The Objective Standard Blog

Wednesday, July 25, 2007

Celebrating Income Inequality by Alex Epstein

Posted by ARI Media at 5:11 pm

Democrat and Republican candidates for President are debating one another on nearly every issue—but nearly all are united on one thing: America faces a crisis of "income inequality." The rich are getting richer, the refrain goes, while the poor and middle class are held back by stagnating wages, lousy schools, and growing healthcare costs. The solution, we are told, is more government intervention: spend more on education, provide "universal healthcare," and force employers to raise wages through minimum-wage increases and union protection legislation.

But all of this outcry is based on a false premise—that income inequality is bad. While some of the problems critics point to are legitimate concerns, income inequality is not. Income inequality is a natural and desirable part of a free, prosperous society.

Criticisms of income inequality are always couched in a certain type of language. For example, it is claimed that wealthier Americans "command" an "unfair share" of our "national wealth." Such language implies that American wealth is a communal pie that belongs equally to all of us.

But it is no such thing.

The vast wealth that exists in America has been created—through the productive activities and voluntary arrangements of individuals. And individuals do not necessarily create the same amount of wealth. Compare the value brought into existence by the entrepreneur whose productivity software is eagerly bought by millions—and the checkout clerk at a store that sells it. Such vast differences in productivity—which can be caused by vast differences in ability, work ethic, interests, skills, and choices—are the root of vast differences in income.

Because all wealth is created, it rightly belongs to those who earn it (or their chosen beneficiaries)—and no one can rightly claim to deserve wealth earned by others. If someone wants to make more money, he is free to enter a new field, gain new knowledge, start a business, or do anything else to enable himself to create more value.

It is often implied that the rich get richer at the expense of everyone else—that if some get big slices of pie, the rest get only crumbs. But the exact opposite is true. Since wealth (including pie) is created, there is no limit to how much can exist—and the wealth of others cannot inhibit us from creating and enjoying our own. Further, the wealth creation of the richest Americans makes us far more productive and well-off.

Consider how the wealthiest individuals in any free economy, businessmen, make their money. The job of a businessman is to orchestrate productive enterprises that efficiently coordinate people, resources, and tools to create valuable products. Businessmen profit when they bring out valuable products at desirable prices; thus, they are continually making more, better, and cheaper products for everyone to purchase. Businessmen profit when they make others more productive; thus, they are continually seeking to create new jobs that can add to their bottom line, and providing their workers with as many productivity-enhancing tools and technologies as they can. Businessmen’s pursuit of profit has been the driving force behind the incalculable increase in our standard of living over the last 150 years—and economic history shows that the freer they are left to make money, the greater the increase in productivity and wages at all levels.

What then explains the poor educational opportunities, growing healthcare costs, and stagnating wages that are real problems for many Americans?

Government policies based on the same egalitarian mentality that denounces "income inequality." In the name of giving citizens "equal access" to education and medicine, the government has virtually taken over these fields, placing crippling controls on both producers and consumers. In the name of equalizing income, it enforces minimum-wage and anti-firing laws that make it difficult for eager newcomers to enter the job market. In the name of saving us from the alleged evils of rich, Big Business, it enforces endless regulations that apply to every business, decreasing the productivity of all and making it hard for new business ventures to succeed.

In America, equality should mean only one thing: freedom for all. If business and wages were deregulated, we would see a dramatic rise in economic opportunity. If education and medicine were left free, with America’s businessmen, doctors, and educators liberated to offer education and medicine at all different price points, we would see quality and price improvements like those for computers or flat-panel television sets. But these benefits of freedom require that we recognize the moral right of each individual to enjoy whatever he produces—and recognize that none of us has a right to something for nothing.

Alex Epstein is a junior fellow at the Ayn Rand Institute in Irvine, CA. The Institute promotes Objectivism, the philosophy of Ayn Rand—author of "Atlas Shrugged" and "The Fountainhead."

Posted in: Business and Economics, Individual Rights and Law