people will agree that there needs to be some framework of what constitutes acceptable behavior.

This lays the foundation for addressing the main topic of this essay: income inequality.

"The rich get richer and the poor get poorer" - this refrain is heard quite often, especially during election years. As it forms the philosophical basis for many political policies, it's worth examining the statement and its implications.

Implicit in this statement is an element of class warfare - that the wealthy are in some way exploiting the less fortunate. It's assumed that the current degree of income inequality is unfair and is the result of some manipulation of the system which benefits the few at the expense of the many.

While such manipulation certainly exists and is manifestly wrong, it is by no means the only factor that results in income inequality. In the context of discussion about income inequality, anger directed at a small number of high profile abuses such as Enron results in simplistic caricatures of the wealthy as criminals who have no right to the wealth that they've accumulated.

This diverts attention from other factors which are more important to understand if we are to contemplate public policy. Perhaps most important, most people who are wealthy (80% of millionaires, in a recent study) earned that wealth themselves by starting a successful business or acquiring the education and skills to be a successful professional. They are frugal - they don't drive expensive cars or live in mansions. They save their money and invest in their businesses.

In this case, wealth is the result of behaviors which benefit society. If more people chose to follow this path, we as a society would be better off. It is a good thing to reward people who make sacrifices, take risks, and provide valuable goods and services.

A second factor overlaps the first somewhat. The value of a college education has increased as our economy has created more high-paying jobs that require specialized skills and knowledge. This is not necessarily a bad trend - these jobs produce more value to society for each hour worked.

If we try to reduce these to a slogan, it just doesn't have the same rabble-rousing appeal: "The hard working and well educated get richer and the less motivated get poorer"

There are paths to wealth which do not benefit society. Wealth can obtained through inheritance, crime, luck, influence, 'connections', bribery or other malfeasance. Such wealth confers benefits and power upon the recipient without a corresponding value to society, and it's reasonable to debate whether there are policy changes that would reduce these occurrences without diminishing the incentives to do things which are beneficial.

Income inequality is desirable to the extent that it reflects the difference in the value of contributions to society.