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Walter E. Williams
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Income Inequality

Comment

Democrats plan to demagogue income inequality and the wealth gap for political gain in this year's elections. Most of what's said about income inequality is stupid or, at best, ill-informed. Much to their disgrace, economists focusing on measures of income inequality bring little light to the issue. Let's look at it.

Income is a result of something. As such, results alone cannot establish whether there is fairness or justice. Take a simple example to make the point. Suppose Tom, Dick and Harry play a weekly game of poker. The result is: Tom wins 75 percent of the time. Dick and Harry, respectively, win 15 percent and 10 percent of the time. Knowing only the game's result permits us to say absolutely nothing as to whether there has been poker fairness or justice. Tom's disproportionate winnings are consistent with his being either an astute player or a clever cheater.

To determine whether there has been poker justice, the game's process must be examined. Process questions we might ask are: Were Hoyle's rules obeyed; were the cards unmarked; were the cards dealt from the top of the deck; and did the players play voluntarily? If these questions yield affirmative answers, there was poker fairness and justice, regardless of the game's result, even with Tom's winning 75 percent of the time.

Similarly, income is a result of something. In a free society, for the most part, income is a result of one's capacity to serve his fellow man and the value his fellow man places on that service. Say I mow your lawn and you pay me $50. That $50 might be seen as a certificate of performance. Why? It serves as evidence that I served my fellow man and enables me to make a claim on what he produces when I visit the grocer. Google founders Sergey Brin and Larry Page are multibillionaires. Just as in the case of my serving my fellow man by mowing his lawn, they served their fellow man. The difference is they served many more of their fellow men and did so far more effectively than I and hence have received many more "certificates of performance," which enables them to make greater claims on what their fellow man produces, such as big houses, cars and jets.

Brin and Page and people like them created wealth by producing services that improve the lives of millions upon millions of people all around the globe.

Should people who have improved our lives be held up to ridicule and scorn because they have higher income than most of us? Should Congress confiscate part of their wealth in the name of fairness and income redistribution?

Except in many instances when government rigs the game with crony capitalism, income is mostly a result of one's productivity and the value that people place on that productivity. Far more important than income inequality is productivity inequality. That suggests that if there's anything to be done about income inequality, we should focus on how to give people greater capacity to serve their fellow man, namely raise their productivity.

To accomplish that goal, let's look at a few things that we shouldn't do. Becoming a taxicab owner-operator lies within the grasp of many, but in New York City, one must be able to get a license (medallion), which costs $700,000. There are hundreds of examples of government restrictions that reduce opportunity. What about the grossly fraudulent education received by so many minority youngsters? And then we handicap them further with laws that mandate that businesses pay them wages that exceed their productivity, which denies them on-the-job training.

Think back to my poker example. If one is concerned about the game's result, which is more just, taking some of Tom's winnings and redistributing them to Dick and Harry or teaching Dick and Harry how to play better? If left to politicians, they'd prefer redistribution. That way, they could get their hands on some of Tom's winnings. That's far more rewarding to them than raising Dick's and Harry's productivity.

Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

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Comments

8 Comments | Post Comment
Walter explains this stuff with such ease and simplicity that anyone can understand it. Yet there are so many myths out there that need to be set straight. I wish our conservative politicians would stand up for the free market and get this message out into the open.
Comment: #1
Posted by: Chris McCoy
Mon Jan 13, 2014 11:27 AM
Your poker example would be better if you included that Tom is able to use his winnings to influence the poker rules committee to rewrite the game rules to a special version called "Tom's rules" whose function is to make sure that Tom is happy with the rules. For example, why does tax law allow Hedge Fund managers to pay capital gains tax rates on their income but charges the higher income tax rate for their secretaries? How about the reverse of productivity? In the crash of 2008, wall street greed nearly destroyed the economy and led to finical ruin for many ordinary Americans. After years of private profit, did the wall streeters return the money to cover the losses? No they had privatized the profit, just not the risk. This huge gush of reverse productivity did not force them to give up a dime of assets.
.
Is it really true that the top few percent are becoming every more productive and every body else is becoming less so? Funny, the productivity numbers for the output of the American worker keeps increasing, just not the wages.
.
Increasing access to higher education might be one way to increase productivity.
Comment: #2
Posted by: Mark
Mon Jan 13, 2014 10:28 PM
What you describe is crony capitalism, and Walter derides it as much as the next smart economist. Changing the rules is just as much a failure of government as it is businesses. If we had a Constitutional government, cronyism woulden't be possible at all. And if it wasen't for the Fed, inflation woulden't be a problem and we woulden't need wage increases. So both these are failures of big government.
Comment: #3
Posted by: Chris McCoy
Wed Jan 15, 2014 4:49 AM
Chris,
As long as we have unlimited money flowing into elections from the wealthy, politicians are going to do whatever it takes to make them happy. Those who fail to make them happy are going to find getting re-elected a challenge. A constitutional amendment correcting the court's insane ruling in citizens united is vital to our future.
.
Low inflation is a good thing. If you slip below zero inflation, you get a feedback loop as consumers put off buying stuff because prices are falling, causing prices to fall faster. Good being relative, of course. If you are a minimum wage worker and the minimum wage never goes up, your buying power is falling.
.
I noticed NPR's reporting today of shrinking pay/benefit packages for Boeing machinists. These guys are highly productive, if Boeing's current profits are any indication, and yet the management demanded benefit cuts. It seems that productivity of the workers isn't so important as more money for the company. Funny, there was nothing about the CEO taking a cut to help the company's bottom line.
Mark
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PS Did you catch the story about the confrontation over texting in a movie theater escalating quickly through throwing popcorn throwing to homicide? The shooter was a 71 yr old retired police office carrying a permitted concealed handgun. While a single case does not prove anything, it is noteworthy in that this guy, at least from initial reporting, was about as qualified to safely carry a gun as one could reasonably hope for in an armed citizen. I can't help but think this story would have ended without destroying five lives had there been no gun present.
Comment: #4
Posted by: Mark
Thu Jan 16, 2014 12:17 AM
Yeah Mark,I did hear about that case and yes, one case proves nothing. The cases you don't hear about are when people use their guns to ward off attackers. You don't hear about those cause nothing newsworthy happened.
So you admit that money flowing into elections corrupts the system and that these guys can't be trusted to act in the public interest. Most people, me included, would agree with you. So why on Earth would you want to give corrupt people more and more power over our lives. I think their power should be reduced. Politicians should not be rewarded for corruption and incompetance, yet thats what we do every time we re-elect them or allow them to increase the budget. Because money is power.
Comment: #5
Posted by: Chris McCoy
Thu Jan 16, 2014 5:00 AM
Chris,
Somebody has to mind the store. I like a lot of things government does. The point of removing the money is to leave the politicians less beholden to special interests and more interested in the voters needs. If you just gut government, you may get less corruption, but having nice roads, clean air and water, police and fire services, and the security of a (reasonable sized) military are good things that I would miss.
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And of course hypothetical gun ward-offs prove nothing either. If a retired police officer can screw up with a gun like that, would you really want lots of people who have no such expertise packing in our schools, for example? This guys whole life and professional training had been about having confrontations while carrying a gun and keeping things under control and he ended up murdering a man over texting and popcorn throwing. Would he have backed down from the confrontation absent the gun to give him confidence? Very sad.
Comment: #6
Posted by: Mark
Thu Jan 16, 2014 10:59 PM
You don't think that there are people out there that stop crime by having guns? Wow, then this is getting us nowhere. You shouden't have brought it up. Roads, courts, police. Thats all done by state and local government and its a huge boon to this country. Federal government however is less needed. Our military is WAY too big and in charge of being the world police. Almost every federal program is corrupt or bankrupt. Social security and medicare are broke. FBI, NSA, TSA are all corrupt. War on drugs and war on poverty are lost causes. The fed protects banks and the rich. Face it, the federal government does a terrible job at just about everything.
Comment: #7
Posted by: Chris McCoy
Fri Jan 17, 2014 8:24 PM
I greatly admire Professor Williams. However, in this article he says income "is a result of one's capacity to serve his fellow man." NO, Professor Williams, income is the result of one's achievements, one's integrity to a purpose, one's productivity.
Income is NOT justified by the completely erroneous and immoral Marxist concept of "Altruist Service (i.e., Self-sacrifice) to Others" which is the moral core of Communism. Professor Williams, you CANNOT save individual rights-based Capitalism by selling the moral fundamentals of Communism.
Comment: #8
Posted by: Paul Saunders
Tue Jan 28, 2014 7:02 AM
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